Partial Loss Refundability: How Are Corporate Tax Losses Used?

Abstract

Using tax return dataforl993-2003, we measure how US corporations use tax losses over time. For firms included in our dataset, we find that: (1) approximately 50-60 percent of tax losses are used over a ten-year window as a carryback refund or loss carryforward deduction; (2) approximately 10-20 percent remain to be used; and (3) approximately 25-30 percent are never used. Moreover, many tax losses are used only after a substantial delay. Hence, we find that certain firms and industries incur a significant penalty from the partial loss refund regime due to the erosion in the real value of their tax loss.