This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

AT&T, Verizon Face Tax Windfall Lapsing

NEW YORK (TheStreet) -- As telecom giants AT&T (T) and Verizon (VZ) finish multi-billion dollar network upgrades in the fight for new Apple (AAPL) iPhone and Google (GOOG)-Android subscribers, they've quietly seen a giant income tax windfall.

Now, Craig Moffet of Bernstein Research, the telecom sector's most consistently bearish analyst, says the tax windfall that stemmed from stimulus incentives in the wake of the financial crisis may reverse in coming years, hiting the cash coffers at AT&T and Verizon.

In a Monday note to clients, Moffett calculates that because of the federal government's stimulus program and an accelerated depreciation taxing policy that allowed companies to defer cash taxes using capital investments, telecom giants may soon see the subsidy reverse in coming years.

Over the past four years, AT&T has reported income taxes of $29.3 billion, paying a tax rate that averages 35%, while Verizon has reported tax expense of $11.4 billion, in the same period according to Moffett's calculations. As a percentage of profits, those rates seem nothing out of the order.

However, Moffett calculates, AT&T has paid just $13.3 billion in income taxes out of its cash coffers, while Verizon's paid just $1.3 billion, adjusted for Vodafone's (VOD) minority stake in Verizon Wireless, as a result of accelerated depreciation policies enacted with the Obama administration's post-crisis stimulus plan.

In actual cash taxes paid to the federal government, Moffett calculates AT&T's rate fell as low as 0% in 2011, as a percentage of pre-tax income less special items. Meanwhile, Verizon's actual income tax paid in 2011 was just 6%, and in the two years prior, Moffett calculates the company paid nothing at all.

"Both have been efficient at taking advantage of bonus depreciation benefits under the Federal Stimulus plan to minimize cash taxes. Both also take advantage of a bevy of other tax subsidies and benefits," writes Moffett, in the note to clients.

The analyst cites a report from the Citizens for Tax Justice and the Institute on Taxation and Economic Policy that ranked AT&T and Verizon second and third in their use of tax subsidies between 2008 and 2010. While AT&T saw a subsidy of $14.5 billion over those years and Verizon saw $12.3 billion in tax aid, only Wells Fargo (WFC), the nation's largest mortgage underwriter saw a bigger benefit.

Verizon's tax subsidy, the report says, was nearly 50% larger than General Electric (GE) and IBM (IBM), the fourth and fifth biggest users of federal tax.

Unfortunately for AT&T, Verizon, Wells Fargo and the like, the government wasn't offering a full tax break. In fact, while the government allowed companies to count large capital investments against their end of year bill payable to the taxman in the wake of the crisis, the stimulus program's biggest tax recipients may spend coming years making up the difference.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,112.29 +5.59 0.03%
S&P 500 2,001.33 +1.31 0.07%
NASDAQ 4,572.5980 +1.9610 0.04%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs