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.
"If the ability to take accelerated depreciation were to be withdrawn, simple mathematics would suggest cash taxes higher than GAAP taxes, all else being equal; depreciation benefits for cash tax purposes would be far lower than for GAAP taxes, since prior year benefits have already been exhausted," writes Moffett. The analyst doesn't expect 'anything draconian,' were the windfall to reverse because AT&T and Verizon are smart in their management of tax liabilities and may use larger contributions to company pension plans to reduce cash liabilities in coming years. Moffett projects AT&T's cash tax rate will be just 12% in 2013 and will rise to 29% by 2016, while Verizon's rate will be 25% in 2013 and 27% by 2016. For more on how AT&T and Verizon's earnings play into broader economic issues, see why the Apple economy's 'Fiscal Cliff' will be saved by telecom sector checkbooks. See why Dish Network's Earnings Revive DirecTV Deal Talk. Follow @agara2004 -- Written by Antoine Gara in New York