The feature of the tax code that may have enabled Donald Trump to pay no federal income taxes for years is familiar to some companies that have endured financial rough patches — including one of Atlanta’s most prominent corporate citizens.
Delta Air Lines lost billions of dollars in the mid 2000s and filed for bankruptcy protection. It now makes billions of dollars in profit, but does not pay federal income tax because of “net operating loss carry-forwards.”
The rule allows large business losses to be “carried forward” to offset future profits on tax returns. That’s what Delta did after exiting bankruptcy proceedings.
As reported in a 2011 AJC article, Delta said: "We believe we will not pay any cash federal income taxes during the next several years," according to regulatory filings at the time, when it had $17.1 billion worth of net operating loss carry-forwards. Other big airlines including United and American also use net operating loss carry-forwards.
AJC reporter Russell Grantham explained: “Tax experts say the IRS has long allowed companies to use such tax credits to even the playing field. Otherwise, companies in boom-and-bust industries could end up paying higher taxes than companies that churn out the same total profits over several years, but without losses.”
As of the end of 2015, Delta still had $9.5 billion of net operating loss carry-forwards that don’t expire until 2024, according to its annual financial report.
Delta doesn’t expect to begin paying cash federal income taxes until 2018.
In a written statement Monday, Delta said that the “vast majority” of its net operating loss deductions “are the result of unsustainable financial losses” from 2001 through 2005, which results in the airline’s Chapter 11 bankruptcy filing in 2005.
Delta said its reorganization under bankruptcy protection “saved thousands of solid middle-class jobs and helped return the company to profitability,” adding that it has funded its pensions, invested billions in its business and paid out record-profit sharing to its employees.
The company added in its statement that “we expect to become a cash tax payer in 2018 for the long term.”
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