The author is a Reuters columnist. The opinions expressed
are his own.
By David Cay Johnston
July 13 Readers, I apologize. The premise of my
debut column for Reuters, on News Corp's taxes, was wrong, 100
percent dead wrong.
Rupert Murdoch's News Corp did not get a $4.8 billion tax
refund for the past four years, as I reported. Instead, it paid
that much in cash for corporate income taxes for the years 2007
through 2010 while earning pre-tax profits of $10.4 billion.
For the first time in my 45-year-old career I am writing a
skinback. That is what journalists call a retraction of the
premise of a piece, as in peeling back your skin and feeling
the pain. I will do all I can to make sure everyone who has
read or heard secondary reports based on my column also learns
the facts and would appreciate the help of readers in that
No excuses. But I will explain how I made such a bonehead
The other facts I reported remain:
* Among the 100 largest companies in the United States,
News Corp has the third largest number of subsidiaries in tax
havens, a Government Accountability Office study found in
* On an accounting basis, which measures taxes incurred but
often not actually paid for years, News Corp had a tax rate of
under 20 percent, little more than half the 35 percent
statutory rate, its disclosures show.
* Murdoch has bought companies with tax losses and fought
to be able to use them, which reduces his company's costs.
* News Corp lawyers and accountants are experts at making
use of tax deferrals, though the company's net tax assets have
shrunken from $5.7 billion in 2007 to $3.3 billion last year as
the benefits were either used or expired.
CHECKING THE RECORDS
Tax is my beat, and I was simply looking for what the
record showed since Mr. Murdoch is much in the news these days.
Some of his British journalists hacked into voicemails, paid
off cops and interfered in a murder investigation. Having a
long career writing not just about tax, but also about
journalistic misconduct, I wondered if there was anything of
interest in News Corp's annual disclosure reports, known as
10-K forms. I examined them back to 2004, the year that it
switched from an Australian to an American company.
What I found was four years of big negative numbers in the
"cash paid for taxes" line in the footnotes to the consolidated
statements of cash flows.
The most common convention is to report tax payments as
positive numbers and to use negative numbers to report net
refunds from government to a company.
Professor Ed Outslay, who teaches graduate accounting at
Michigan State University and is an authority on extracting tax
information from disclosure statements, teaches his students
"normally 'parens' mean a tax benefit, not an expense."
While that is the norm, it is not universal and I knew
that. Some big companies report "cash paid for taxes" with
payments in parentheses and refunds as a positive number. This
reversal makes sense from a company's point of view, though few
companies do it that way.
I saw that over the seven years that News Corp has been a
U.S. company it reported "cash paid for taxes" as positive
numbers in 2004 through 2006 and then as (negative) numbers for
2007 through 2010.
The first suggestion I had erred came in the middle of the
night when a post at taxprofblog (I teach at Syracuse
University College of Law) said I had made an error. I checked
the disclosures and then wrote back that the poster was in
error. Still, the note troubled me and before dawn I was
reviewing every document. As I was rechecking my work, Robert
S. McIntyre of Citizens for Tax Justice, who is respected
across the political spectrum for the care he takes with
numbers, sent me a note saying I had it wrong. News Corp, he
said, was using negative numbers to report outflows, rather
than tax inflows, starting in 2007.
Here is how the same number, in millions of dollars, for
"cash paid for income taxes" for its 2006 fiscal year was
reported in News Corp's 2006 annual disclosure report and then
in the 2007 report:
Add up the negative "cash paid for taxes" number for the
years 2007 through 2010 and you get the negative $4.8 billion
number I reported as tax dollars flowing to News Corp instead
of to governments, as they actually did.
How did I miss the switch in convention for reporting
positive and negative numbers? The company disclosed in its
2007 annual report that it was changing the way it reported
some numbers. Here is the entire disclosure, from Note 2 on
Certain fiscal 2006 and fiscal 2005 amounts
have been reclassified to conform to the
fiscal 2007 presentation.
I do not recall if I read that line, but even if I had I
would not have connected it to the switch from positive to
negative numbers in the "cash paid for taxes" line. In its
profit and loss statement News Corp uses almost all positive
numbers, even for costs. It lists revenues, for example, and
operating expenses as positive numbers even though expenses,
like cash paid for taxes, flow out of the company.
But in the "cash paid for taxes" and some other lines in
the same document, I know now, it follows a different
convention and that it switched conventions four years ago.
Indeed, another journalist pointed out to me that within one of
the tables in its latest disclosure News Corp made inconsistent
use of positive and negative numbers.
Disclosures are complex statements, but they also are
intended to inform investors and regulators, not confuse as can
happen when mixing and matching positive and negative numbers.
Here is a question for the SEC: Should companies be allowed to
use inconsistent conventions on positive and negative numbers
in the same document?
Before even writing my column I called News Corp. Neither
of the News Corp spokespeople so much as coughed when I said my
first column would be about News Corp making $4.8 billion from
the tax system in the previous four years. I also instantly
emailed my spreadsheet, at News Corp's request, though the
company says it did not get it. The company did not get back to
me -- they were, after all, besieged with other calls from
journalists -- and I did not check back again, though I should
SETTING THE RECORD STRAIGHT
As a further check, when I enter numbers in spreadsheets I
use a yellow background to remind me that at least a second
check needs to be done before publication. When I later
examined the spreadsheet against the source document the
numbers matched so I changed the background to white to
indicate to myself that I had double-checked the numbers.
To keep my column as simple as possible I limited the
graphic I roughed out to the four years starting in 2007. When
the 2005, 2006 and 2007 numbers from the 2007 disclosure
statement matched what was in my spreadsheet I clicked to the
white background. I should have checked the earlier years where
what was negative had been reported as positive.
When more than a day after the column was posted, a News
Corp publicist called me, I had already discovered the mistake
and told her it was being withdrawn and a correct column
written. She also helped me tie down some crucial details, like
finding that 2007 disclosure.
I often write tart notes at the Romenesko blog for
journalists, the Columbia Journalism Review, Nieman Reports and
elsewhere about what I consider flawed reporting by others. I
lecture to young reporters around the world on the duty of care
they need to take with facts and teach how to check and cross
check. Until now I have never made a big mistake, but this is a
painful reminder that we all put our pants on one leg at a
time. The measure of character, I say in my posts and lectures,
is whether when an error is found you forthrightly and promptly
So I hope readers will trust that while I made a whopper of
a mistake, it has been corrected forthrightly and promptly.
(Editing by Howard Goller)