How do most low ETR firms avoid paying taxes?

Evidence suggests a large proportion of profitable U.S. firms have low effective tax rates (i.e., an ETR between 0 and 10%). Despite widespread interest in how avoid paying taxes, we do not know most attain ETRs whether they are primarily benefiting from benign or aggressive positions. Using research design that explicitly examines firms, predict find the majority position: net operating loss carryforwards (NOLs). We also NOLs allow to persistently retain year after year. In contrast, multinationals haven which should more opportunities for planning, lower probability attaining (relative domestic non-tax firms). Collectively, these findings suggest typical firm does incur significant risk. Consistent with this, accrue unrecognized benefits at similar rate as pay statutory experience higher future volatility. Overall, results shed light on profile average provide evidence utilizing rather than planning.