As with many business issues, accounting practices can muddy the water. Corporations typically count deferred taxes as part of their debt to the Internal Revenue Service when publicizing the tax they pay. Those future liabilities are often the result of rules that allow depreciating assets to be deducted much more quickly than the assets are being used up. But the deferred tax may not be paid if a firm keeps building deductions through new capital spending. Groups such as CTJ don't count deferred obligations when tallying current taxes paid.

One result of aggressive tax avoidance is an increasing gap between the profit that firms report to shareholders (which often affects their stock price) and the amount they tell the IRS. Shareholder profits, for example, are not always reduced to reflect the full amount of deductions and bookkeeping tricks that companies can use to reduce their profits before figuring their tax. So while a lot of attention is focused on reports to shareholders that may give too rosy a view of a company's finances, the IRS may be getting too bleak a view. Bonus depreciation write-offs in this year's economic stimulus act will add to the gap, notes economist David Wyss of Standard & Poor's. Overall, income at large firms could be roughly 50 percent higher than the amount reported to the IRS, estimates Harvard Business School Prof. Mihir Desai. That would be up from about 20 percent about five years ago. "Firms have apparently been finding more-sophisticated opportunities to avoid or evade corporate taxes," Desai says.

Bermuda-bound. But as the current flap over corporate moves to offshore tax havens like Bermuda shows, it's not always smooth sailing. In this sleight-of-hand tactic, a U.S. corporation sets up a firm in a foreign tax haven. It then turns the U.S. operation into a subsidiary of the foreign company. The payoff is a reduction in U.S. income tax. Connecticut-based tool and hardware maker Stanley Works estimated it could save $30 million a year by reincorporating in tax-free Bermuda, a plan it canceled after mounting public and congressional criticism. Such offshore headquarters "make a sucker out of working Americans and companies that stay in the United States and pay their fair share of taxes," says Republican Sen. Charles Grassley of Iowa. "The headquarters may be little more than a filing cabinet and a mailbox."

Corporate perfidy, meanwhile, may be souring the atmosphere for legitimate reform. The saintly rationale for moving offshore is to escape or reduce U.S. tax on foreign sales and to compete better against overseas companies that may get better tax breaks on their exports and foreign income. But the sucker punch is that a firm may also arrange spurious tax-deductible loans through the foreign affiliate and thus cut tax on its U.S. operations. University of Michigan law Prof. Reuven Avi-Yonah suggests calling the boardroom bluff. "From where is the corporation managed and controlled?" he asks, noting it would be rare for executives to actually relocate to a tax haven.

Crackdowns by Congress on a range of corporate tax behavior may be coming. Proposed rules would require firms to more fully disclose the inner workings of their tax returns, and the IRS, once berated as too tough, is winning lawmaker support for an assault on flaky tax shelters. A ban on federal contracts to firms moving abroad is pending, and Congress is debating tougher restraints. The IRS, meanwhile, has begun an attack on both corporate and investor tax shelters using existing powers. New York tax attorney Marc Teitelbaum warns that strategies such as paper relocations offshore could be ruled invalid if they lack a business purpose other than to avoid tax.

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