U.S.-based multinational corporations move an average of $12 billion in taxable income back into the country each year, tax free, through complex mergers and acquisitions. That's according to new research by Emanuel Zur, assistant professor of accounting and information assurance, at the University of Maryland's Robert H. Smith School of Business and two coauthors.

Corporations' attempts to dodge America's high corporate tax rate of 35 percent have been very much in the news and the subject of extensive academic research. Prior studies examined how companies keep cash abroad, to avoid those taxes. It has been estimated that U.S. companies are holding some $2 trillion in cash, most of it overseas.  "But this is the first time anyone has provided large-scale empirical evidence and put a number on the amount of money entering the U.S.," Zur says. "This is money that should be taxed."

In the study, Zur and his coauthors looked at the behavior of 625 companies from 1990 to 2004, and 2,795 foreign or domestic acquisitions. Over the course of the study, some $184 billion returned to the United States without being taxed. (Studies on this topic often stop at 2004, because that year saw a one-time tax holiday on repatriated income, changing corporate incentives. If anything, tax-free repatriation has increased since then, Zur says.)

The paper confirms earlier research showing that companies that earn money in low-tax nations are likelier than their peer companies to invest that money abroad, in order to keep it there. Stock markets react negatively to those investments, on average, evidence they don't make sense as business moves. But the paper's main contribution is to show that companies facing high repatriation taxes also acquire U.S. companies, through extraordinarily complex maneuvers.

These can have baroque nicknames like "Killer B," "Deadly D," and "Outbound F." In a "Killer B" deal, a profitable foreign subsidiary of a U.S.-based company declines to issue a dividend to the parent company (a taxable event). Instead, the parent company acquires a domestic subsidiary. The foreign entity then purchases stocks from the parent company with cash, and transfers that stock to the U.S. subsidiary, in exchange for the stock of the U.S. subsidiary. The result of this head-spinning process: A tax-free return of profits to the U.S.

Although not illegal, this is an "inappropriately aggressive" practice, Zur suggests. "Congress intended that that money should be taxed," he says. "That is the spirit of the law, and that was the intention of lawmakers." Yet prominent companies including IBM, Johnson & Johnson and Eli Lilly have engaged in such acquisitions.

Once schemes like this become public, the IRS often issues rules banning them, and the Obama administration has been aggressive on this front. "But these companies have so many lawyers working for them that they are always going to be a step ahead," Zur says.

The authors don't offer solutions to the problems they've identified. (President Obama and Congressional Republicans have said that lowering the corporate-tax rate and closing loopholes is a goal they agree on, in principle.) But they've provided fresh data about activities encouraged by current corporate-tax laws that are both economically inefficient and cost the U.S. billions.

"Dodging Repatriation Tax: Evidence from Domestic and Foreign M & A's," a working paper, is by the Smith School's Emanuel Zur, Xiumin Martin, of Washington University, and MaryJane Rabier, of McGill University in Canada.