The definition of "charged off" that I put above in quotes is from wikipedia. (I forgot to give the source.)

Nobody is "adding the losses to their tax returns." What is charged off is the loss of an asset. Losing an asset doesn't reduce a company's tax. Companies, like individuals, pay tax on their income, not on their assets. For a company to lose an asset affects their tax same as if someone snuck into your bedroom and stole a ring of yours from on top of your dresser. You wouldn't put that down on your taxes. It has nothing to do with your taxes.

Granted, when the company became your creditor, it was for the purpose of generating income. If you don't pay the debt, then the company fails to make a profit on their relationship with you. So they have less income to pay tax on. Income for a business is the profit that is made, after deducting the expenses the company incurred doing what they do. A non- performing asset, however, is not an "expense," so it doesn't get tallied up under expenses.

Eventually the original lender, or the last collection company that owned the debt, will consider collecting it to be a lost cause. So that entity will take it off their list of assets. That is called "charging off" the debt. This, in no way, reduces the company's tax liability. It reduces the company's net worth.