Online retailer Amazon reported that its profits plummeted in the year-end quarter of 2006 despite record holiday-season sales.

Amazon’s net income for its fourth fiscal quarter was 98 million dollars, or 23 cents per share, as compared with 199 million dollars, or 47 cents per share, during the same period in 2005.

Executives said that the loss of a tax benefit resulted in the government taking a bigger chunk of its revenues in 2006.

The Seattle, Washington-based Internet company had also continued spending money on its strategy of diversifying stocks of goods and wooing devotees with free shipping of purchases by members of its subscription Amazon Prime service.

Amazon told analysts in a conference call that effort was paying off and that it was optimistic regarding the company’s future. The earnings results beat forecasts by a penny a share.