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IRS Embattled with Technology Firms Over 2004 Corporate Tax Holiday
Author: Scarinci Hollenbeck, LLC
Date: July 19, 2013
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The Internal Revenue Service is taking a closer examination of corporations’ tax strategies during the 2004 tax holiday, and two technology firms in particular have drawn scrutiny from the federal agency.
In two separate tax law cases, the IRS is battling BMC Software Inc. and Analog Devices, both of which are citing a 2004 corporate tax holiday to dispute new tax bills the agency imposed, Reuters reports. Current tax laws enable U.S. companies that operate internationally to avoid paying taxes on the profits on the funds so long as they remain overseas.
In an effort to boost investment in the U.S. and act as an incentive to large scale and profitable multinationals, the controversial 2004 law paved the way for global corporations to enjoy a reduced tax rate for profits that were earned overseas but brought back to the United States.
Regarding both the BMC and Analog issues, the two technology companies settled pricing transfer disputes with the IRS in 2005, around the same period when BMC repatriated $717.2 million and Analog brought $1 billion back to the U.S, according to Reuters. However, the IRS later levied a tax bill for $12.9 million against BMC and $26 million against Analog, arguing that the settlements increased both companies’ domestic profits, which are taxable, the news source added.
Reuters notes that the cases are thought to be the first legal tests of the tax holiday, and many corporations are watching the outcomes closely. As the IRS plans to scrutinize the tax practices of large corporations more closely in an effort to close the multibillion-dollar tax gap, the case may be of particular interest to those large companies that are currently or have recently faced disputes with the agency over corporate profits.
The IRS refused to comment on either case, noting that it is not at liberty to discuss ongoing cases.
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