IBM Corp. saved about $1.6 billion last month by using a corporate tax loophole that has since been closed, The Wall Street Journal reported in its online edition Wednesday.
IBM said it had structured a $12.5 billion stock repurchase to take advantage of funds it earned overseas without making them subject to U.S. corporate tax rates. IBM saved about $1.6 billion in the move, The Journal reported, citing a source familiar with the transaction.
Neither IBM nor the Internal Revenue Service was immediately available to comment to The Journal.
The IRS announced plans to issue regulations making companies pay U.S. taxes when they buy back their stock May 31, two days after IBM's transaction, The Journal reported. Its new regulations would treat funds used for buybacks as repatriated earnings
On May 31, the IRS issued a notice declaring that the technique could not be used to eliminate taxes. The notice said it would disallow any transactions beginning on that day, The New York Times reported. The technique "raises significant policy concerns,"Â the IRS said.
The IRS shut down a simpler version of the same shelter in September, The Times reported.
The tax shelter is known as "Killer B,"Â after the letter used to designate a provision in the tax code governing certain corporate reorganizations, The Times reported. By avoiding the 35 percent federal tax on profit, a company can buy three shares for every two it would be able to acquire with profits that had been taxed, The Times reported.
The notice effectively kills any further use of the device, said H. David Rosenbloom, an international tax lawyer at Caplin & Drysdale and director of the international tax program at New York University Law School, because independent auditors will not issue an unqualified opinion on the books of any company that tries to use the technique, The Times reported.-New York State Society of Certified Public Accountants
Comment and add to the story without registration, but keep the comments meaningful please. Links are not accepted.
