Black & Decker Prevails in Tax-Shelter Suit | AccountingWEB

Black & Decker Prevails in Tax-Shelter Suit

The Internal Revenue Service owes Black & Decker Corp. a $57 million tax refund because a tax shelter the company used had a valid business purpose, a federal judge ruled last week.

"The court may not ignore a transaction that has economic


Click Here

substance, even if the motive for the transaction is to avoid taxes,” wrote U.S. District Judge William D. Quarles Jr., the Washington Post reported.

Black & Decker, based in Towson, Md., had used a strategy called accelerating contingent liability, which allowed the company to immediately deduct costs that would normally be deductible over a number of years.

The IRS has listed the strategy as an abusive tax shelter, which was promoted by Deloitte & Touche LLP. What Black & Decker did was create Black & Decker Healthcare Management Inc. in 1998, the same year it generated a large capital gain after selling several business units. The company transferred $561 million in cash and $560 million in potential employee health care claims to the new healthcare company. In exchange, it received company stock, the Post reported.

Although Black & Decker sold the stock for $1 million, it reported to the IRS that the stock cost $561 million and that it should receive a refund based on a loss of $560 million. The IRS refused; the company sued.

"We are disappointed in the court's decision. We believe our position in this case is supported by the facts and the relevant law. The department is considering its options,” Eileen J. O'Connor, assistant attorney general for the Justice Department's Tax Division, said in a prepared statement. The department may appeal. The court granted the company's motion for summary judgment, disagreeing with the Justice Department's contention that the case should be decided at trial.

The Post reported that soon after transferring the $561 to the healthcare company, Black & Decker received a loan from the new company for the same amount, the IRS said. The loan required Black & Decker to make payments to the healthcare company that equal the cost of health care claims.

However, the judge said the transaction "cannot be disregarded as a sham,” because it “had very real economic implications for every beneficiary of [Black & Decker's] employee benefits program as well as for the parties to the transaction."

Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked

Editor's Choice

WHAT KIND OF FIRM ARE YOU?
As part of our continued effort to provide valuable resources and insight to our subscribers, we're conducting this brief survey to learn more about your personal experiences in the accounting profession. We will be giving away five $50 Amazon gift cards, and a $250 Amazon gift card to one lucky participant.
This is strictly for internal use and data will not be sold
or shared with any third parties.