Intel Says IRS Inspecting Old Returns

Intel Corp. disclosed that its 2001 and 2002 tax returns are being examined by the Internal Revenue Service, which disputes how the computer chip maker handles tax issues associated with export sales.

In an annual filing with the Securities and Exchange Commission (SEC), Intel revealed that the IRS started looking at its old returns in January. The IRS has disagreed with Intel, and other Silicon Valley companies, over export issues and how revenue is transferred between U.S. and international operations, the Wall Street Journal reported.

Chuck Mulloy, an Intel spokesman, said the company doesn't expect adverse impact to its finances. "We get audited for every tax year," he said.

The IRS last August proposed adjustments to tax benefits for export sales that the company claimed on tax returns for 1999 and 2000. The company disagrees, and said that if the IRS has its way, Intel’s tax liability would increase by about $600 million plus interest for those years.

The company also said, in a separate matter, that its earnings for 2003 would have been lowered by $991 million if it had used a fair-value method for accounting for employee stock options. The company reported earnings of $5.64 billion, or 85 cents a share, but the fair-value method would have meant earnings of $4.65 billion, or 71 cents a share.

Companies must disclose what the result would be on the bottom line if they had booked options as an expense. Intel has opposed expensing stock options, saying that options are a good compensation tool for start-up companies and help the economy.

Intel Chief Executive Craig Barrett said at a House hearing last year, "Without the ability to offer stock options, many industry leaders—including Intel—would never have gotten off the ground."

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