Warren Buffett Takes On the IRS

Warren Buffett, the colorful chairman and CFO of investment firm Berkshire Hathaway, Inc., has filed a lawsuit against the Internal Revenue Service claiming the agency incorrectly denied his company deductions of $16.3 million.

The IRS has rebuked the claim, stating that Berkshire Hathaway used at least part of the funds to make investments in other companies, and that the tax code reduces deductions for amounts used to invest in dividend-producing resources.

In the lawsuit, Berkshire Hathaway claims that, by disallowing the deductions, the IRS made an "erroneous, wrongful, and illegal" interpretation of the tax code. The company stated that it keeps a large supply of cash on hand, drawn from many sources including but not limited to loans, and that money is used, among other things, for investments and acquisitions. Berkshire Hathaway contends that the IRS cannot attribute the borrowed money directly to the purchase of stocks. Furthermore, the company claims that its objective in borrowing the money was not just to buy specific stocks but to maintain and enhance its financial strength.

An IRS spokesperson said the U.S. Justice Department will file an answer to the lawsuit.

Berkshire Hathaway is the parent company for GEICO Direct Auto Insurance, Borsheim's Fine Jewelry, Fruit of the Loom, International Dairy Queen, Inc., as well as many other subsidiaries. In response to the Securities and Exchange Commission's recent call for certified financial statements, Mr. Buffett and Vice President and CFO Marc D. Hamburg filed and signed sworn statements attesting to the completeness and veracity of the company financial statements.

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