According to the IRS, Tyco International Ltd. (Tyco) and some of its former subsidiaries owes the United States government somewhere in the area of $883.3 million in back taxes that have accrued $154 million in penalties. Tyco has let the IRS know that it does not agree with the IRS assessment of Tyco’s tax situation. The tax controversy could take many years to resolve.

Similarly situated businesses in California may be interested to know that the controversy surrounds some deductions and interest that Tyco claimed on its tax returns for tax years 1997 through 2000 in the amount of $2.86 billion. The numbers still in controversy are related to debt transactions within the company during those tax years. The IRS is now saying that those deductions and the interest are not allowed. Tyco says that it has solved other issues already.

Tyco will not be required to make any payments to the IRS until and unless the issues have been resolved. However, if it turns out that the company does owe the IRS a significant amount of money, it could affect Tyco’s bottom line. This is so not only because it would owe the IRS monies for the period in question, but also because the company has continued to take similar deductions in the tax years since.

Often times, when a tax controversy arises, it is based on how both the IRS and the taxpayer have interpreted the tax code. No California company should automatically assume that the IRS is correct in its assessments. The U.S. Tax Court exists to give taxpayers a place to bring their protests. This court has proven time and time again that the IRS is not the final say in whether a company has appropriately interpreted the tax code.

Source: ktvn.com, “IRS disallows $2.86B in deductions taken by Tyco,” July 1, 2013