(AP) Two business deals made by Times Mirror Co. before it was bought by the Tribune Co. may cost Tribune hundreds of millions of dollars in tax liability.
According to Tribune’s annual filing with the Securities and Exchange Commission, called a 10-K, the Internal Revenue Service contends it is owed a total of at least $760 million in back taxes, penalties and fines as a result of the transactions made by the Los Angeles-based publisher in 1998.
Because Tribune inherited Times Mirror’s tax burden when it bought the company for about $8 billion in 2000, the IRS wants Tribune to pay.
(E&P first reported the dispute in November.)
The dispute stems from two business transactions that Times Mirror characterized as tax-free reorganizations, according to the 10-K. Times Mirror “disposed of” two subsidiaries in separate tax-free reorganizations, according to the filing.
The IRS saw the transactions differently, concluding that taxes should have been paid on them, according to the filing.
In the filing, Tribune said the IRS subsequently “issued a notice of proposed adjustment in 2001 to increase 1998 taxable income by an estimated $1.6 billion.”
That taxable income translates to federal and state liability of $600 million plus interest, according to the filing. As of the end of last year, according to the 10-K, the interest on the proposed taxes would be about $160 million. Tribune also said in the filing the IRS had assessed tax penalties.
Times Mirror did set aside $180 million as a tax reserve, according to the filing. But the dispute suggests the IRS does not believe that is nearly enough.
“The company will protest the proposed IRS adjustment and related tax penalties and intends to vigorously defend its position on the matter,” Tribune said in its report.
Tribune spokesman Gary Weitman said the company would not comment beyond what is in the 10-K report because of the pending IRS case. An IRS spokeswoman, citing agency policy, also declined to comment.
Tribune Co. owns the Chicago Tribune, Los Angeles Times, several other newspapers and television stations and more than 50 Web sites.