Nortel Networks Escapes $523 Million Tax Bill in U.S. Tax Court
By Ryan J. Donmoyer
Washington, May 7 (Bloomberg) -- Nortel Networks Corp., the biggest maker of fiber-optic equipment, doesn't have to pay a $523.3 million U.S. tax bill from the 1980s for leasing phone systems to corporate customers through a subsidiary, the U.S. Tax Court ruled.
The decision by Chief Judge Mary Ann Cohen is a victory for the Brampton, Ontario-based company in a 4-year-old suit against the Internal Revenue Service, without going to trial.
N. Jerold Cohen, a partner at the Atlanta law firm Sutherland, Asbill & Brennan LLP who represented Nortel, said the decision will be a relief to manufacturers and leasing companies that use financial services subsidiaries to lease equipment.
``Had we lost, there would have been a lot of leasing companies and manufacturers that would be very much worried,'' said Jerold Cohen, who isn't related to the judge.
The dispute focused on whether Nortel recognized a gain when its subsidiary acquired the right to purchase phone systems Nortel was building for companies such as SBC Communications Inc., U S West Inc. and lease them to those companies.
The U.S. tax code says gains and losses on such sales are deferred until the property -- in this case the phone systems -- leaves the group. The IRS argued Nortel had to recognize the gain because the financial subsidiary obtained the right to purchase the phone systems from the customer for whom the phone systems were being built.
It was unclear what effect, if any, the decision would have on the company's earnings. Nortel never paid the tax bill, which covers 1981-1986. Had the company lost, it would have owed the U.S. government $523 million, plus interest, Jerold Cohen said.
Nortel has a market value of $51 billion, with net sales of $30.2 billion in 2000. Shares rose 18 cents to $16.03 today. |
