COURT HANDS UPS TAX CASE VICTORY
The U.S. Court of Appeals in Atlanta has reversed a 1999 U.S. Tax Court decision holding that United Parcel Service tried to avoid federal income taxes when it restructured its program for providing extra package insurance to its customers.
The case against UPS was brought to the Tax Court by the Internal Revenue Service which claimed that UPS tried to avoid tax obligations when it set up an independent company to provide excess value coverage.
Known as Overseas Partners Ltd., the company based itself in Bermuda and is now a major re-insurance company.
After creating and spinning off OPL, UPS engaged the National Union Fire Insurance Co. to provide the insurance purchased by UPS shippers.
The IRS argued that UPS created OPL to avoid federal taxes and that UPS was obligated to pay federal taxes on OPL’s income.
UPS disputed the IRS position, arguing it followed all applicable laws and tax regulations in setting up OPL.
The U.S. Court of Appeals agreed with UPS when it ruled that “OPL is an independently taxable entity that is not under UPS’s control.”
The appeals court sent the case back to the U.S. Tax Court, saying that claims by the IRS should be analyzed under provisions of the Tax Code cited by UPS.
Without conceding any liability, UPS paid $1.8 billion into a special account with the IRS, pending the appeals court ruling. The balance will remain in place pending further proceedings on remand to the Tax Court.