Last week, Hunt received from the IRS a report summarizing adjustments proposed by the IRS arising from its audit of its 1999 and 1998 income tax returns.
“If we are unsuccessful in defending this transaction, we could owe additional taxes and interest. Using computations as of December 31, 2003, we believe that our maximum exposure could be approximately $39 million,” a company statement noted.
The report concludes the first stage of an examination by the IRS that began in October 2002. The only issue raised in the IRS report relates to the tax treatment of a portion of certain sale/leaseback transactions, which were executed at the end of 1999.
“The IRS proposes to disallow the tax benefits associated with the transactions based on their interpretation of existing tax laws and court precedents. We believe the transactions conform with applicable tax law and we intend to vigorously defend against the IRS position using all administrative and legal processes available,” the company said.
The company has 30 days to appeal.
“This (maximum) exposure would result if the IRS succeeded in disallowing 100% of our tax benefits from the transaction. We do not expect to settle this dispute if such a settlement would result in loss of any tax benefits realized. The ultimate amount of tax benefits available to us will be dependent upon the decisions of the various administrators and courts in which these issues are resolved. Additional factors that could affect the tax benefits realized by us include: court decisions concerning the contested issues, any change in or addition to the IRS position on or theories of the contested issues, other issues affecting our case or additional actions taken by the IRS affecting rules or procedures applicable to our case,” the company said.
