Symantec Disputes $1B IRS Back Taxes, Penalties Bill

Symantec is objecting to the US$1 billion in back taxes and penalties the U.S. Internal Revenue Service (IRS) is seeking in relation to the security software vendor’s Veritas business unit. Symantec filed a petition with the U.S. Tax Court at the start of this week, the company publicly announced Thursday.

In its petition filed Monday, Symantec demanded a redetermination of the deficiencies in income tax and penalties requested by the IRS in a notification sent to the vendor dated March 29. The IRS is asking Symantec to pay $757.5 million in tax deficiencies and $303 million in penalties, according to the filing. Symantec formally acquired Veritas in July 2005. The back taxes relate to fiscal 2000 and 2001 and the transfer pricing Veritas put on technologies it licensed to two wholly owned Irish subsidiaries. The IRS alleges that Veritas substantially undervalued the intellectual property.

For its part, Symantec said in a statement issued Thursday: “We do not agree with the IRS position and will work with the courts to seek a definitive resolution.” The vendor added, “We believe we have done everything to cooperate with the IRS to resolve this issue in good faith and we will continue to make efforts to resolve our disputes on an acceptable basis.”

In its filing, Symantec is more outspoken, on several occasions calling the IRS’ estimates for taxes owned “arbitrary, capricious and unreasonable.”

Back in mid-April, Symantec first acknowledged publicly in a regulatory filing that the IRS was seeking back taxes regarding both an audit of its Veritas business and an audit of its own operations. At that time, the bill was estimated at $900 million for Veritas and $100 million for Symantec in connection with its fiscal 2003 and 2004 filings around transfer pricing between the U.S. company and a foreign subsidiary.

Earlier this month, Symantec reached an agreement in principle with the IRS over its 2003 and 2004 audit. The vendor is to settle the back taxes paying out $36 million as opposed to the IRS’s initial assessment of around $100 million.

First announced in December 2004 when it was valued at $13.5 billion, Symantec’s purchase of backup and archiving software vendor Veritas has brought the company plenty of trouble. Criticized at the time by financial analysts and still viewed by many as an unwise, overly ambitious move, Symantec continues to struggle to integrate Veritas into its business.

-China Martens, IDG News Service (Boston Bureau)

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