October 31, 2009

IRS goes after Nortel

The IRS has made a claim against giant conglomerate Nortel for a whopping $3 billion in back taxes, penalties and interest charges. As it stands, other creditors of Nortel are already seeking more than $10 billion from the company. But if US bankruptcy judge Kevin Gross accepts the IRS' claims as valid, that would leave less for the other creditors to claim from Nortel.

To pay for its debts, Nortel plans to liquidate much of its world-wide assets. If it is successful, it will raise a little more than $5 billion. Without taking into consideration the IRS claim, it would come up to about 50 cents a dollar for Nortel's creditors. However, adding the IRS claim into the mix brings it down to less than 40 cents on the dollar. And in bankruptcy proceedings, debts for taxes always are paid first, hence there might not be any money left for the other creditors among who are US bondholders, suppliers and employees claiming their severance pay.

The IRS claim was highlighted in the website of Epiq Bankruptcy Solutions, the company administering the US portion of the bankruptcy proceedings. The deadline for filing claims is September 30th.

It is the US operations of Nortel, Nortel Networks Inc. that generate the highest revenue whereas their Canadian operations specialize in R&D and generate less revenue. It has been a standard practice of Nortel to shift its money from its richer operations to its less lucrative ones, for example from the US to Canada. Naturally, the US creditors of Nortel will try to prevent such a move. Nortel's Canadian creditors however, will only get about 12 cents on the dollar if the Canadian operations do NOT receive any cash injection from the US operations while US and British creditors can expect about 45 cents for every dollar claimed. The IRS claim would only make matters worse for everyone.

One puzzling point is how come the IRS has such a high tax claim on Nortel when the company has been making losses every year for the last 10 years. Some preliminary examination into this shed some light on the matter.

For instance about 15 million of the claim was for unpaid payroll taxes related to Social Security. However, this does not make up the bulk of the total IRS claim. Official IRS documents also state that Nortel owes nominal amount of corporate taxes stretching back to 1998.

Nortel has thus far not responded to any requests about tax issues.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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