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UPS told to deliver taxes
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August 11, 1999: 8:09 a.m. ET
Court says parcel delivery firm owes back taxes, penalties for Bermuda unit
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NEW YORK (CNNfn) - United Parcel Service faces a tax bill of more than $200 million, according to media reports.
The disclosure comes in the wake of a U.S. Tax Court opinion requiring the company to pay taxes, penalties and interest on $67 million of revenue from 1983 and 1984. That revenue originally was attributed to a Bermuda-based subsidiary it created.
UPS, the world's largest package delivery service, may have to pay as much as $300 million in back taxes, according to the New York Times, which said Wednesday the company's ultimate tax liability may be even greater. That potentially could make it one of the biggest corporate tax cases in history, since the ruling covers only the first year of a long-time business practice.
UPS is closely held but currently has plans to raise about $3 billion by offering 10 percent of its stock to the public.
The opinion, announced by UPS late Tuesday, followed a previously issued notice of deficiency that UPS received from the U.S. Internal Revenue Service in 1995.
The court held that UPS is liable for income tax on Overseas Partners Ltd., a Bermuda company it created in 1984 that reinsures excess-value package insurance purchased by UPS customers.
The case centered on deductions UPS took for costs related to insuring packages worth more than $100 against damage or loss. The IRS claimed UPS charged customers three times the cost of insurance in order to funnel money to the Bermuda insurer, the Times reported.
The judge ruled that UPS did so for the sole purpose of reducing UPS' income taxes, the paper said.
UPS has maintained the Bermuda company, which isn't required to pay U.S. income taxes, operates completely independently of its former parent, according to the Wall Street Journal.
UPS said it believes there are grounds for appeal and is analyzing its possible responses.
"We would not have done anything that we thought was wrong." UPS spokesman Ken Sternad told the Journal.
UPS could be hit for up to $1B
The IRS has issued additional notices of deficiency covering the years 1985 through 1990, which assert liability for additional taxes based on the same theories as those considered in the Tax Court opinion, UPS said.
Based on the company's previous disclosure that it could owe $259 million in taxes alone for the years 1985 through 1990, the New York Times estimated UPS' total tax bill could surpass $1 billion. 
-- from staff and wire reports
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