TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, June 28, 2013

Google Sues IRS Over Disallowed $238.6 Million Deduction in AOL Transaction

GoogleBloomberg:  Google Sues IRS for $83.5 Million Tax Refund:

Google ... sued the IRS for an $83.5 million refund, claiming it was improperly denied a deduction for a 2004 stock transaction with AOL.The IRS erred in disallowing a $238.6 million deduction claimed for the difference between the price AOL paid to exercise a warrant for Google stock and the value of the shares, according to the complaint in U.S. Tax Court. [Google v. Commissioner, No. 014061-13 (Filed June 21, 2013)]

“Google’s actual cost for issuing the AOL warrant was $238,667,835, which equaled the spread between the $21,642,985 it received from AOL to exercise the AOL warrant and $260 million in value” of the stock, Google said in the complaint. ...

AOL’s parent, Time Warner Inc., filed a tax court petition on May 6 over the same transaction, challenging an IRS ruling that it owed $4.6 million, according to Bloomberg BNA. The IRS contends that Time Warner owed tax on the difference between what AOL paid for the Google shares, and their fair market value in May 2004. That difference is $234 million, according to the Time Warner complaint cited by BNA.

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