(Reuters) - Kroger Co said Thursday it won a tax battle with the U.S. Internal Revenue Service, which has dropped an effort to collect $567 million in disputed deductions from the grocery giant.
The U.S. Ninth Circuit Court of Appeals earlier this month dismissed the government's claims against Kroger, the Cincinnati-based company disclosed in a securities filing.
The dismissal by a three-judge panel came several weeks following a government move to drop its claims, after pursuing Kroger for nearly a decade, court papers showed.
An IRS spokesman declined to comment. A spokesman for Kroger did not immediately return calls requesting comment.
The Justice Department's tax division had appealed an IRS loss last July of two Kroger-related cases in U.S. Tax Court centered on the tax consequences of a transaction involving two grocery chains later acquired by Kroger.
In a securities filing in August, Kroger said that losing the cases would have required it to make an immediate cash payment of up to $567 million to the IRS.
The dispute between Kroger and the IRS centered on a deal involving two Kroger units: Ralphs Grocery Co. and Fred Meyer Inc. Kroger acquired Fred Meyer, a competitor that owned Ralphs, for $13 billion in 1999.
Prior to being bought by Kroger, Ralphs was owned by the Federated Group of Stores. As part of a Chapter 11 bankruptcy reorganization that involved other Federated units, Ralphs was transferred in 1992 to a group of creditors. In that transaction, the value of Ralphs for tax purposes rose.
Federated had large net losses at the time. As a result, the transfer to creditors generated generous tax deductions, in the form of depreciation, for Ralphs. But over the mid-1990s, the IRS disagreed with the tax consequences of the transfer.
The agency said it was actually a tax-free reorganization that did not allow Ralphs to take the depreciation deductions.
Kroger inherited the IRS dispute through the Fred Meyer acquisition, said Roger Jones of McDermott Will & Emery, the law firm that represented Kroger in the just-dismissed case. He declined to speculate on why the government had dropped its case, saying only that it "spent a long time pursuing it."
Kroger challenged the IRS position in Tax Court in 2006. In 2011, the IRS lost the case and filed an appeal.
The U.S. Ninth Circuit Court of Appeals earlier this month dismissed the government's claims against Kroger, the Cincinnati-based company disclosed in a securities filing.
The dismissal by a three-judge panel came several weeks following a government move to drop its claims, after pursuing Kroger for nearly a decade, court papers showed.
An IRS spokesman declined to comment. A spokesman for Kroger did not immediately return calls requesting comment.
The Justice Department's tax division had appealed an IRS loss last July of two Kroger-related cases in U.S. Tax Court centered on the tax consequences of a transaction involving two grocery chains later acquired by Kroger.
In a securities filing in August, Kroger said that losing the cases would have required it to make an immediate cash payment of up to $567 million to the IRS.
The dispute between Kroger and the IRS centered on a deal involving two Kroger units: Ralphs Grocery Co. and Fred Meyer Inc. Kroger acquired Fred Meyer, a competitor that owned Ralphs, for $13 billion in 1999.
Prior to being bought by Kroger, Ralphs was owned by the Federated Group of Stores. As part of a Chapter 11 bankruptcy reorganization that involved other Federated units, Ralphs was transferred in 1992 to a group of creditors. In that transaction, the value of Ralphs for tax purposes rose.
Federated had large net losses at the time. As a result, the transfer to creditors generated generous tax deductions, in the form of depreciation, for Ralphs. But over the mid-1990s, the IRS disagreed with the tax consequences of the transfer.
The agency said it was actually a tax-free reorganization that did not allow Ralphs to take the depreciation deductions.
Kroger inherited the IRS dispute through the Fred Meyer acquisition, said Roger Jones of McDermott Will & Emery, the law firm that represented Kroger in the just-dismissed case. He declined to speculate on why the government had dropped its case, saying only that it "spent a long time pursuing it."
Kroger challenged the IRS position in Tax Court in 2006. In 2011, the IRS lost the case and filed an appeal.
Grocery giant Kroger wins $567 million tax fight
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Grocery giant Kroger wins $567 million tax fight
