UPS to Take $1.44 Billion Charge Against Earnings for Tax Liability

United Parcel Service will take a $1.44 billion charge against earnings in the second quarter to cover its potential liability after a judge ruled that the company took improper deductions for insurance expenses to avoid paying income taxes.

The write-off covers the company’s estimated liability from 1984 through 1999 and is seen by industry analysts as a way for the Atlanta-based package carrier to remove a possible impediment to selling stock to the public later this year.

As a result of the move, UPS said it will post an $854 million net loss instead of the previously announced net income of $588 million. The one-time charge does not affect revenue or operating profits, which were $6.56 billion and $1 billion, respectively, in the three-month period that ended June 30.

On Aug. 9, Judge Robert P. Ruwe held UPS liable for taxes on income generated by Overseas Partners Ltd., a Bermuda company that the parcel deliverer established in 1984 to provide reinsurance for excess value insurance purchased by package shippers (8-16, p. 1).

Although the ruling applied only to 1983 and 1984, the government has made similar claims for the tax years of 1985 through 1990, and UPS says it expects the Internal Revenue Service to raise similar questions about tax issues for years from 1990 to 1999.

UPS is evaluating its options, including an appeal of the U.S. Tax Court decision or a negotiated settlement with the IRS.

The company said it has sufficient cash and marketable securities to satisfy the maximum tax obligation and said it would change the way it handles the sale of insurance.

For the full story, see the August 23 print edition of Transport Topics. Subscribe today.