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Affymax, Inc. (AFFY) Message Board

  • affymaxdad affymaxdad Sep 4, 2013 2:47 PM Flag

    FORBES -- ON FRESENIUS !!!

    FOR THOSE OF YOU WHO DOUBT THE LACK OF INTEGRITY OF F IN THE OMONTYS CASE:

    Fresenius (a medical device company) resolved claims for criminal and civil health care fraud. It paid a criminal fine of $101 million and a civil settlement of $385 million. The company deducted the civil settlement payments on its taxes, which the IRS later disallowed. Suing for a tax refund, Fresenius said there was no penalty. After all, this was a civil settlement.

    The settlement agreement included a stock provision saying that, “Nothing in this Agreement constitutes an agreement by the United States concerning the characterization of the amounts paid hereunder for tax purposes.” Such provisions have become common at the insistence of the government. Yet in the later tax dispute, the government said the only way Fresenius could deduct the payment would be if the settlement agreement expressly allowed it.

    Talk about a Catch-22! Sensibly, the court ruled that an advance agreement on deductibility is not necessary. Of course, whenever the settling parties can agree, they should. Indeed, the Fresenius court noted that a characterization agreed upon by the parties, and/or announced by a judicial officer, may well be determinative for tax purposes.

    Tax language in settlement agreements may not bind the IRS, but it goes a long way to avoiding disputes. No one wants to be involved in a tax dispute. Companies concluding litigation want to pay the money, deduct it, and move on. And since there are always competing considerations in getting through a settlement, the government attitude displayed in Fresenius is chilling.

    As it did in Fresenius, the government may refuse to include tax language in a settlement agreement, yet later claim the only way you can deduct the payment is with express language. You won’t want to go to court to defend a tax deduction, but you may have to. In any case, you should keep supporting correspondence and documents.

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