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File this one under: standard operating procedure in corporate America.
Coca-Cola, Whirlpool, Eaton and several other large corporations have all lost significant tax rulings in recent years, opening them up to millions, and in some cases billions, of liability.
According to the WSJ, these companies have excluded the bulk of these costs from their financial reports on the assumption they will be able to overturn the judgments on appeal.
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Despite its dry reputation, accounting is a far more creative profession than most give it credit for.
When it comes to recognizing the outcome of a tax dispute, companies can either book the loss immediately or defer it if they feel it is “more likely than not” they will win on appeal. The following companies are feeling lucky:
Coca-Cola: Last year a U.S. Tax Court ruled Coke shifted too much profit into lower tax jurisdictions to keep dollars away from grabby IRS authorities. The company recently disclosed that a loss on appeal could mean forking over up to $12 billion (more than its total 2020 profit).
Newell: The maker of Krazy Glue and First Alert smoke detectors has chosen to ignore a new IRS regulation that would impose a minimum U.S. tax on low-tax foreign income. If it loses the battle, it would be on the hook for between $180 million to $220 million. For now, it maintains the regulations weren’t validly issued.
Whirlpool: Similarly, Whirlpool was dinged in tax court for income at its Mexican branch that should have been taxed in the U.S. Arguing that it too will be successful on appeal, the company hasn't paid tax on $50 million in additional taxable income.
The Takeaway: Coca-Cola has set aside only a $438 million reserve, or 4% of the total potential $12 billion cost. Buckle up.