HP loses tax case over valuing U.S. research credit

Mon Sep 24, 2012 6:29pm EDT
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By Kim Dixon

WASHINGTON (Reuters) - Hewlett-Packard Co on Monday lost a legal bid to expand its benefits from the research tax credit after the U.S. Tax Court ruled the company could not exclude certain types of income when calculating the tax break.

It was unclear from the court documents how much in taxes HP would now owe, but according to the ruling, the amounts under dispute involved tens of millions of dollars.

HP had challenged an Internal Revenue Service ruling on the matter. The IRS had said the computer maker owed taxes in cases where it tried to claim the credit between 1999 and 2003. The IRS had said HP improperly excluded income from dividends, interest, rent and other sources in calculating the credit.

The Tax Court, which hears most corporate tax disputes, disagreed with HP and backed the IRS.

The tax break is one of the most politically popular benefits for corporations in the tax code, supported by Democrats and Republicans.

At the same time, some critics say it benefits rich companies that would likely do the research without it.

The credit was originally based on a percentage of total research spending, but Congress altered it to a formula based, in part, on gross receipts from a set period of time.

By minimizing gross receipts, HP effectively boosted the value of the research credit.   Continued...

A woman walks past the Hewlett Packard logo at its French headquarters in Issy le Moulineaux, western Paris, in this September 16, 2005 file photograph. REUTERS/Charles Platiau/Files