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The IRS Hits Symantec with a $1 Billion Tax Bill
GnoWay writes "Macworld is reporting that the IRS has charged Symantec Corporation with about a 900 million dollar tax bill due to the charge that Symantec and Veritas (purchased by Symantec last year) under-reported the value of intellectual property which they had transferred to their two Irish subsidiaries. Another $100 million is connected to Symantec's 2003 and 2004 reports."
I just had a thought. Do I owe anything?
Luckily, Norton Internet Security filtered out the IRS' notice before anyone at Symantec could read it. I won't tell if you won't...
Slashdot Burying Stories About Slashdot Media Owned
In unrelated news, the IRS has reported sudden loss of all their backups, and serious infection from computer viruses.
GeekServ Unix Consulting Services (http://www.geekserv.com)
Is that like a smart building?
A billion dollars for intellectual property? Gosh, that's like charging $750 for copying one song... Seriously, though, how does one value these things? For that matter, what intellectual property is this? The article is rather vague.
This sig has absolutely no significance and serves only to take up screen space and waste the time of the reader.
I'd call one of those tax-help agencies. They can usually settle for pennies on the dollar.
Norton Antivirus is small fries. The big money comes from Symantec's corporate antivirus.
Don't take life so seriously. No one makes it out alive.
It will be tied up in Tax Court (where you appeal decisions like this) for years.
Quality Hosting e3 Servers
I'm sure that the IRS and the evil company that didn't pay their taxes will come to some agreement, and it will be way less than a billion dollars. Companies always find a way out of messes like this. Of course, it'd be neat if Symantec were to declare that they were bankrupt, and then reopen under the name Norton, without paying a dime... Only in America... :P
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Programming is like sex... Make one mistake and support it the rest of your life.
How do you VALUE intellectual property? Is it what someone ELSE might pay for it, or what you say it is worth?
If you go off of what someone ELSE might pay for it, then songs should be nearly free or much discounted vs what they are currently.
If you go by what you value it to be, then you can make the value arbitrary since you are the one who applies value to it right?
WTF? How do they make these determinations.
If you don't vote, you don't matter, so don't waste your time telling me your opinion
They will just release another major virus soon and rake in the cash to cover this settlement with the IRS, no problem.
So you want the government to Tip Toe (More) around public traded companies because of fear of shacking the stock prices. As a stock holder I would like to know if the companie I have stock in may have to pay a huge dept to someone else. Plus you also do realize stock prices rise and fall all day. I have seen cases where a company makes their exceeds their their projections are even higher. And still their stock gets hammered. Just remember Stock only is money when you sell it. Before that it is just the current value of of it. Once you buy stock your money is gone. When you sell it again then you get what it is worth at the time back.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
Luckily, Symantec can claim the millions/billions who use their live update as dependents, so this will really only end up being like a $20 tax bill when they are done filing. Thank GOD for TurboTax.
Actually that's small potatoes too. The big money is in porn.
Any man who afflicts the human race with ideas must be prepared to see them misunderstood. -- H. L. Mencken
Great! This money will be well spent by Congress, oh wait....
it is already gone, what a shame, before I could even finish my congratulations.
He who knows best knows how little he knows. - Thomas Jefferson
From the article the 900 million is "in connection with the Veritas claim, which covers the 2000 and 2001 Veritas tax returns" So symantec basicly got screwed in the whole deal , bought a company then has to pay their debts from 5 years ago. That sucks.
Symantec probably hired H&R Block to do their taxes this year.
$cat
But only the expense from them that are greater than 7.5% of your Adjusted Gross Income - and only if you are itemizing your deductions anyway.
A fine is a tax you pay for doing wrong and a tax is a fine you pay for doing all right.
If a $900M bill from the IRS doesn't count as getting fucked, I don't know what does.
Why not? With the ability to run Windows in a virtual machine or as part of a dual-boot on Intel Macs, even Mac users will need a antivirus program to practice "safe computing" while playing Minesweeper.
I used to work for veritas and got out shortly after the buyout. Veritas was a cool place to work. And when symantec took over, they sent out this 1/4" thick book full of management-speak. It was unreal. "What is winning?" "We believe in unity." "Our customers trust us to lead the way." After all of this, they listed the names of every employee from either company. Then they had a company-wide conference call with the new ceo. They had "questions from employees" dolled out by a pretty-sounding secretary type. One of the questions was "what can I do to be a better employee?" "You know, I'm being asked that all the time..." I nearly vomited. Ahead of their exit interview, they send you this questionaire to fill out planning to go ever it with you later. After I sent it back to them, they didn't want to have an exit interview anymore... something about how the ceo on the conference call sounded like a lord trying to placate the serfs. :-) I still have the book as a joke, and as a reminder of why, yet again, I've become a consultant and vow never again to be a wage-slave. I shudder to think about what it costs to print up 20,000 of these shiny black books. If they were trying to buy my loyalty with bull-shit management wrapped in a shiny package, they would have bought more loyalty by simply sending me a check for the printing cost of my little book.
I hear their stock has dropped by 1/3 since the buyout. I'm glad I didn't hang around for the stock options.
Disconnect your television. Do your own research. Draw your own conclusions. They're probably lying. Don't be a sheep.
I have no idea.
They obviously pushed their IP to the Irish subsidiary's specifically to avoid the IRS. And they got caught. Sure, they will settle, but they WILL pay in this post-Enron world.
Without the loopholes, the IRS tax guide would have exactly 3 pages: the front page, the tax formula, and the back page.
Not exactly. How do you define income? In other words, what is a business expense (I bought a widget for $15 and sold it for $25, so I made $10), and what isn't (I bought a widget for $15 and lunch for $5, then sold the widget for $25 - I still made $10)? What if I bought lunch to find widget buyers in the restaurant?
The whole concept of taxing income is flawed because income is abstract. It can be manipulated in multiple ways. It would be better to tax something tangible like property or sales - but that would lose politicians their power to play with the tax code to the benefit of their backers.
-- Support a free market in the field of government
Thanky you for insulting the millions of people who work honest jobs, have investments for the future to provide for their retirement and families, and contribute to the world every day. Good going.
If my grammar and spelling are off, I am [distracted/tired/careless] (take your pick)
The last sentence of the summary points out the additional $100M:
"...a 900 million dollar tax bill due to the charge that Symantec and Veritas (purchased by Symnatec last year) under-reported the value of intellectual property which they had transferred to their two Irish subsidiaries. Another $100 million is connected to Symantec's 2003 and 2004 reports."
*Still* negative function...
Transfer pricing is how companies allocate revenues and expenses across borders. Because an inter-company transaction isn't arms-length (nor at presumed fair market value), companies can play games with the prices at which goods are transfered between related parties. You try to shift income (minimize revenue, maximize expense) out of countries with high taxes, and into countries with lower taxes.
BTW, this is the same idea that underlies SALT strategizing (State and Local Tax). You move income out of states with high taxes (NY), and into states with low/no taxes (FL). That is why you'll see cost centers (backoffice) in low-tax states. The company then "charges" the revenue-generating units for use of these services, and income is shifted from the revenue units (high tax locations) into cost centers (low tax locations)
Here, it looks like Veritas licensed software (IP) to a subsidiary in Ireland, and at a transfer price that the IRS thought was too low (below market). The IRS is claiming that Vertias-U.S. should have recognized greater licensing revenue than they did, and as a result, they underreported their income. Complexities of international tax treaties aside, it could be because they wanted to leave more income in Ireland (lower expense for the Ireland sub), which might have had a lower tax rate. Or timing, or US vs IRE tax credits, or deductibility or software expensing/amortization, or witholding, or offsets with other subs, or phases of the moon, etc.
From the 8-K, "The Notice of Deficiency primarily relates to transfer pricing in connection with a technology license agreement between VERITAS and a foreign subsidiary."
From a news article: "Genevieve Haldeman, Symantec's vice president of corporate communications, ...explained that the notices related to transfer pricing of intellectual property, in effect licensing technology from the Symantec parent company to its Irish affiliate to sell outside of the Americas."
"Effectively what the IRS is saying is that separately both Symantec and Veritas undervalued the technology license that was used in the international subsidiary," she said. "They believe it should be valued at a higher rate, and given their valuation, we owe additional taxes."
Just remember Stock only is money when you sell it. Before that it is just the current value of of it. Once you buy stock your money is gone. When you sell it again then you get what it is worth at the time back.
Just like a lottery ticket.
There's a more thorough version of this story at Red Herring http://www.redherring.com/Article.aspx?a=16541&hed =Symantec+Faces+Hefty+Tax+Billor=Industries&subsec tor=SecurityAndDefense
There are two parts to this
Veritas claim $900m
Symantec claim $100 m
That's a total of $1b
If you glance at the IRS rules for calculating penalties and interest your head will spin.
However the penalty for not paying is 0.5% per month for every month not paid.
so Veritas if we lump it all at the end of 2001 and say they didn't pay $900 million for 2002,3,4,5, and last 3 months of 2006
So that's $45 million per month for conservative 51 months = $2,295,000,000 in penalties excluding taxes (not compounded)
Plust interest at 6% per year (not compounded) - $54 million per year for 4 years + $13.5 million last three months = $229,500,000 in Interest
Then you have a $100 million Symantec Tax bill based on their subsidiary setup in an Irish tax haven to tranfer profits out of the US to Ireland (not making a moralistic comment just stating the facts)
This is for 2003/2004, so if we look at it like it all happened at the end of 2004 for simplicity, we have 12 months in 2005 and 3 months in 2005 for penalties
Or $5 million per month for 15 months = $75 million in penalties
That leaves $6 million in interest for 2005 and $1.5 million year to date for 06 in interest
Add it all up
Veritas tax claim $900m
Veritas Penalties $2.295B
Veritas Interest $229m
Symantec tax claim $100m
Symantec Penalties $75m
Symantec Interest $7.5m
Grand Total Potential claim - $3.607 Billion
Reality Check
Symantec will fight the tax claim and will negotiate to reduce the penalties and interest charges. However, as there is a significant amount of pressure from Wall Street, they probably need to wrap this up quickly.
No matter what they'll have to cook their estimates of what they think this will really cost into their reserves to provide a provision for it and that will hit the bottom line in their quarterly(may be there already).
Others have pointed out that it might have been smart of Symantec to perform a little due dilligence of Veritas.
I think Symantec is getting the picture now. They just bought an open can of worms and attracted the IRS's attention to look at their other transactions as well.
charging $750 for copying one song.
So they finally they gave in to public pressure and reduced their prices.
I'll probably be modded down for this...
"900 million does sound like a lot for taxes on IP... There must be more to the story..."
My guess is it's something like this:
Symantec's tax people get audited by the IRS. Auditors flood Symantec with records requests from the last several years then go do nothing. for a while 'till the statue of limitations dedline looms. Auditors tell Symantec that they will slam them hard unless they sign a statute of limitations extention and claim that Syamantec isn't giving them records fast enough.
Symantec gives in a few times on signing the statute extentions a few times while Auditors keep requesting irrelevent records that they had already been sent but lost. Symantec finally gets tired of screwing with the peon auditors and refuses to sign another statute extention which suprises auditor so they hastily put together a shody justification for a huge $900M assesment.
Next step probibly has the assesment getting reduced to something reasonable which won't make any headlines and won't be a slashdot article.
No matter where you go, there you are.
Generall, experience valuation practitioners use 3 separate ways to value assets, or indeed, enterprises.
(1) Cost - what it cost you to create. More applicable to tangible, long-lived fixed assets in mature industries. Less so to IP, or to companies.
(2) Market - what it costs for comparable assets on the market. Very good if you can find similar comps. For IP, you'd look to licensing rates, for enterprises, you'd look to market transactions of similar companies.
(3) Income - the present value of a stream of future cash flows that arise from that assets. Depends a great deal on the assumptions that go into the model (market adoption of your IP, enterprise revenue and expense growth and the discount rate used)
You take these amounts, weight them according to the type of asset you are valuing, and give a range of probable value.
See also my post above about transfer pricing in this case. The IRS would use the above valuation techniques to figure out the appropriate transfer price.
I don't know about anyone else here but Symantec products really stink. If they buy a company, their stench seems to overtake it quickly. The last good program to come out of them was in 1993 when they had some great disk utilties for DOS. Which brings me to my final point. It looks like their accountants are just as good as their software developers.
No, they won't. You're under the misapprehension that companies have wealth. They do not. Only people hold wealth and property (this includes shareholders, by the way). Therefore, if the IRS hits Symantec with a $1 billion charge, you and I (as consumers and/or shareholders) will foot the bill.
Not unless Symantec has a monopoly on anti-malware. Otherwise, the market determines what they can charge. Given the price will not change much, then the shareholders are first in line for pain. Next the employees. Customers only come into the picture this way: as the company trims its workforce, customers can expect the rate of new features to be slowed down. This is not necessarily the end of the world. Prices may tick upwards very slightly.
Never let the class-warefare rhetoric let you forget that every time a company pays a fine or pays taxes, you as the consumer of that company's goods are actually paying that fine.
"Class-warfare rhetoric" is class-warfare rhetoric. At least in this case. Nobody is saying Symantec should pay taxes because they're fat cats. They pay taxes because we all pay taxes. Nothing could be fairer. Furthermore, if they tried to shelter income, and the shelter wasn't legal, they should pay the difference, plus interest. Just like you or I would.
The only way "class warfare" might come into the picture is if the size of the penalties were disproportionately large. However since we're talking about the better part of a billion dollars proportionate penalties will have a lot of zeros on the end. The news isn't that the government is on a crusade against people who produce wealth. The news is that somebody at Symantec made a mistake on their tax returns large enough to be news.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
> Symantec has yearly revenue of what... $20bil?
John Thompson would be squealing like a gleeful schoolgirl if that were true.
Try 2.58 billion. It's as easy as sticking SYMC into google.
Done with slashdot, done with nerds, getting a life.
[quote]The whole concept of taxing income is flawed because income is abstract. It can be manipulated in multiple ways. It would be better to tax something tangible like property or sales - but that would lose politicians their power to play with the tax code to the benefit of their backers.[/quote]
Taxing property is equally flawed. Often, property tax assessment can be inflated by 10-20% than what one would get on the open market. I remember when Washington State used to chare (several years ago) a registration fee based on the value of your car. The BLUEBOOK value. They often assessed unreasonable values based on the best condition for that car, etcetera, etcetera, etcetera. They tried to get my friend had to pay a $400+ yearly registration fee because they value his 10 y.o. Mercedes at $15,000+. It has 180K miles on it and he payed $2300 for it in another state before he moved.
Property tax is also unfair because it doesn't assess what you can afford. Older couples may want to keep their big house but can't afford to pay the property tax on it because they don't have the jobs that bought in the money precisely because they are retired. California has (had?) the fairest system where property was taxed at 1% on the original buying price. If people decided to reap the profit on property going sky high, the government would also benefit from the NEW owners who knew what they were getting into, but people wouldn't be forced from their homes simply because suddenly the land became valuable.
Sales tax would be fairest. With rebates/allowments/coupons on clothing/food/necessities for the poor/lower income people. Yes, some loopholes but that is unavoidable in a society that doesn't want to present only faceless rules and have some humanity toward others.
The 200 million people having trouble sitting down today would agree with that.
In response, I'd probably tell the IRS the truth: "Intellectual Property" is a marketing term not a tangible asset. US law does not recognize the concept (yet). In so far as "Intellectual Property" is a convenient fiction, the IRS has no authority to levy taxes on fictional assets.
The "value" of information ("intellectual property") depends on the the buyer. In fact, the value of the information that they are being assessed $900 million in taxes for is $0 to me. In fact, on average, it's likely to be $0 for most people (outside of the possibility that you're bound to find some idiot that will pay gobs of money for it).
If they buy a company, their stench seems to overtake it quickly.
I don't know about that. I think all the hate come from the home security products. Ghost is still my favorite utility for Windows. Backup Exec doesn't suck too much - its new disk stuff is clever. The old-school Veritas disk management products are the same as ever - like them or hate them, they haven't chnaged in a long time. I use their corproate SAV at work and haven't had a problem with it since about 5 years ago - it doesn't try to consume my whole computer the way the personal NAV does.
What Symantec products does everyone hate so much - is it just the home security stuff?
Socialism: a lie told by totalitarians and believed by fools.
Ha. Don't even get me started on that. About half of my yearly property tax bill goes to what passes for education in this county. There's more than enough funds to educate students (including all the illegal ones) if it wasn't being misdirected to build private empires. Sorry ... the state of the educational system in this country is a bit of a sore point with me. I get fed up with schools crying "we're sorry your kids are ignorant fucks that can't get a job, but if you just give us even more of your hard-earned cash we're just so totally certain we can fix the problem." Phooey. Cut out the football and the basketball and plush offices and mahogany conference tables and the private secretaries with big salaries and bigger tits and spend some bucks on hiring *good* teachers and providing a good place to learn. Like most things run by the government, there's a Texas shitload of waste in the school system, but I see no way to remove the entrenched bureacracy.
... the tax burden in the past thirty years or so seems to have shifted from the corporate world to the middle class. I'm not sure how the IRS is valuing "intellectual property" (I'm not sure how anyone values something that exists solely in someone's head) but I'm not feeling too badly about Symantec getting hit up for some more taxes. Sure, they'll pass the cost on to the consumer, but nobody with functioning cognitive areas in their brain should be buying their stuff anyway.
But you're right
The higher the technology, the sharper that two-edged sword.
Well done.
Now for those wishing extra reading, Google for "Transfer Pricing for Intangible Property under Section 482"
That is Internal Revenue Code (IRC) Sec 482 (26 U.S.C. 482).
Explained in more depth in Treasury Regulation 1.482-1(a)(1), et al. (scroll down).
It should be noted that Sec 482 covers both tangible and intengible proprty, & domestic and international transfers. Also, note that the US is odd in that it taxes citizens and corps on theiir worldwide (not just domestic) income (see IRC Sec. 61, "from whatever source derived").
I'd rather have some huge crapware business pay taxes than me.
Right now, with our current tax system, both you and the business are paying taxes. Except with corporate income taxes, the corporations raise their prices to foot their bill, passing their tax burden on to you. The FairTax removes corporate income taxes. Then market competition will force them to lower their prices.Then you stop paying for corporate income taxes.
in general, a consumption based tax is <i>regressive</i>
In general, yes. Not with the FairTax, because of the prebate you mentioned, the FairTax is a system that is progressive.
the brunt of the tax will be felt by the middle class
Read up a little more on who are the winners and losers of the FairTax
The more money you make, the more you save[. T]he more you save, the less you consume.
There is a flaw in your logic. If the more money you make is greater than what you plan to save, then you can both save more and consume more. Also read up on what increased saving does to interest rates and how that benefits the whole economy.
A good, clean, progressive income tax (without all these exceptions) is what we need
A common point against the FairTax is that it's a good idea, but it'll never happen. I agree that the likelihood (and more to the point, ease) of getting the FairTax passed isn't its strongest aspect, but it is way more likely than hoping Congress will go thru our current system and plug up all of its thousands of holes. The current system is a whopping steaming piece of shit. It needs to be scrapped an replaced.
Support the FairTax