General Automation, IRS Agree on Tax Bill
After nearly five years of negotiations with the Internal Revenue Service, General Automation Inc. has reached an agreement in principle to pay more than $3 million in back taxes and interest.
The financially troubled Anaheim computer maker said Thursday that it also has renegotiated its bank loans to obtain more favorable terms and additional financing from its lenders.
Leonard N. Mackenzie, General Automation’s chairman and chief executive since 1980, said Thursday that the back taxes will be paid “out of future profits . . . over the next few years.”
General Automation, founded in 1967, has not had a profitable year since its fiscal 1981, when it posted net earnings of $123,000. In fiscal years 1982 through 1984 and the first nine months of fiscal 1985, the company reported losses totaling $26.2 million. It also lost $15 million in fiscal 1980. Although the company’s fiscal year ends July 31, it has not yet reported its fourth quarter and annual results for fiscal 1985.
Mackenzie said that when he joined General Automation, replacing founder Lawrence Goshorn as chairman, the IRS was seeking payment of nearly $20 million in back taxes. The money allegedly was owed for fiscal years 1972 through 1981.
Mackenzie, in a telephone interview from New York, downplayed the significance of the agreement, which calls for the company to pay the IRS more than it has earned in any year since 1978, when it posted a $6.1-million profit. Because he was traveling, Mackenzie said, he did not have information on hand to enable him to further discuss the unpaid taxes. And General Automation’s chief financial officer could not be reached Thursday.
Sarah Wreford, an IRS spokeswoman, also declined comment on the case. She said that the agency is forbidden to discuss specific negotiations without consent of the parties involved.
Negotiations With Banks
But she did state that “gray areas” in the tax laws often account for individuals or companies underpaying their taxes. “It’s not uncommon that taxpayers will lean towards areas that are most beneficial to them,” she said.
Besides negotiating with the IRS, General Automation has also been negotiating with its two major banks, seeking more favorable terms for existing loans. Mackenzie said Thursday that the company and the banks have agreed in principle to restructure the loans. Mackenzie said that he did not know the details of those agreements, but he said that General Automation had violated certain covenants in the bank loans when the company’s equity value fell below a prescribed amount.
He said that the banks approved additional financing and revised the loan conditions.
As a result of the extended negotiations with General Automation’s banks and the IRS, the company said it would reschedule its annual shareholder meeting for sometime in February. The meeting is normally held in December.
The company expects to release its fourth-quarter earnings next week, but Mackenzie declined to comment on the expected results. General Automation reported a loss of $4.5 million for the third quarter, ended last April 27.
