Drexel Tax Bill Is Smaller Than IRS Had Sought

Drexel Burnham Lambert said Monday that the Internal Revenue Service gave final approval to a settlement of tax claims that is vastly smaller than the $5.3 billion it had originally demanded.

Drexel said the IRS and Justice Department gave final approval to a settlement under which Drexel will pay $183 million in taxes that the IRS claimed it owed, plus $107 million in interest.

Drexel, the former junk bond powerhouse that collapsed into bankruptcy proceedings, announced last month that it had reached a tentative settlement with the IRS, but the amount wasn’t disclosed until Monday.

The IRS claim, which vastly exceeded Drexel’s $2.4 billion in assets, had threatened to wreck a bankruptcy settlement plan that the former brokerage house had reached with its creditors.

Lawyers who negotiated the settlement for the Justice Department and IRS couldn’t immediately be reached for comment. But U.S. District Judge Milton Pollack, presiding over the bankruptcy case, had said the original IRS claim seemed greatly inflated. Pollack had applied strong pressure on the IRS to settle.

In a written statement, Drexel said the accord with the IRS was a “relatively speedy resolution.” The tax issue, which was highly complicated, could have taken years to resolve, with attendant huge legal costs, the statement said.

The IRS claim was based in part on charges that Drexel didn’t declare profits from illegal securities trading. The agency also claimed that former junk bond chief Michael Milken’s pay package, which was as much as $550 million per year, was actually disguised dividends paid to a controlling shareholder. Dividend payments are taxable.