IRS to Audit, Challenge Disney’s Tax Returns

The Internal Revenue Service is auditing Walt Disney Co.’s income tax returns for 1993 through 1995 and plans to dispute some of the company’s tax filings, Disney disclosed Wednesday.

“While the audit is not complete, the IRS has recently indicated its intention to challenge certain of the company’s tax positions,” Disney reported in a quarterly filing with the Securities and Exchange Commission.

Disney said the dispute could force it to make undisclosed additional payments to the IRS. The company said, however, that it meets tax laws and will vigorously defend itself against any challenge.

“We believe that the company has adequately provided for any foreseeable payments related to these matters and consequently do not anticipate any material earnings impact,” Disney said in its filing. Company representatives declined to comment further.

The Burbank-based entertainment conglomerate did not give details on the audit, which is expected to be completed by September. The audit encompasses the period when Disney undertook a highly complex restructuring of its investment in the Euro Disney theme park outside Paris.

While it’s not uncommon for large companies to be audited by the IRS, it’s unusual for tax disputes to escalate to the point where companies feel obligated to disclose them in corporate filings.

IRS spokesman Don Roberts said the agency does not comment on such cases.

He said the IRS reviews the books of all companies with assets of $250 million or more, but only audits about one-third of them. Disney’s disclosure comes in a post-Enron climate in which major corporations are under heightened pressure from shareholders to divulge any and all bookkeeping items that could surprise investors.

“It has much more to do with what we think is proper disclosure,” said a company source. “It’s not a financial issue.”

The source added that Disney and other media companies routinely face such audits.

Several analysts were unaware of the issue until it was reported Wednesday in the company’s quarterly report.

The disclosure, however, brought little reaction from Wall Street. Disney’s shares rose 10 cents to close at $24.50 on the New York Stock Exchange.