Justices Deny Boeing's $419-Million Tax Claim

From Bloomberg News

Boeing Co. isn't entitled to a $419-million refund it sought under a tax break for exporters that saves U.S. companies $4 billion a year, the Supreme Court said Tuesday.

The justices in a 7-2 vote rejected Boeing's argument that a government rule for allocating research costs among corporate units improperly denied the Chicago-based airplane maker its full deduction under the tax break.

Hewlett-Packard Co., Intel Corp., Brunswick Corp. and Reebok International Ltd. are among companies that sided with Boeing, saying in court papers they are "vitally interested" in the export tax incentive. The rule on research costs no longer is in effect, meaning today's decision won't directly affect future company tax bills. Also, the entire tax break may be repealed by Congress to end a major transatlantic trade dispute.

The government "has broad authority to promulgate regulations determining which expenses are directly or indirectly related to particular items of income," Justice John Paul Stevens wrote for the court.

Boeing spokeswoman Anne Eisele said the company doesn't expect financial results to be affected by the ruling.

Boeing shares rose 34 cents to $27.45 on the New York Stock Exchange.

The tax break has been on the books in various forms since 1971. It lets companies create export units whose income is tax- deferred or tax-exempt.

Companies have an incentive to shift as much income to the export units and take advantage of the exemption, while allocating as many deductions as possible to domestic sales to reduce taxes on that income.

The dispute focused on $4.6 billion Boeing spent on research from 1979 through 1987. The Internal Revenue Service said a Treasury Department rule at the time required Boeing to spread its research costs among all airplane sales, including exports.

Boeing instead allocated part of the research cost to planes not yet in production. That let the company reduce its tax bill by attributing fewer costs to planes such as the 747 sold as exports, which already received the export tax break.

After an audit, Boeing paid the additional tax sought by the IRS, then went to court and won a $419-million refund. The 9th Circuit Court of Appeals reversed the decision and the Supreme Court upheld that decision.

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