Buffett’s Firm Wins Dispute Over Taxes

A federal judge Friday ordered the Internal Revenue Service to pay billionaire Warren E. Buffett’s Berkshire Hathaway Inc. $23.1 million plus interest for not allowing the company to take some tax deductions.

The 38-page decision by Judge Lyle Strom of the U.S. District Court in Nebraska ends three years of litigation over the tax treatment of Berkshire’s purchases of dividend-paying stocks such as Coca-Cola Co., Time Warner Inc. and Wells Fargo & Co. The purchases in question took place in 1989, 1990 and 1991.

An IRS spokeswoman said the agency didn’t comment on court rulings. Berkshire didn’t return a call seeking comment. The company reported a $2.81-billion profit for the first half of this year.

The IRS had claimed that Omaha-based Berkshire used portions of $750 million of borrowings to buy several stocks. Citing a tax rule that the agency said governed the purchase of these stocks with borrowed money, the IRS argued that Berkshire overstated its dividends-received deductions.

Berkshire said the main reason it borrowed the money was to strengthen its finances.

In his opinion, Strom said it was “virtually impossible for the [IRS] to trace debt proceeds and thus assess tax deficiencies ... against companies like Berkshire who engage in numerous investment transactions.”