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The IRS Hits Symantec with a $1 Billion Tax Bill 337

Posted by ScuttleMonkey
from the i-don't-feel-quite-so-bad-now dept.
GnoWay writes "Macworld is reporting that the IRS has charged Symantec Corporation with about a 900 million dollar tax bill due to the charge that Symantec and Veritas (purchased by Symantec last year) under-reported the value of intellectual property which they had transferred to their two Irish subsidiaries. Another $100 million is connected to Symantec's 2003 and 2004 reports."
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The IRS Hits Symantec with a $1 Billion Tax Bill

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  • taxing IP (Score:5, Funny)

    by bbsguru (586178) on Tuesday April 18, 2006 @02:23PM (#15151848) Homepage Journal
    I just had a thought. Do I owe anything?
    • by Anonymous Coward on Tuesday April 18, 2006 @02:25PM (#15151874)
      under-reported the value of intellectual property

      I doubt it, hell, you might need a rebate
    • Maybe you should see if you qualify for an earned income credit! :)
    • Depends on whether it's your two cents' worth, or someone is giving a penny for your thoughts.
    • Yes, but only if you sell it to someone.
    • Re:taxing IP (Score:3, Insightful)

      by Ucklak (755284)
      If you earned, you paid. The question is "Do you know how much you paid?"

      If you answer "I didn't have to pay, I got money back" then therin lies the problem.

      • Re:taxing IP (Score:3, Interesting)

        by Anonymous Coward
        Yes, I never understood this mentality. Americans seem to be under the impression that getting a tax return is "a good thing." In reality, you're essentially loaning out money to the government at 0% interest. By owing on a tax return (not by a huge amount, but by minimizing owed taxes) you can get your money back sooner in the form of your paycheck. You'd actually get more for your returns if you took this money and just stashed it into a savings account than by overpaying each year in taxes.
        • Re:taxing IP (Score:3, Interesting)

          by cflannagan (870780)
          I'm one of those who thinks tax returns is great, even though I could have made more putting the same money in an interest-earning account. The problem is, which I'm sure others share, is that I don't have enough financial discipline to put money into interest-earning account and leave it alone. I know I will end up touching the account when I know I shouldn't. I wouldn't be surprised if other people shared the same mentality.
  • It's okay. (Score:5, Funny)

    by Rob T Firefly (844560) on Tuesday April 18, 2006 @02:23PM (#15151854) Homepage Journal
    Luckily, Norton Internet Security filtered out the IRS' notice before anyone at Symantec could read it. I won't tell if you won't...
  • Unrelated (Score:5, Funny)

    by liliafan (454080) * on Tuesday April 18, 2006 @02:24PM (#15151857) Homepage
    In unrelated news, the IRS has reported sudden loss of all their backups, and serious infection from computer viruses.
    • by tehshen (794722)
      Oh come on, I know what you're getting at, and it's wrong. There's no way that Norton Internet Security could prevent serious infection from computer viruses.
  • by Anonymous Coward
    Is that like a smart building?
  • by SeanDuggan (732224) on Tuesday April 18, 2006 @02:26PM (#15151883) Homepage Journal
    A billion dollars for intellectual property? Gosh, that's like charging $750 for copying one song [dmusic.com]... Seriously, though, how does one value these things? For that matter, what intellectual property is this? The article is rather vague.
    • by William_Lee (834197) on Tuesday April 18, 2006 @02:40PM (#15152020)
      Seriously, though, how does one value these things? For that matter, what intellectual property is this? The article is rather vague.

      It's IP based off an acquistion of a company called Veritas that the public financial market valued at over $10 billion in total. What appears to have happened here is that Symantec doesn't believe that something they bought in the deal is worth anything near what the IRS is claiming it is worth. I'm no CPA but I'm guessing it's related to how Symantec is calculating the goodwill involved in the acquistion.

    • Same way most people decide on the value of a physical object - some combination of how much it cost to produce it, the worth to the person in question, what they could sell it for, how much they're prepared to pay, and so on.

      Just because it can be easily reproduced doesn't mean that it was free to create the first copy or that it has no resale value.

      Gosh, that's like charging $750 for copying one song...

      That's a punishment and a deterrent. When something illegal is easy to do, hard to detect and widely reg
      • It's meant to act as a deterrent, the idea being that if it's so easy, so unlikely that you'll get caught and doesn't seem to hurt anyone, a sledgehammer punishment is the only thing that will stop prospective transgressors.

        "Harsh penalties for non-crimes" (as I like to call them) don't work at all, and indeed aren't intended to work. Politicians know they won't work when they pass the legislature/congress, and governors/presidents know they don't work when they sign them into law, but they do it ANYWAY,

    • by Steve Hamlin (29353) on Tuesday April 18, 2006 @03:14PM (#15152279) Homepage

      Transfer pricing is how companies allocate revenues and expenses across borders. Because an inter-company transaction isn't arms-length (nor at presumed fair market value), companies can play games with the prices at which goods are transfered between related parties. You try to shift income (minimize revenue, maximize expense) out of countries with high taxes, and into countries with lower taxes.

      BTW, this is the same idea that underlies SALT strategizing (State and Local Tax). You move income out of states with high taxes (NY), and into states with low/no taxes (FL). That is why you'll see cost centers (backoffice) in low-tax states. The company then "charges" the revenue-generating units for use of these services, and income is shifted from the revenue units (high tax locations) into cost centers (low tax locations)

      Here, it looks like Veritas licensed software (IP) to a subsidiary in Ireland, and at a transfer price that the IRS thought was too low (below market). The IRS is claiming that Vertias-U.S. should have recognized greater licensing revenue than they did, and as a result, they underreported their income. Complexities of international tax treaties aside, it could be because they wanted to leave more income in Ireland (lower expense for the Ireland sub), which might have had a lower tax rate. Or timing, or US vs IRE tax credits, or deductibility or software expensing/amortization, or witholding, or offsets with other subs, or phases of the moon, etc.

      From the 8-K, "The Notice of Deficiency primarily relates to transfer pricing in connection with a technology license agreement between VERITAS and a foreign subsidiary."

      From a news article: "Genevieve Haldeman, Symantec's vice president of corporate communications, ...explained that the notices related to transfer pricing of intellectual property, in effect licensing technology from the Symantec parent company to its Irish affiliate to sell outside of the Americas."

      "Effectively what the IRS is saying is that separately both Symantec and Veritas undervalued the technology license that was used in the international subsidiary," she said. "They believe it should be valued at a higher rate, and given their valuation, we owe additional taxes."

    • A billion dollars for intellectual property?

      In other news, the legal constipation at the US PTO comes into focus.

      Da gubmint be makin' a lot of dough outta that steamin' loaf; you just wishin' it could be tasteless.
    • charging $750 for copying one song.

      So they finally they gave in to public pressure and reduced their prices.
  • by Anonymous Coward on Tuesday April 18, 2006 @02:26PM (#15151884)
    I'd call one of those tax-help agencies. They can usually settle for pennies on the dollar.
  • This won't stick. (Score:3, Insightful)

    by Quasar1999 (520073) on Tuesday April 18, 2006 @02:27PM (#15151903) Journal
    I'm sure that the IRS and the evil company that didn't pay their taxes will come to some agreement, and it will be way less than a billion dollars. Companies always find a way out of messes like this. Of course, it'd be neat if Symantec were to declare that they were bankrupt, and then reopen under the name Norton, without paying a dime... Only in America... :P
    • by Black-Man (198831)
      They obviously pushed their IP to the Irish subsidiary's specifically to avoid the IRS. And they got caught. Sure, they will settle, but they WILL pay in this post-Enron world.

      • Sure, they will settle, but they WILL pay in this post-Enron world.

        No, they won't. You're under the misapprehension that companies have wealth. They do not. Only people hold wealth and property (this includes shareholders, by the way). Therefore, if the IRS hits Symantec with a $1 billion charge, you and I (as consumers and/or shareholders) will foot the bill. Never let the class-warefare rhetoric let you forget that every time a company pays a fine or pays taxes, you as the consumer of that company's
        • You may buy their products, but I certainly dont. You pay their bill, I will stick to something cheaper and better.
        • Not if I don't consume their goods or own their stock. Both of which I am glad I don't.
          • Are you absolutely certain any entities you deal with for pay (either from you or to you) don't use Symantec products? If so, you pay. If not, you don't. Just don't be so positive this isn't going to cost. It may not cost you directly, but could indirectly.
        • by hey! (33014)
          No, they won't. You're under the misapprehension that companies have wealth. They do not. Only people hold wealth and property (this includes shareholders, by the way). Therefore, if the IRS hits Symantec with a $1 billion charge, you and I (as consumers and/or shareholders) will foot the bill.

          Not unless Symantec has a monopoly on anti-malware. Otherwise, the market determines what they can charge. Given the price will not change much, then the shareholders are first in line for pain. Next the employees.
  • by Buzz_Litebeer (539463) on Tuesday April 18, 2006 @02:29PM (#15151919) Journal
    How do you VALUE intellectual property? Is it what someone ELSE might pay for it, or what you say it is worth?

    If you go off of what someone ELSE might pay for it, then songs should be nearly free or much discounted vs what they are currently.

    If you go by what you value it to be, then you can make the value arbitrary since you are the one who applies value to it right?

    WTF? How do they make these determinations.

    • Unless you are selling, and have a *real* dollar value, its all just shady accounting practices.

      I hope this puts them out of business.
    • Rambus [yahoo.com] is worth 4.7 Billion, so it's definitly worth something.
    • by Daniel_Staal (609844) <DStaal@usa.net> on Tuesday April 18, 2006 @02:34PM (#15151960)
      The same way you assign a value to anything else in a capitalist system: by what the market price for it is. (Or would be, if it were on the market.)

      That price is influenced both by what people are willing to pay for it and what you are willing to sell it for. If the two go to far out of wack, you either get obcene profits or bankrupsy. (Depending on which way they are out of wack.) In the former case, someone else should enter the market, and start a price war. In the latter, you are being forced out.
      • yeah, but the marginal cost of production of IP is zero, so in a true free market without government interference the market price should and would be competed to the point where profit is zero, or a price of zero. that's why invoking "market economics" to justify the price or cost or loss of intellectual "property" is disingenuous and goofy.
        • The problem with your viewpoint is that it becomes a massive hole for money laundering. If for whatever nefarious purpose Microsoft sells you the rights to Windows for $100, and Dell then has to pay you $50 per computer sold, they have effectively transferred billions of dollars to you despite the apparent transaction sum. What the IRS is doing here is trying to assess the true value of the transaction, while your rant on how things ought to be really doesn't accomplish much toward that necessity.
      • Isn't this subject to a sort of reverse-Heisenberg Uncertainty Principle, by which the only way to get an accurate market value is to actually put the item on the market and play the game? (Which in turn would make the whole "taxing you for having it" thing moot -- as you would lose it as part of getting taxed?)
    • Both! Intellectual property is valued exactly like physical property: the price the market is willing to pay for it. If the price is too high, then the seller will lower the price. If the price is too low, then the seller will raise the price. The seller gets to set the price, and the market determines whether the price is correct or not.

      For online music, the success of the 99 cents per song seems to indicate that yes, a compressed, digital song with DRM is worth about 99 cents. Was Skype worth $4 bill
      • Both! Intellectual property is valued exactly like physical property: the price the market is willing to pay for it.

        No; not on your books. On your balance sheet, it's worth what you paid for it less ammortization, not what the market value is. When you report your assets, you report it at book value, not market value. That is per GAAP.

        A transfer to a subsidiary is deemed a disposition. Normally this disposition would be valued at what a company paid for it, but because it's a disposition to a subsidiary
    • I'm assuming you work for a living? Do you get paid? Is your time worth something to you?

      Time * what you are worth per hour = value.

      There is a very basic formula for the value of something, regardless of its concreteness. If you put 40 hours into making a piece of IP, and you are worth $20 an hour, then your IP could be worth $800. But a more intelligent way of pricing it is by supply and demand, which was figured out thousands of years ago, this is economics 101.
      • There is a very basic formula for the value of something, regardless of its concreteness. If you put 40 hours into making a piece of IP, and you are worth $20 an hour, then your IP could be worth $800.

        If I hire a cook at $20 an hour, and he spends 6 hours turning a bunch of apple (with market value) into a piece of charcoal (he burned the apple pie), what is the worth of his produce?

        That formula makes no sense to me.

        • Then you overpaid the cook, the cook wasn't worth $20 an hour. I know teenagers in home economics who can cook better than that.

          All that formula is, is a simple rate formula: rate*time = value. Real world economics is based on percieved values. It doesn't have to make sense to you.
      • by Buzz_Litebeer (539463) on Tuesday April 18, 2006 @03:29PM (#15152408) Journal
        You miss the point entirely, I am worth 100 an hour or 150 an hour, depending on what I am doing. Though I only get a small chunk of that.

        BUT, what if I decided to sell the thing for 10 bucks, after I put 800 worth into it, is it worth 10 bucks or 800, am I selling it under market value or am I actually worth the 800 I WANT to be paid for it?

        IF I make a Hello World Application, and my time is worth 100 an hour, does my hello world app cost 100 dollars because I bill a minimum of an hour?

        Or is it worth essentially nothing?

        Thats the question, who determines the price, if Symantic wanted to licence it for free, would it then not be worth "free"? Or is it worth what a competitor would have paid to bring it in house or an actual client.

        I hope I am not obsfucating this more lol.

    • The issue stems from Symantic undervaluing the IP behind Veritas in 2000-2001. Now, I'm sure I'm not the only one on /. that had to deal with that worthless piece of crap software in that time frame. The IP value of Veritas wasn't worth the CD the software was burned on. I've seen more effective backup systems writen in 5 lines of bash script.

      In any case, it hardly matters. Symantic and the IRS will argue, then settle for $20 mil.

      -Rick
    • There's no easy answer, but you could start with what they paid for it on the open market a few months earlier...
    • Generall, experience valuation practitioners use 3 separate ways to value assets, or indeed, enterprises.

      (1) Cost - what it cost you to create. More applicable to tangible, long-lived fixed assets in mature industries. Less so to IP, or to companies.

      (2) Market - what it costs for comparable assets on the market. Very good if you can find similar comps. For IP, you'd look to licensing rates, for enterprises, you'd look to market transactions of similar companies.

      (3) Income - the present value of a

  • No problem.. (Score:2, Insightful)

    by Anonymous Coward
    They will just release another major virus soon and rake in the cash to cover this settlement with the IRS, no problem.
  • With a revenue of just over $1B expected this quarter, that certainly is a bite in the ass. Looks like the cost of Norton AV is going up.

    http://religiousfreaks.com/ [religiousfreaks.com]
  • Dependents (Score:2, Funny)

    by LiLWiP (918943)
    Luckily, Symantec can claim the millions/billions who use their live update as dependents, so this will really only end up being like a $20 tax bill when they are done filing. Thank GOD for TurboTax.
  • by digitaldc (879047) * on Tuesday April 18, 2006 @02:40PM (#15152022)
    Great! This money will be well spent by Congress, oh wait....
    it is already gone, what a shame, before I could even finish my congratulations.
  • by black2d (839906) on Tuesday April 18, 2006 @02:43PM (#15152038) Homepage
    From the article the 900 million is "in connection with the Veritas claim, which covers the 2000 and 2001 Veritas tax returns" So symantec basicly got screwed in the whole deal , bought a company then has to pay their debts from 5 years ago. That sucks.
    • In all fairness, Symantec only got screwed if they didn't do due diligence work about their purchase, which would make it their own fault. No one spends $10 billion to buy a company without looking through the books and paying their own corporate accountants to do an audit. On the other hand, if they did their due diligence work, then they probably knew, and maybe were just hoping they could get away with something, in which case, yay for the IRS, make those corporate tax frauders pay!
      • Maybe, but I don't think it's common to go back and recheck all of your acquisition's from 5+ years before. Just getting a handle on that quarter's numbers for a $10B company can take a long time and a huge amount of auditing effort.

        IANAA, though...
  • by ejaw5 (570071) on Tuesday April 18, 2006 @02:43PM (#15152039)
    Symantec probably hired H&R Block to do their taxes this year.
  • Now they won't be able to afford to hire any additional developers to improve their crappy products.

  • Learn from this... (Score:5, Insightful)

    by infinite9 (319274) on Tuesday April 18, 2006 @02:55PM (#15152126)
    I used to work for veritas and got out shortly after the buyout. Veritas was a cool place to work. And when symantec took over, they sent out this 1/4" thick book full of management-speak. It was unreal. "What is winning?" "We believe in unity." "Our customers trust us to lead the way." After all of this, they listed the names of every employee from either company. Then they had a company-wide conference call with the new ceo. They had "questions from employees" dolled out by a pretty-sounding secretary type. One of the questions was "what can I do to be a better employee?" "You know, I'm being asked that all the time..." I nearly vomited. Ahead of their exit interview, they send you this questionaire to fill out planning to go ever it with you later. After I sent it back to them, they didn't want to have an exit interview anymore... something about how the ceo on the conference call sounded like a lord trying to placate the serfs. :-) I still have the book as a joke, and as a reminder of why, yet again, I've become a consultant and vow never again to be a wage-slave. I shudder to think about what it costs to print up 20,000 of these shiny black books. If they were trying to buy my loyalty with bull-shit management wrapped in a shiny package, they would have bought more loyalty by simply sending me a check for the printing cost of my little book.

    I hear their stock has dropped by 1/3 since the buyout. I'm glad I didn't hang around for the stock options.
  • There's a more thorough version of this story at Red Herring http://www.redherring.com/Article.aspx?a=16541&hed =Symantec+Faces+Hefty+Tax+Bill [redherring.com]or=Industries&subsec tor=SecurityAndDefense There are two parts to this Veritas claim $900m Symantec claim $100 m That's a total of $1b If you glance at the IRS rules for calculating penalties and interest your head will spin. However the penalty for not paying is 0.5% per month for every month not paid. so Veritas if we lump it all at the end of 2001 a
  • by FellowConspirator (882908) on Tuesday April 18, 2006 @04:31PM (#15152839)
    In response, I'd probably tell the IRS the truth: "Intellectual Property" is a marketing term not a tangible asset. US law does not recognize the concept (yet). In so far as "Intellectual Property" is a convenient fiction, the IRS has no authority to levy taxes on fictional assets.

    The "value" of information ("intellectual property") depends on the the buyer. In fact, the value of the information that they are being assessed $900 million in taxes for is $0 to me. In fact, on average, it's likely to be $0 for most people (outside of the possibility that you're bound to find some idiot that will pay gobs of money for it).
  • I find it interesting that Symantec is hit with a $1B tax bill to defend against just as Microsoft is preparing a competitive product. Symantec is sure to be distracted at the least. Nice timing for Microsoft, coincidence?

  • Can I have my 45 grand back? I don't think the Feds'll be needing it now.

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