Altria Group, Inc. (Altria) (NYSE: MO) today announced that it has executed a Closing Agreement (Agreement) with the Internal Revenue Service (IRS) that, subject to court approval, resolves the federal income tax treatment for all prior tax years of certain leveraged lease transactions (referred to by the IRS as lease-in/lease-out (LILO) and sale-in/lease-out (SILO) transactions) entered into by Altria’s wholly-owned subsidiary, Philip Morris Capital Corporation (PMCC).
Altria expects to pay approximately $500 million in federal and state income taxes and related estimated interest as a result of the Agreement. Of this amount, Altria expects to pay approximately $450 million in federal income taxes and related estimated interest with respect to the 2000 through 2010 tax years by the end of the second quarter of 2012. The payment is net of federal income taxes that Altria paid on gains associated with sales of assets leased in the LILO and SILO transactions from January 1, 2008 through December 31, 2011. Of the $500 million, Altria also expects to pay approximately $50 million of state taxes and related estimated interest. The tax component of these payments represents an acceleration of federal and state income taxes that Altria would have otherwise paid over the lease terms of the LILO and SILO transactions.
As described in previous reports filed with the Securities and Exchange Commission, the IRS disallowed the tax benefits pertaining to PMCC’s LILO and SILO transactions for the 1996 – 2003 tax years and was expected to disallow such benefits for the 2004 – 2009 tax years. Altria did not claim tax benefits pertaining to the LILO and SILO transactions in the 2010 and 2011 tax years and, under the terms of the Agreement, will not claim such benefits in future tax years.
Pursuant to the Agreement, the IRS will not assess against Altria any additional taxes or any penalties in any open tax year through the 2010 tax year related to the LILO and SILO transactions; nor will the IRS impose penalties with respect to any prior tax years.
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