IRS Ends Probe of Marriott Tax Credits

The investigation regarded the company's business in synthetic fuel.
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At long last, investors in

Marriott International

(MAR) - Get Report

can breathe easily about the company's side business in synthetic fuel.

On Monday, the hotelier said the Internal Revenue Service had dropped its inquiry into whether Marriott's synthetic fuel facilities have been in operation long enough to qualify for tax credits. The inquiry had created uncertainty about whether Marriott might lose past credits and have to restate earnings.

Improbably, Marriott is the owner of two facilities in Saline County, Ill., and two in Jefferson County, Ala., where low-grade coal is treated with chemical binders.

When the hotelier got into the business in 2001, its goal wasn't profit but tax relief. Although its four fuel facilities operate at a loss, a law from the days of the Carter administration provides tax credits for synthetic fuel producers until 2008, and Marriott's side business had generated about $435 million worth of credits by the end of last year.

Last July, the IRS challenged whether three of Marriott's four synthetic fuel facilities had gone into service before July 1998, a requirement for the credits. Marriott purchased all four facilities in October 2001 from PacifiCorp Financial Services for $46 million in cash.

Marriott shares finished Monday's session down 15 cents, or 0.2%, at $67.73.