Tenet Settles Tax Dispute with IRS

One issue remains unresolved as health-care company agrees to pay back taxes.
Stephen TaubNovember 22, 2006

Tenet Healthcare says it has agreed to pay $80 million to partially settle a dispute with the Internal Revenue Service stemming from the audit of its tax returns for fiscal years 1995 through 1997. The company, which owns and operates acute-care hospitals and related health-care services, says the settlement will not have a material effect on income from continuing or discontinued operations after taking into account the impact of the deferred tax valuation allowance.

The company previously disclosed that the IRS issued a notice of tax deficiency in 2003 for fiscal years 1995 through 1997. Tenet filed a petition to contest the alleged deficiency in U.S. Tax Court. The settlement announced on Wednesday relates to the deductibility of a portion of a civil settlement Tenet had paid to the federal government in 1994 as well as the amount of tax depreciation expense claimed with respect to certain capital expenditures incurred during fiscal years 1995 through 1997.

Tenet says one issue associated with the IRS audit remains unresolved: it relates to the timing of the deductibility of certain contributions to the company’s health and welfare benefit plans. The company adds it is working with the IRS to resolve the issue without litigation, and also notes it expects the ultimate resolution of this issue will involve a cash payment to the IRS of no more than $5 million.

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The tax dispute is unrelated to the company’s decision made earlier this year to restate its financial results for the four years ended in 2003 and the seven months ended December 31, 2002, which stemmed from an investigation disclosed the prior year regarding contractual allowances for managed-care contracts.

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