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Intel in $600 million tax dispute

The chipmaker is in a tax dispute with the Internal Revenue Service that could eventually cost it $600 million, the chipmaker discloses in an SEC filing.

Intel is in a tax dispute with the Internal Revenue Service that could cost it $600 million, the chipmaker disclosed Wednesday in a filing with the Securities and Exchange Commission.

The Santa Clara, Calif.-based chip giant said the IRS recently proposed increasing the company's tax liability for 1999 and 2000. Although Intel said in the filing it would oppose the proposed adjustments, the company also said it may ultimately have to pay $600 million more for those two years, plus interest. The filing said that the IRS was also considering similar claims for subsequent years.

The dispute relates to an export-tax credit related to chips that company produces in the United States and ships overseas for packaging and testing, said Chuck Mulloy, an Intel spokesman. "The issue is what constitutes manufacturing," said Mulloy, adding that Intel contends that manufacturing consists only of making the chip.

The credit was based on a policy created after a settlement of a similiar dispute between Intel and the IRS regarding the tax years 1991 to 1993, Mulloy said. The IRS is now re-examining the tax treatment of that issue, he said.

An IRS representative was unavailable for comment.

Because tax-credit disputes can take years to settle, Intel expects eventually to take a charge during the quarter in which a final decision is made, should the ruling be against the chipmaker, an Intel spokesman said.

In July, Intel reported a second-quarter profit that beat analysts' expectations by a penny. Net earnings for the quarter were $896 million, or 14 cents per share, on revenue of $6.8 billion. That compared with earnings of $446 million, or 7 cents per share, on revenue of $6.3 billion in the same period in 2002.