A legal challenge by the Internal Revenue Service concerning U.S. banks' writeoffs for Brazilian tax payments is just the latest chapter in a long-running dispute, bankers and IRS officials said.
Bankers added that the latest development, first reported in The Washington Post this week, centers on the technical interpretation of tax laws.
"We've litigated these issues before," said an IRS official, who declined to be identified or comment further.
"It's an old sore point with the IRS, and I can remember fighting these issues years ago," said one senior banker handling Latin American transactions, who also asked not to be named.
300 Banks Could Be Affected
The Washington Post reported on Wednesday that the IRS is challenging claims by Riggs National Bank of Washington to Brazilian tax credits. The case could affect as many as 300 U.S. banks that have lent money to Brazil.
Citing a Tax Court memorandum filed several weeks ago, the newspaper reported that U.S. banks may have avoided paying as much as $300 million in U.S. taxes by using Brazilian government tax receipts issued for taxes that were never paid.
The tax receipts were allegedly issued to the banks in place of interest the Brazilian government owed to the banks but never paid.
Spokesmen at Citicorp and other major U.S. banks declined to comment officially.
Criminal Tax Evasion Denied
But bankers contested allegations that they used false tax receipts to claim tax credits.
They added that the dispute revolves around different interpretations of extremely technical foreign tax credit laws and does not involve criminal tax evasion.
"The question is whether the taxes should be considered transaction fees or income taxes," said one banker.
"If it's a transaction fee, it doesn't count, if it's income tax it does, and you can argue both ways."
The banker said that revisions of tax laws and federal budgetary pressures in the United States have given new life to what has been an ongoing dispute.
"As always happens when you're short of tax revenues, you start digging," he said. "What we've got here is basically a whole new mining expedition, complete with new picks and shovels."
