Summary
This 8-K filing from Johnson Controls International plc (JCI), filed on May 31, 2016, provides an update on a long-standing tax dispute concerning intercompany debt issues for the audit cycles of 1997 through 2007. The company, acting as Audit Managing Party under separate Tax Sharing Agreements, has successfully resolved these disputes with the Internal Revenue Service (IRS) through Stipulations of Settled Issues filed with the U.S. Tax Court. The resolution for the initial audit periods (1997-2000) was contingent on the IRS applying the same terms to subsequent audit cycles (2001-2007), which has now been confirmed with the issuance of fully-executed Forms 870-AD by the IRS Office of Appeals and decisions entered by the U.S. Tax Court.
Key Highlights
- 1Johnson Controls has finally resolved a significant tax dispute involving intercompany debt for audit cycles 1997-2007.
- 2The resolution was achieved through Stipulations of Settled Issues with the IRS, confirmed by the U.S. Tax Court.
- 3The IRS Office of Appeals issued fully-executed Forms 870-AD, applying consistent settlement terms across all relevant audit periods.
- 4The company paid $120 million to TE Connectivity Ltd. and $2 million to Covidien during the second quarter of fiscal 2016, representing its share of the total payment to the IRS.
- 5Johnson Controls had previously established sufficient reserves for this controversy, meaning no additional charges are expected.
- 6This resolution brings finality to a material tax matter that was before the U.S. Tax Court and the IRS Appeals Division.
Frequently Asked Questions
The main event is the final resolution of a federal tax dispute related to intercompany debt issues for Johnson Controls International plc's audit cycles from 1997 to 2007. This resolution was achieved through agreements with the IRS and subsequent court decisions.
Johnson Controls paid a total of $122 million ($120 million to TE Connectivity Ltd. and $2 million to Covidien) during the second quarter of fiscal 2016, representing its portion of the payment to the IRS. Importantly, the company does not expect to recognize any additional charges because it had already recorded sufficient reserves for this matter.
The company does not anticipate recognizing any further charges related to this tax controversy, as adequate reserves were previously established. This provides financial certainty and removes a potential overhang for investors.
The Tax Sharing Agreements involved Johnson Controls International plc (as Audit Managing Party), TE Connectivity Ltd., Covidien plc (now a subsidiary of Medtronic plc), The ADT Corporation, and Pentair Ltd.