8-KOther Events

MARRIOTT INTERNATIONAL INC /MD/ 8-K Report, Corporate Update (Mar 2, 2007)

Filed March 2, 2007For Securities:MAR

Summary

Marriott International, Inc. (MAR) filed an 8-K on March 2, 2007, to disclose significant developments regarding an ongoing IRS audit concerning a leveraged Employee Stock Ownership Plan (ESOP) transaction from June 2000. The IRS is challenging the Company's claimed federal income tax deductions of approximately $1 billion related to forgiven principal and interest on ESOP debt, which funded Company contributions. The IRS has issued Notices of Proposed Adjustment, proposing substantial excise taxes and penalties. Marriott International believes the IRS' proposed adjustments are incorrect and intends to vigorously defend its tax positions. This matter could have material financial implications for the company if the IRS' challenges are upheld. Investors should monitor further developments and the company's response to the IRS' proposed adjustments, as this could impact future earnings and cash flows.

Key Highlights

  • 1IRS audit ongoing for fiscal years 2000, 2001, and 2002.
  • 2IRS is reviewing a leveraged Employee Stock Ownership Plan (ESOP) transaction from June 2000.
  • 3The company claimed $1 billion in federal income tax deductions for forgiven ESOP debt principal and interest.
  • 4Marriott International received Notices of Proposed Adjustment from the IRS on March 1, 2007.
  • 5The IRS is challenging most of the ESOP-related federal income tax deductions.
  • 6IRS is proposing substantial excise taxes and penalties.
  • 7Marriott International believes the IRS' proposed adjustments are incorrect and intends to defend its positions vigorously.

Frequently Asked Questions

The primary issue is that the IRS is challenging the federal income tax deductions claimed by Marriott International related to a leveraged Employee Stock Ownership Plan (ESOP) transaction from 2000. The IRS has issued proposed adjustments, challenging approximately $1 billion in deductions and proposing excise taxes and penalties.

The ESOP transaction, implemented in June 2000, involved a leveraged ESOP feature within Marriott's retirement plan. Principal and interest on the related debt were forgiven over 26 months, which funded Company contributions of elective deferrals and matching contributions to the plan. Marriott claimed federal income tax deductions for this forgiven debt.

Marriott International believes that the IRS' proposed adjustments are incorrect. The company intends to vigorously defend its tax positions and is exploring procedural alternatives for resolution.

If the IRS' challenges are upheld, it could lead to significant financial liabilities for Marriott International in the form of back taxes, excise taxes, and penalties. This could negatively impact the company's earnings, cash flow, and equity. Investors should closely monitor the resolution of this tax dispute.