Daily Tax Update - February 14, 2007

MERCK AGREES TO PAY IRS $2.3 BILLION: Today, the IRS announced that it had entered into an agreement that resolves several disputed tax issues with Merck & Co., Inc. and its subsidiaries. The agreement will result in a payment to the government of approximately $2.3 billion in federal tax, net interest and penalties, and resolves all issues that had been in dispute between the parties for the tax years 1993-2001. The IRS said that the resolution is "one of the largest achieved in recent years by the Service and a taxpayer through the examination process."

  • According to the IRS, "Both the IRS and Merck acknowledge that reaching an agreement of this magnitude was the result of cooperation by both parties. To facilitate this agreement, the IRS and the taxpayer used various issue management strategies, including the Fast Track Settlement Program.  Among the significant issues resolved were three issues that resulted from Merck’s use of minority equity interest financing transactions.  The execution of these agreements should facilitate the ability of the IRS and the taxpayer to move forward and effectively address tax issues arising in subsequent examination years." 
  • Merck issued the following statement, "This settlement resolves all of the issues that were in dispute. The agreement essentially brings to a close the IRS's examination of the Company for the period 1993-2001.  Under the agreement, the final net cash cost to Merck is expected to be approximately $2.3 billion which covers federal tax, net interest after federal tax deductions and penalties.  The impact for years subsequent to 2001 of the previously disclosed tax disputes is included in the settlement although those years remain open in all other respects. Merck has previously reserved for these items and this settlement is not expected to have any material impact on the Company's annual earnings for 2007. The Company concluded that given the theoretical amount in disagreement, it was in the Company's best interests to reach this settlement so as to remove the uncertainty and cost of potential litigation.  Merck acknowledges that this agreement was reached as a result of the cooperation and reasonableness of the IRS and the Company."

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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