UPS Appeals Unfavorable Tax Ruling

United Parcel Service, Atlanta, earlier this week appealed a ruling it received last year finding that it took inflated tax deductions in 1983 and 1984.

UPS appealed a ruling by U.S. Tax Court, which last summer held UPS liable for tax on income of Overseas Partners Ltd., a Bermuda company that UPS once owned. OPL had reinsured excess value package insurance purchased by UPS customers for products costing more than $100.

The appeal was filed in the 11th U.S. Court of Appeals in Atlanta.

In his decision last summer, Judge Robert P. Ruwe of U.S. Tax Court ruled that UPS illegally inflated its tax deductions by charging its customers three times the competitive market price for insuring these packages. UPS paid the money to National Union Fire Insurance of Pittsburgh and took a tax deduction. But the judge said that National Union was acting as a front because it funneled the money to OPL.

The judge found that UPS must pay taxes on the money sent to the Bermuda company. UPS took a $1.44 billion charge as a result of the ruling and put $1.8 billion in a government escrow account to cap any further accumulation of interest penalties if UPS loses the case.

Earlier this year, UPS denied that it was guilty of tax evasion and said it was considering an appeal.

In a statement this week, the UPS said it believes “that a number of aspects of the U.S. Tax Court’s decision are incorrect” and that it is appealing the decision. The statement said that “we expect that we will prevail on substantially all of these issues.”

The lawsuit is related to another lawsuit filed in November 1999 by 20 customers who bought insurance for packages shipped by UPS prior to 1984.

That lawsuit was filed in Montgomery County Common Pleas Court in Dayton, OH, on behalf of UPS customers in Indiana, Texas, Kentucky and Ohio, accusing the package delivery company of insurance fraud. The suit stems from the U.S. Tax Court case against UPS. Based on that ruling, the former customers allege that UPS overcharged customers and fraudulently collected insurance fees by falsely representing itself as an insurance company.

Action on that lawsuit is pending.

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