BB&T Records Charge for Disputed Tax Liability, Could Cut Reserves to $496M or Raise by $328M

BB&T Corporation

today announced that it will record a charge of $281 million in the first quarter to increase its reserves related to an ongoing disputed tax liability. The decision follows a Feb. 11 opinion by the U.S. Tax Court with respect to a case between the Bank of New York Mellon Corporation and the IRS involving a transaction with a structure similar to a financing transaction entered into by BB&T in 2002. BB&T is currently in litigation with the IRS to recover a previous assessment of $892 million. BB&T has confidence in its position in the dispute because, among other reasons, BB&T will raise arguments and issues in its case that were not considered by the Tax Court. However, management recorded the charge as a result of its consideration of this adverse opinion. The tax reserves relate to an IRS statutory notice of deficiency for the tax years 2002 – 2007 asserting a liability for taxes, penalties and interest of $892 million related to the disallowance of foreign tax credits and other deductions claimed in connection with the financing transaction. BB&T paid the assessment in 2010 and filed a lawsuit seeking a refund in the U.S. Court of Federal Claims. The court has scheduled the trial to begin on March 4. BB&T recorded a receivable for the amount of the payment, less reserves. Following this charge, it is possible that BB&T will decrease tax reserves by as much as $496 million or increase reserves by as much as $328 million as the litigation progresses.