The Internal Revenue Service wants to tax the State of Wisconsin Investment Board some $40 million, including interest, to recover income taxes owed by a company in which SWIB had invested.
That tax would more than wipe out the entire proceeds SWIB received from its 25% stake in Shockley Communications Corp.
Despite the tax-exempt status of the Madison-based board, which oversees $70 billion, the IRS is seeking the entire $28.3 million SWIB received in its 2001 sale of SCC stock. SWIB had invested $7.3 million, producing a gain of 290%. Shockley reportedly agreed to sell its entire assets to Northern Communications Acquisition Corp. in early 2001.
The IRS also is seeking interest on that amount for a total claim of some $40 million.
Because SCC no longer exists, the IRS is looking to former Shockley shareholders, including SWIB, to recover taxes of $41.6 million plus $43.8 milion in penalties and interest.
“It is very unusual for a public pension fund like SWIB to be engaged in litigation with the Internal Revenue Service, because the IRS considers them exempt from taxes on their income,” Vicki Hearing, SWIB investment officer, said in a statement. “In this case, however, the IRS claims that SWIB and other former shareholders of Shockley ... are liable for corporate income taxes that, according to the IRS, SCC should have paid in connection with the shareholders' sale of all SCC stock in 2001.”
“The IRS asserts that the former SCC shareholders, including SWIB, are transferees of SCC and are now liable for those taxes, penalties and interest,” she added in the statement.
SWIB in November 2008 challenged the IRS determination that SWIB has any transferee liability, Ms. Hearing added in the statement.
The IRS is prohibited by law from discussion any taxpayer information or detail about the Shockley case, said Nancy Mathis, IRS spokeswoman. — Barry B. Burr