(Bloomberg) General Electric Co. sued the Internal Revenue Service seeking a $658 million refund for overpaid federal taxes and interest tied to losses it claimed from the sale of ERC Life Reinsurance.

The dispute dates to the 2003 acquisition of ERC Life by Scottish Re Group Ltd.’s Scottish Holdings Inc., the Fairfield, Connecticut-based company said in the complaint. The IRS wrongfully disallowed a capital loss of $2.2 billion that GE Consolidated Group realized from the sale of 95 percent of its ERC Life stock, according to the filing.

GE was entitled to carry the entire loss back to 2000 and should have received a refund for the 2000 tax year of assessed taxes and interest totaling $658 million, the company said in the Feb. 14 complaint in federal court in New Haven, Connecticut. GE is seeking $439 million in overpaid taxes and $219 million in interest.

The IRS “erroneously and illegally denied GE’s claim for a refund,” according to the complaint. “The grounds upon which the IRS denied the claim are erroneous, unsupported by the facts, and contrary to applicable law.”

Peggy Riley, a spokeswoman for the IRS, didn’t immediately return a voice-mail message left at her office seeking comment about the lawsuit. The case has been assigned to U.S. District Judge Stefan Underhill.

“This dispute involves a good-faith difference of opinion over the tax consequences of a restructuring done more than a decade ago,” Seth Martin, a spokesman for GE, said in an e-mailed statement. “While we have paid the taxes in question, we believe it is in all parties’ interest to resolve this through a court decision.”

GE said that in 2002, after a period of poor financial performance, it decided to exit the reinsurance business and internally restructured part of that business, which affected the amount of capital losses tied to GE Consolidated Group.

The company had two reinsurance units, Employers Reinsurance Corp. and ERC Life Reinsurance Corp. ERC, the largest of GE’s reinsurance companies with assets of more than $13 billion in 2002, was a a wholly owned subsidiary of GE. ERC Life was a reinsurance company and a subsidiary of ERC, according to the complaint.

In a restructuring of the reinsurance business, ERC Life sold the property and casualty subsidiary of the business to a GE affiliate for about $1.8 billion in cash, according to the complaint.

‘Direct Sale’
The transaction was treated as a “direct sale” from ERC Life to GE Investments Inc. for U.S. tax purposes, as alleged in the complaint.

The IRS made an erroneous assessment and required the company to overpay taxes because it disallowed a “capital loss carryback” from GE’s 2003 tax year, according to GE.

GE, the largest maker of jet engines, says that in April 2010 it paid the IRS more than $667 million, satisfying in full the amount assessed for the 2000 tax year. The amount included the $658 million in taxes and interest that was assessed with respect to the disputed capital loss, plus other items unrelated to the claim.

In April 2011, GE filed a claim for a refund for the 2000 tax year. The IRS notified GE in February 2012 that it had disallowed GE’s refund claim, according to the complaint.

The case is General Electric Co. v. U.S.A., 14-cv-00190, U.S. District Court, District of Connecticut (New Haven).

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