A federal judge ordered the Internal Revenue Service to pay Warren Buffett's investment company, Berkshire Hathaway Inc., more than $23 million in taxes and interest for disallowing certain deductions dating back to 1989.

Berkshire filed its original lawsuit against the IRS three years ago, saying the agency wrongfully denied it millions in tax deductions.

The IRS disallowed the original deductions after tracing $750 million in borrowed money that Berkshire used to purchase stock in several companies, including Coca-Cola Co., Time-Warner and Wells Fargo & Co. The IRS based its denial on a tax code passed by Congress that reduced deductions if borrowed money is directly attributable to the investment that pays a dividend.

According to the IRS, Berkshire allegedly borrowed the money four times in 1988 and 1989, and put it into a principal bank account. But Berkshire has argued the money in that account came from several sources, was interchangeable and was used for thousands of transactions. The company said that its business model was not to buy specific stocks but to enhance its financial strength, and accordingly, it keeps large amounts of cash available to allow Buffett the freedom to make key investments or acquisitions.

In the ruling, the judge said current rules make it almost impossible for the IRS to trace debt proceeds and assess tax deficiencies against companies that engage in numerous investment transactions.

Berkshire and its subsidiaries engage in a number of business activities, chief among them the property and casualty insurance business, whose re-insurance dealings have been under recent investigation by the Securities and Exchange Commission.

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