Schaumburg, Ill. (Aug. 13, 2004) -- Motorola Inc. may owe the Internal Revenue Service additional income tax of $500 million related to transfer pricing matters dating back to 1996, the company disclosed this week.


In its quarterly report filed Wednesday with the Securities and Exchange Commission, the Schaumburg, Ill.-based company said that it received notices in June of this year from the IRS following the agency's field examination of Motorola's tax returns for 1996 through 2000. In connection with the examination, the company said that the IRS proposed certain adjustments primarily related to transfer pricing.


"The company disagrees with these proposed transfer pricing-related adjustments and intends to vigorously dispute this matter through applicable IRS and judicial procedures, as appropriate," Motorola's 10-Q filing said. "However, if the IRS were to ultimately prevail on all matters relating to transfer pricing for the period of the examination, it could result in additional income for the years 1996 through 2000 of approximately $1.4 billion, which could result in additional income tax liability for the company of approximately $500 million."


Motorola noted that the IRS may make similar claims for years subsequent to 2000 in future audits. While it noted that the outcome is uncertain, "in the opinion of the company’s management, the ultimate disposition of these matters will not have a material adverse effect on the company’s consolidated financial position, liquidity or results of operations." However, Motorola said that an unfavorable resolution "could have a material adverse effect on its consolidated financial position, liquidity or results of operations in the period in which the matter is ultimately resolved."


-- WebCPA staff

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