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AIG Suing to Recover Taxes in IRS Dispute

AIG, a majority of which is now owned by the government, is suing the government to recover millions in taxes in a dispute with the IRS.
AIG, a majority of which is now owned by the government, is suing the government to recover millions in taxes in a dispute with the IRS. (By Stephen Chernin -- Associated Press)

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By David S. Hilzenrath
Washington Post Staff Writer
Saturday, March 21, 2009

As AIG takes billions of dollars from the federal government to stay afloat, it is suing the government for millions more.

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The big insurer is trying to recover $306.1 million of taxes, interest and penalties from the Internal Revenue Service. Among other things, AIG is contesting an IRS determination last year that the company improperly claimed $61.9 million of tax credits associated with complex international transactions.

AIG has also asked a court to make the government reimburse it for money spent suing the government.

Given that the government owns 79.9 percent of AIG and has been using taxpayer money to fill a seemingly bottomless hole at the company, the lawsuit might seem like a case of biting the hand that feeds it. But an AIG spokesman said the company has an obligation to press its case.

AIG believes it overpaid the IRS, and it "has a duty to its shareholders, including the government and other shareholders, to insure that it pays the proper amount of taxes," spokesman Mark Herr said by e-mail.

Washington tax lawyer Martin Lobel agreed with that assessment.

"If in fact they honestly believe that they're entitled to a refund of those taxes, it would be a breach of their fiduciary duty not to" sue, Lobel said.

"On the other hand, the sense of entitlement from AIG is awesome," Lobel said.

Because the dispute pits the government against a company that has essentially become a ward of the government, the only clear winners are likely to be lawyers, legal experts said. The legal expenses could consume millions of dollars, they said.

"You're dealing with yourself, and you're paying a lawyer to do it. It seems kind of bizarre," said an international tax lawyer who spoke on condition of anonymity because he was not authorized to comment publicly.

Lawyers at the firm Sutherland Asbill Brennan, which is representing AIG, did not respond to an interview request.

The lawsuit was reported previously by the Wall Street Journal.


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