Safeway Announces Tax Settlement With IRS

by Glen Shapiro, LawAndTax-News.com, New York

13 April 2006

US food retailer Safeway Inc on Monday announced that it has settled a federal income tax refund claim with the Internal Revenue Service, under which Safeway expects to receive approximately $315 million in cash in the second half of 2006.

The settlement relates to Safeway's claim for refunds in the years 1992 through 1999 for costs associated with debt financing.

The expected federal tax refund of approximately $259 million will be recorded in the second quarter of 2006 as an increase to additional paid-in capital and will not be recorded in the income statement.

The Company will receive interest on the federal tax refund and will accrue interest until payment is received. As of April 7, 2006 the accrued interest on the federal tax refund, net of income tax, is approximately $56 million.

Accrued interest will be recorded in the second quarter of 2006 as a reduction of Safeway's income tax expense. The final interest amount depends on the date of receipt of the cash.

In addition, Safeway revealed that it has similar claims for refunds of income tax and interest in several states. As of April 7, 2006, the Company expects these state income tax refunds and interest will be approximately $30 million and $10 million, respectively, net of income tax. Collection of these funds may take several years.

When collection is assured, the grocery group explained, state income tax refunds will be recorded as an increase to additional paid-in capital, and net interest will be recorded as a reduction of the income tax expense.

The total expected federal and state refunds and related interest as of April 7, 2006 is approximately $355 million.

Recommended