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Marriott Pays US $220 Million To Settle ESOP Dispute

by Leroy Baker, Tax-News.com, New York

12 June 2007


US hotel chain Marriott International, Inc. announced last week that it has paid $220 million to the US Treasury and a number of unnamed states to settle a tax dispute relating to its leveraged employee stock ownership plan (ESOP).

The payment stems from an Internal Revenue Service audit of Marriott's 2000-2002 tax returns, which uncovered $1 billion in deductions that the company took from the employee stock ownership portion of a program called 'Employees' Profit Sharing, Retirement and Savings Plan and Trust'.

Marriott received a Notice of Proposed Adjustment from the IRS on March 1, 2007 challenging most of the ESOP related federal income tax deductions claimed by the company. As a result of the settlement, the company will make cash payments to the Treasury and state tax jurisdictions of approximately $220 million. The payments reflect income taxes, excise taxes and interest charges. No penalties were assessed.

The settlement will also result in an after-tax charge totaling approximately $54 million ($0.13 per diluted common share), and a reduction in shareholders’ equity of approximately $114 million in Marriott’s second quarter. These amounts were not included in the company's previous second quarter earnings guidance.

Commenting, Arne M. Sorenson, Marriot Executive Vice President and Chief Financial Officer, stated: “We are pleased to reach this compromise, bringing this dispute to a swift and final resolution using the IRS’s Fast Track Settlement process.”

The company also announced that it had fully resolved all IRS issues pertaining to the audits of the company’s 2000, 2001, and 2002 federal tax returns.


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