MINNEAPOLIS -- Northwest Airlines did what a lot of taxpayers would like to do. It knocked $380 million off its tax bill.
Faced with a $392 million tax bill, Northwest got the IRS to settle for $12.6 million, much of it interest. And the $12.6 million isn't cash but rather a claim in Northwest's bankruptcy. Such claims have been worth less than 100 cents on the dollar.
Northwest has been settling the last of its bankruptcy claims since exiting Chapter 11 protection in May. U.S. Bankruptcy Judge Allan Gropper has not yet ruled on the IRS settlement, although no one has objected.
According to bankruptcy court documents, in January 2005 the IRS told Northwest it had "significant tax deficiencies" and that it was not entitled to refunds it claimed for 1993 through 1995. And the IRS said it had underpaid employment taxes on its workers in 1996 and 1997.
Northwest disputed the findings within weeks, but the matter had not been resolved when it filed for Chapter 11 protection in September 2005. The IRS filed bankruptcy claims against Northwest for $392.6 million. The bulk of that was $138.2 million in unpaid corporate income taxes for 1996, along with $110.8 million in interest on that amount.
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But in negotiations in 2007, Northwest convinced the IRS to settle for a $12.6 million claim in its bankruptcy.
Northwest spokesman Roman Blahoski said on Wednesday that the proposed settlement has yet to be heard by the judge, so the company wouldn't comment on it.
