From the press release:
"There was never a closing agreement between the IRS and Micrel, as the article implies. Micrel cooperated fully with the IRS during an audit of the company that lasted 18 months and was completed in July of this year,” added Mr. Zinn. “While the false statements in the article are almost too numerous to mention, Micrel has an obligation to its shareholders to correct the record. In particular, at no time was there ever a proposed deal to escape any tax obligation of the Company, nor did we ever have an estimated tax bill of $58 million. Moreover, Micrel and the IRS never cooperated to keep Micrel’s shareholders uniformed on some basic terms of its stock-option plan as the article asserts. In addition, there is absolutely no truth to the allegations that the stock option feature in question enriched the Company’s four top executives by as much as $20 million or that Micrel ran its stock-option plan in violation of the law,” Mr. Zinn stated.
Those of us who follow politics too closely probably tend to read too much into these things. The statement "In particular, at no time was there ever a proposed deal to escape any tax obligation of the Company..." could contain multitudes. If you dispute the legitimacy of an asserted tax, you aren't "escaping" it if there is never an assessment.
Saying that "there is no truth" in an allegation that the plan enriched executives by "as much as $20 million" leaves open the possibility that they were enriched by,say, $19.95 million.
The Micrel release adds "...nor did we ever have an estimated tax bill of $58 million." The source for the $58 million figure appears to be Micrel's pleadings in its own malpractice lawsuit related to the stock-option issue. Tax Analysts article mentions the $58 million number here:
Based on its projections, Micrel claims that revamping the 30DPM as a nonqualified disposition could ‘‘total in excess of $52 million dollars and may eventually total as much as $58.6 million. The pricing differential alone exceeds $12 million in cash, as well as equity, lost to Micrel and is also a direct and proximate result of the incorrect advice given to Micrel by defendants.’’
In short, he $58 million figure is the cost of "revamping" the stock option program, not the cost of the tax bill, as the Times article would lead one to believe.
Overall, the Micrel release attacks specific numbers used in the stories without necessarily debunking the stories themselves.
The Micrel press release goes on to illustrate how taxpayer confidentiality rules can keep a veil over the truth or falsehood of the allegations:
“Unfortunately, we are precluded from debating the specifics of the Times’ assertions by an overriding concern for the privacy of our employees and the confidentiality of personal information,” explained Mr. Zinn. “However, neither can we remain silent after the New York Times has used the uncorroborated statements of one individual to cast Micrel in a negative light and therefore felt obligated to come forth with this public statement.”
The Micrel statements may be true, but, as they point out, there is no way to verify them in light of taxpayer confidentiality rules. As a practical matter, we suspect that the information could be sanitized by the company before release while still protecting employee confidentiality - at least other than the "four top executives" mentioned in the release. The executives could waive confidentiality, but they apparently choose not to do so. This reliance on privacy provisions by a public company seems incongrous, but is perfectly legitimate under the tax laws.
In a way, it is interesting that Micrel finds the stories cast it "in a negative light." In a coldly rational world, one would expect a firm to do all in its power to avoid unnecessary taxes. Shareholders like not paying taxes. Micrel is apparently sensitive to perceptions; there must still be social pressure to be a "good" corporate citizen, or to at least to be seen as one.
Our prior coverage of the issue may be found here.
The Tax Analysts coverage of the Micrel release is here.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to