CIT to Pay Tyco $60MM to Settle Tax Dispute
In a filing, CIT Group said it reached an agreement with Tyco International to settle contract claims asserted by Tyco related to a tax agreement that CIT and Tyco entered into in 2002 in connection with CIT’s separation from Tyco.
Pursuant to the tax agreement, CIT was obligated to pay Tyco an amount equal to any Federal or state income tax benefits realized attributable to certain net operating losses and other tax attributes that arose during the period that Tyco owned CIT.
The maximum federal tax attribute is approximately $794 million and the maximum state tax attribute is approximately $180 million. CIT’s
federal and state tax rates are currently 35% and 6.5%, respectively.
Pursuant to the settlement agreement, CIT agreed to pay Tyco $60 million,
which will result in a fourth quarter 2013 charge against earnings of $45 million net of reserves, and Tyco agreed to release all of its rights and
claims under the Tax Agreement.
The amount of the existing NOL and associated deferred tax assets are unaffected by the settlement. CIT maintains a valuation allowance against its deferred tax assets due to uncertainties related to its ability to realize the net deferred tax assets in the future.