Symantec Stuck with $1 Billion Tax Bill

The anti-virus software market leader must pony up $1 billion to the IRS based on its acquisition of backup specialist Veritas.

Security software maker Symantec said it has been asked to pay $1 billion in additional taxes to the U.S. Internal Revenue Service, largely related to its $10 billion acquisition of Veritas Software last year.

In a regulatory statement filed on April 17, the company said that the IRS is demanding the back payment, which includes roughly $900 million in taxes related to a recently completed audit of Veritas, which marketed enterprise data backup software before joining Symantec. The additional $100 million is being requested based on a separate IRS audit of Symantecs tax filings for 2003 and 2004, company officials said.

According to the filing, the IRS concluded via its research that both Symantec and Veritas unfairly underpriced some patent holdings the companies licensed to their respective European subsidiaries, both of which were based in Ireland. The company was first served with the tax bill in late March.

Company officials said that Symantec intends to dispute the additional charges.

In the filing, officials with the anti-virus market leader said that the company will likely pay the taxes in smaller increments if the IRS decision is upheld. Any related interest would be accounted as an operating expense, officials said.

The tax notice marks only the latest twist in Symantecs acquisition of Veritas, a deal aimed at broadening the companys products beyond its core anti-virus business into a wider range of corporate data security technologies. While the merger drew immediate questions from Wall Street about Symantecs ability to swallow the company, the internal fallout following the deal has made headlines and hurt the firms stock price.

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In February, former Veritas Chief Executive Gary Bloom left his position as chairman and president of Symantec, as did several other high-profile Symantec executives, most notably Greg Myers, the companys former chief financial officer. In April, the company announced that it was reshuffling its executives as part of a larger corporate reorganization aimed at reducing the number of product lines it offered.

Other executives who left the company included Steve Leonard and Lindsey Armstrong, senior vice presidents overseeing many of the companys overseas operations, and Don Frischmann, its former communications and brand management leader.

Under its new structure, the company halved its number of business units from six to only three, focusing on Consumer Products and Solutions, Enterprise Security and Data Management, and Data Center Management.

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Despite the fallout from the Veritas deal, Symantec continues to pick off smaller technology providers who its leaders feel can help fill gaps in its strategy to become an end-to-end provider of anti-virus and data security applications. In February, the company announced the acquisition of Relicore, which makes change and configuration management software for corporate data centers, for an undisclosed amount of money.

On April 17, Symantec introduced its new package of integrated e-mail server defense applications, which it labeled as the final step in integrating technologies added via its 2004 acquisition of Brightmail.

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