3 Min Read
(Adds Ciongoli court filing)
NEW YORK, April 27 (Reuters Legal) - Cash-strapped New York state would receive about $144 million from Lehman Brothers Holdings Inc under a proposed settlement resolving tax claims against the defunct financial giant.
The payment of corporate back tax and interest would settle claims that initially sought $1.17 billion, according to a motion filed on Tuesday in U.S. Bankruptcy Court in Manhattan.
The state Department of Taxation and Finance filed the claims after Lehman and several subsidiaries went bankrupt in 2008, saying the company skimped on tax payments between 1992 and 2007.
Lehman said the gap was due to the department's decision to reclassify much of the company's investment capital income, which carried a 0.5 percent tax rate, as business capital income taxed at 6.8 percent.
The department also reclassified some of the company's nontaxable income as attributable to Lehman units subject to New York taxation, according to the motion.
The deal, scheduled for a May 18 approval hearing before Judge James Peck, could provide much-needed breathing room for a state plagued by financial woes.
New York's $10 billion budget gap forced Gov. Andrew Cuomo to implement across-the-board cuts in his fiscal 2012 budget, and New York City Mayor Michael Bloomberg has said the cuts will hit the city especially hard. The mayor said he may be forced to lay off 46,000 city teachers.
The agreement pegs Lehman's total assessment at $153 million -- $104 million in tax and $49 million in interest -- but is offset by roughly $9 million from overpayments in Lehman's 2007 tax returns.
A spokeswoman for the taxation and finance department did not respond to inquiries Wednesday and a representative for Lehman said the company had no comment on Tuesday's settlement.
Tax authority claims that predate bankruptcy filings are typically considered pre-petition claims and are generally paid ahead of other unsecured claims, but after secured claims.
While the state might have received a larger sum had it waited to be paid out under a restructuring plan, the settlement allows it to get paid sooner, Jeffry Ciongoli, Lehman's global tax director, said in a court filing.
Lehman filed the largest bankruptcy in history in September 2008, listing $639 billion in assets. Lehman Brothers Holdings, the holding company parent of the bankrupt units, has proposed a reorganization plan that would pay creditors about $60 billion, but the plan faces opposition from various creditor groups.
The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555. (Reporting by Nick Brown; editing by Howard Goller and Andre Grenon)