InterDigital Inc (IDCC)

[The Count]

Amending returns for foreign tax credit

When one pays tax on foreign income to a foreign country, you can claim a credit against your US tax (a dollar for dollar benefit) or you can deduct the payments as an expense (reducing your taxable income, the benefit is your expense times the marginal tax rate). The choice is typically a no-brainer, as the credit gives a bigger benefit. However if you don't have taxable U.S. income then there is no immediate benefit and the tax credit or Net Operating Loss (NOL) carries over to future years. NOLs carry over for 20 years until used up, credits can be carried forward for only 5 years. Therefore you it may be beneficial to take the expense to create a bigger NOL that gives you a much longer period in which to become profitable and get a benefit from the expense, rather than to claim the credit that may expire unused. IDCC chose the expense. The IRS, in a rare display of reasonableness, allows companies 10 years from the filing date of the original return to amend the return and change the election, instead of the normal 3 year statute of limitations.

Now that IDCC has become a profitable tax paying member of society, it is seeking to change it's election to claim the credit on the old returns, to save approximately $20 million in federal taxes paid. However due to the complexity of multinational filings and additional information required to support the tax credit, IDCC is going to have to work through the process to see if they are able to amend.

Bottom line is that there is a potential $20 million tax federal tax refund that IDCC may be entitled to receive, and they would get it in 2009.