Nortel: Your Tax Tab is $3-Billion

By Mark Evans | Published: August 28, 2009

Just when you thought the Nortel soap opera couldn’t get more bizarre, it takes another fascinating twist as the Internal Revenue Agency has hit it with a $3-billion claim for back taxes, interest and other penalties.

The IRS’ claim comes a month before the Sept. 30 deadline for filing claims. According to the Ottawa Citizen, this could throw Nortel’s bankruptcy protection process in to complete disarray as “tax claims often receive priority in a bankruptcy proceeding”.

For more, check out the Ottawa Citizen story.


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  • whatnext4nt

    Claim #1935: $3,016,650,830.82

    http://chapter11.epiqsystems.com/NNI/claim/sear…

    CFO asleep at the wheel again? WTF?

  • yes4aapl

    I'd say its a criminal negligence at least.
    Nortel does what Nortel knows the best and that is defrauding shareholders, bondholders, employees, pensioners, and all other stakeholders….
    when at the same time CEO, CFO … and BoardofDirectors are secured with cash!
    Shame on Nortel for that!
    Shame on media that they did not talk and investigate that in last 10 years!
    I'll call my friend, defrauded shareholder as the witness in that case.
    When I was already sure about Nortel and NT stock he still believed every PR Nortel issued. ThePsychiatrist, are you here to confirm that?

  • put_em_in_jail

    you'd think the US federal government would put some of the senior executives in jail for this? Mike Z and Pavi in jail….next to Ebers, Madoff, Skilling, Nacchio and other executive crooks of this decade…..now that would be priceless

  • NortelTragedy

    A $3B tax bill isn't created over one quarter, or even one year. How long has this been building and why wait until now?

  • GoProto

    Exactly, WTF?????? Is this why Z jumped ship , to avoid facing this music on top of all other disgraces??

    This has probably been known about by insiders for some time. Why did IRS do it now? because their hand was forced probably by the Sept. 30 deadline, so they had to wrap it up. That's my best guess, but obviously this has been a long time coming and NT lawyers have deferred and deflected and avoided til they can't anymore cuz the end is near. The IRS is not gonna let all the assets get sold and $ distributed before they make this claim. That's why NOW.

  • whatnext4nt

    It goes back to 1998; check out claim # 1935 in the Epiq Systems Nortel link. 2.97 billion is claimed as unsecured priority, i.e. it has or claims to have priority over unsecured general claims. Staggering.

  • whatnext4nt

    Zomebody’s next gig may be making license plates.

  • NortelTragedy

    What does this mean for the stalking horse for Ent, GSM, MEN and CVAS … and the E/// purchase of CDMA? The IRS will simply be first in line for proceeds, correct?

    Do you think there will be criminal charges involved? Dunn, Z, Roth, going back to 1998. The list of “Who Knew”?

  • NortelTragedy

    Taxman by George Harrison, although my favorite version is by SRV: http://www.youtube.com/watch?v=xYfiK7gfyP4

    Let me tell you how it will be
    There’s one for you, nineteen for me
    ’cause I’m the taxman
    Yeah, I’m the taxman

    Should five percent appear too small
    Be thankful I don’t take it all
    ’cause I’m the taxman
    Yeah, I’m the taxman

    (if you drive a car car) I’ll tax the street
    (if you try to sit sit) I’ll tax your seat
    (if you get too cold cold) I’ll tax the heat
    (if you take a walk walk) I’ll tax your feet

    Taxman!

    ’cause I’m the taxman
    Yeah, I’m the taxman

    Don’t ask me what I want it for
    (ah, ah, mr. major)
    If you don’t want to pay some more
    (ah, ah, mr. [..])
    ’cause I’m the taxman
    Yeah, I’m the taxman

    If I reduce it, can you sleep
    (ah, ah, boris yeltzin)
    Get back [..] v.a.t.
    (ah, ah, mr. bush)
    ’cause I’m the taxman
    Yeah, I’m the taxman

    If you get a hat hat, I’ll tax your hat
    If you get a cat cat, I’ll tax your cat
    If you wipe your feet feet, I’ll tax your mat
    If you walk away away, I’ll tax your [..]

    Now my advise to those who die
    (taxman!)
    Declare the pennies on your eyes
    (taxman!)
    ’cause I’m the taxman
    Yeah, I’m the taxman.

    And you’re working for no one, but me
    (taxman!)

    Yes, I’m the taxman
    Yeah, I’m the taxman

  • Nortel watcher

    Folks, not that it matters a whole lot at this point but if Nortel Networks USA filed CH11 on January 14 and Nortel CALA filed on July 14 proving they are separate entities, would it be reasonable to assume that CALA could have its very own IRS lien before its claims filing deadline expires?

    And if it does get slapped with an IRS lien, wouldn't it make a case for Nortel committing the systematic intent to defraud the US govt.?

    Any thoughts? Who would the feds chase to put the cuffs on – clueless Bejar, metrosexual Joannou or accent-heavy Barrios?

  • thing

    correct me if i'm wrong, the way to give creditors the maximum amount of their money back was to sell off all the business and use that money. Now the creditors are gonna be worried coz most of that cash is gonna go to the US govt. as a priority over the the money lenders and the poor employees who were robbed of their severance packages and pensions ? I dont get how, if indeed Nortel had fallen behind on taxes in some way, that they would wait 10 years? Surely if it was an individual, every year they would turn him upside down to get every penny out!!

    Although, I cant see how this would affect the sale of the businesses anyway, unless there is a better way to make money? Liquidation of nortel wouldnt bring the kind of money assets sales would.

  • GoProto

    NT never Fails when it comes to adding to the Tragedy that has now defiled and defined their Legacy.

    Everyone is F*cked now. Creditors, Employees, Former Employees, Buyers, Bidders.. Oh wait, not everyone, the Lawyers and Accountants/Monitors will now even add more to their running tab…

  • joremero

    I agree. Almost everyone is fcked now. Had this been known a couple of years ago, everyone would have known that was the end……instead it took most people until recent announcements ( months ago) that the end was here.

  • zeroman

    no wonder all the execs have bailed latest being Z. The Legal officer had bailed too.

    wow! this goes back 10 years, amazing how these people get away with it with impunity. kind of sickening to see corporate turn out like this.

  • Meridian

    I think this is just a US gov't money grab in attempt to cover the US pension fund shortfall. I can't see how Nortel could have any significant tax liability in the USA.

  • yes4aapl
  • yes4aapl

    Let's say Nortel's CFOs were crooks included Pavi b
    but how audit companies D&T and KMPG missed that tax?
    btw
    Can anyone find the source for that?
    Jim Middlemiss, Financial Post
    Published: Saturday, February 23, 2008

    Two U.S.-based union pension funds have filed an application in the Ontario Superior Court asking a judge to permit them to sue accounting giant Deloitte & Touche LLP for $3-billion on behalf of Nortel Networks Corp. and Nortel Networks Ltd.

    They allege Nortel's former auditor was negligent, breached its fiduciary duty and breached its contract over the handling of the telecomequipment maker's financial statements from 2000 to 2006.

    The January statement of claim alleges that “because Deloitte failed to detect Nortel's material revenue accounting errors, its confirmations procedures either were not performed or were performed deficiently.”

    The claim alleges that Deloitte became “excessively familiar with Nortel's management,” over its 90-year relationship with the firm, which resulted in “complacency.”

  • vvvv

    It's plausible that the US IRS believes NNI has, or might have, a tax liability this big. The IRS will argue that NNI paid excessively high transfer costs to Nortel subsdiaries in other jurisdictions, effectively moving Nortel's profit from the U.S. (where the IRS could tax it) into other countries.

    http://www.irs.gov/newsroom/article/0,,id=16235… shows what happened to GlaxoSmithKline.

  • protosphere

    Add the taxman to the growing list of those Nortel burdened, like shareholders, suppliers, growing creditors, employees, etc…everyone actually.

    $3B sounds like a lot but it is less than 1% of the $300B market cap they vaporized /while diluting to keep good people they said

    The only ones not burdened are the pigs at the trough maintaining exorbitant pay practices before during and after the largest fraud settlement in Canada…perhaps with follwoing events to deflect, who knows, it is too profoundly astounding to reason otherwise

    Bad enough they are disgraced than to add Keystone Clowns as insult to injury at best in error or with intent at worse. i.,e. did they truly not know in error with all the past hype or did they lie with intent like beefing assets or revenues? If they didn't, they should have all along.

    The way news is hitting the fan, I have a feeling they may need that increased lawsuit insurance after all, who's premiums also get paid before creditors like their legal fees and bonuses.

    The few billion they got for assets won't even cover their tax bill for heavens sakes.

  • GoProto

    No wonder all the kool-aid drinkers have been silent. How can anyone possibly defend any of these low-life evil creeps now? It's almost unbeilevable now. Incompetency almost seems bearable as compared to this.

  • GoProto

    Jiminy Christmas! The details really hammer it home. I am going to be sick now.

  • wasthere

    Humm …… this looks like someone trying to make a big hold-up before the cash register is empty. Where were they during all these years ? Suddenly they have a claim ! Yeah sure, looks more like jackals trying to get a peace of the dead body !

  • yes4aapl

    GoProto
    ===
    re
    I read it like a criminal book.
    I wonder if it is possible to cut and paste it here for the reference in the future?
    Look 3 of them have been punished about $100k each plus they cannot be managers for 5 years!
    What about the main accounting book cookers?

  • ntdillusional

    Nothing Mike Z cant pay off. He got plenty in severance and hiring fees, throw him and his cronies into the tank. Crosby, Lower, Hackney the whole lot of them.

  • 4merEmployee22

    If this is a ligitimate claim? by the IRS.
    Could this be one of the reasons why Mike Z. and some BoD resigned???
    But!, then again we'll never know?
    How about the CRA? The Canadian Revenue Agency, will they make such
    claim too?

  • Zhacknightmare

    This has to be Fraud, Z spoke about $20 buying opportunities while all along this IRS claim was sitting in the bottom drawer of his desk. 3bn debt would have got us to where we are now years ago and on much better shape.

    Z should be locked up once and for all.

  • got_out_years_ago_ty

    “Only when the tide goes out do you discover who's been swimming naked”… Warren Buffett

  • ExNtrl

    This goes back to my original statement
    I wouldn't let these Nortel executives (I use the term loosely) run a koolaid stand and hire 5 year old kids to run it (again I apologize to 5 year old kids)

    Warning to corporations world wide. Make a list of the Nortel executives and people on the BoD during the last 12 years at Nortel (starting at Roth) and put these people on the Do Not Interview list for your company if you value the company.

  • less

    I thought the amount of $3bil sounded vaguely familiar

    More than 18 months ago, Nortel Networks announced it would spend $3.25 billion for Xros, a startup that was building a MEMS-based optical switch that promised to supplant its costly and inefficient electronic counterpart. The mega deal prompted venture capitalists to dump money into similar startups, to the tune of $1.2 billion last year.

    Nortel waxed no less poetic:

    http://www.nortel.com/corporate/news/newsreleas…

    March 14, 2000

    Nortel Networks to Acquire All-Optical Switching Pioneer Xros for US$3.25 Billion to Extend Optical Internet Leadership

    Revolutionary 3D Micro-Mirror Technology Provides Key Building Block in Creation of All-Optical Network

    Nortel announced an agreement to acquire Xros (pronounced KY-ROS), a world leader in second-generation, large-scale, fully photonic switching, for US$3.25 billion in Nortel Networks common shares on a fully diluted basis. Xros' revolutionary silicon-based micro-mirror technology will allow data to be switched through large-scale optical networks entirely in the form of light. Xros is another key building block in Nortel Networks strategy to be the first-mover in delivering the all-optical Internet.

    Xros' X-1000 switch won “Best of Show” on March 7, 2000

    G-g-golly

    Lucent Technologies and OMM Inc. are already shipping to customers in limited volume. Xros' switch, which uses tiny mirrors to bounce (or switch) light as it travels down fiber optic cables, remains in trials but will begin shipping in the second quarter of 2002.

    In the end, the telecom slowdown could doom the entire MEMS-based switch industry

    Pah! Meh!

    http://www.sandiego.com/index.php?option=com_sd…

    Optical switch manufacturer OMM Inc. is closing up shop and laying off all of its 85 employees as of Friday, March 7, 2003. All the company's assets will be turned over to creditors.

    Xros was the winner, for sure.

  • less

    I thought the amount of $3bio sounded vaguely familiar

    More than 18 months ago, Nortel Networks announced it would spend $3.25 billion for Xros, a startup that was building a MEMS-based optical switch that promised to supplant its costly and inefficient electronic counterpart. The mega deal prompted venture capitalists to dump money into similar startups, to the tune of $1.2 billion last year.

    Yeah, yeah, $12 hundred mio – 18 months, and stuff. Nortel waxed no less poetic:

    http://www.nortel.com/corporate/news/newsreleas…

    March 14, 2000

    Nortel Networks to Acquire All-Optical Switching Pioneer Xros for US$3.25 Billion to Extend Optical Internet Leadership

    Revolutionary 3D Micro-Mirror Technology Provides Key Building Block in Creation of All-Optical Network

    Nortel announced an agreement to acquire Xros (pronounced KY-ROS), a world leader in second-generation, large-scale, fully photonic switching, for US$3.25 billion in Nortel Networks common shares on a fully diluted basis. Xros' revolutionary silicon-based micro-mirror technology will allow data to be switched through large-scale optical networks entirely in the form of light. Xros is another key building block in Nortel Networks strategy to be the first-mover in delivering the all-optical Internet.

    Xros' X-1000 switch won “Best of Show” on March 7, 2000

    G-g-golly

    Lucent Technologies and OMM Inc. are already shipping to customers in limited volume. Xros' switch, which uses tiny mirrors to bounce (or switch) light as it travels down fiber optic cables, remains in trials but will begin shipping in the second quarter of 2002.

    In the end, the telecom slowdown could doom the entire MEMS-based switch industry

    OMM? Pah! Lucent? Meh!

    http://www.sandiego.com/index.php?option=com_sd…

    Optical switch manufacturer OMM Inc. is closing up shop and laying off all of its 85 employees as of Friday, March 7, 2003. All the company's assets will be turned over to creditors.

    Xros was the Winner, for sure. PX Optera changed the world. Or did it?

    http://findarticles.com/p/articles/mi_m0BMD/is_…

    Nortel Postpones Xros Switch Debut

    Communications Today, March 7, 2002

    Nortel Networks [NT] said on Tuesday that it would postpone indefinitely the market debut of a large-scale switch for optical networks acquired in the $3.25 billion purchase of privately held Xros in 2000.

    So, uh, where did Xros vice president of systems architecture, Rajiv Ramaswami, go off to? To Cisco for starters.

    http://www.gildertech.com/public/Telecosm%20200…

    Vice President and General Manager, Optical Networking Group, Cisco. Cisco officials say Ramaswami is now vice president and general manager of the Gigabit Systems business unit

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