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Court Overturns UPS Tax Ruling

June 22, 2001

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ATLANTA (AP) _ A federal appeals court has overturned a 1999 ruling that said United Parcel Service illegally used offshore companies as tax shelters, sending the case back to U.S. Tax Court.

A three-judge panel of the 11th U.S. Circuit Court of Appeals said Wednesday that the Internal Revenue Service should analyze any claims against UPS under provisions of tax code cited by the shipping company.

In 1983, UPS created a subsidiary in Bermuda that was later called Overseas Partners Ltd., which was subsequently spun off but remains owned by UPS employee-shareholders. Its purpose was to provide reinsurance _ a way of spreading risk _ for UPS packages insured for more than $100, according to court documents.

That arrangement was found to be an illegal offshore tax shelter by Tax Court Judge Robert P. Ruwe, who ruled on Aug. 9, 1999, that UPS was ``motivated by the reduction of federal income tax″ in what the judge called a ``sham transaction.″

But the 11th circuit said Wednesday that ``the sophistication (of the insurance revisions) does not change the fact that there was real business that served the genuine need for customers.″

``This case was much more to us than a dispute over tax regulations and tax code interpretations, because we hold nothing more sacred than our reputation,″ UPS chairman and chief executive Jim Kelly said in a statement.

An IRS spokesman did not immediately return a telephone call seeking comment.

The appeals court panel was made up of 11th Circuit judges Charles R. Wilson and Emmett R. Cox, and U.S. District Judge Kenneth L. Ryskamp.

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