Big Tax Litigation Win for Prudential Overall Supply
On April 23, 2002 the United States Tax Court issued Tax Court Memorandum 2002-103, concerning the method used by Prudential in accounting for its industrial uniforms, cleanroom garments and dust control items. For over 30 years, Prudential Overall Supply has expensed these items when placed in service for both income tax and financial statement purposes. This methodology is consistent with long-established industry practice.
The Internal Revenue Service alleged that the useful life of the merchandise exceeded one year and the method of accounting should be changed to depreciate the items over periods ranging from 3 to 5 years.
The Court ruled that the Internal Revenue Service determination was arbitrary or without a sound basis in fact or law, and was thus an abuse of discretion.
"We are very pleased with the decision reached by the Court and sincerely hope that this ends our protracted dispute with the IRS," said John Thompson, Vice President Finance for Prudential. "It is an important decision for both our company and the entire industry."
According to Jasper G. (Jack) Taylor of the Houston office of Fulbright & Jaworski, the attorney who represented Prudential in the case: "Prudential has faithfully followed, since 1968, a method that was established by the IRS, and approved several times subsequently by the IRS, and which was in accordance with industry practice. I do not understand why Prudential was put through a several year ordeal of defending its method, but I hope that this opinion means that Prudential and the rest of its industry will be allowed to continue using the method that has been applied for decades."