At least one thorn is out of Columbia/HCA Healthcare Corp.'s side. Last week the Nashville-based chain agreed to settle a dispute with the Internal Revenue Service over a tax deduction that one of the company's predecessors, Hospital Corporation of America, took in 1992.
Specifically, Columbia agreed to pay $71 million including penalties. That's about 26% of the $276 million in taxes and interest the IRS claimed the company owed from 1992.
The IRS said HCA improperly claimed a tax deduction for $525 million in stock options that it gave more than 100 top executives in 1992. HCA merged with Columbia in 1994.
The IRS said the the stock options were excessive and effectively were taxable golden parachutes. It said the options were given as a prelude to the merger with Columbia and not executive compensation.
In settling the dispute, Columbia agreed to treat $100 million of the stock options as nondeductible costs related to the 1989 HCA management buyout. The company said it did not expect the settlement to have any effect on operational results.
Columbia spokesman Jeff Prescott said the stock options were not golden parachutes. The value of the options was based on executive tenure and financial performance of the company, he said.
As part of the settlement, the IRS agreed to drop individual claims against some of Columbia's top executives, including Chairman and Chief Executive Officer Thomas Frist Jr., M.D., and Chief Operating Officer Jack Bovender Jr. Those charges topped $110 million in additional taxes.
Prescott said negotiations for the settlement did not affect the timing of the company's announcement of its restructuring plans, which call for the spinoff of nearly one-third of the company's 340 hospitals (Nov. 24, p. 2).
Columbia still has one tax dispute pending with the IRS. In its third quarter report, the company said the IRS claims Columbia owes the government an additional $351 million in income taxes and interest for 1993 and 1994. At deadline, the amount of taxes Columbia paid for those years was not available.