The digger-maker rejects claims of $2 billion tax fraud

By Geoffrey Smith
July 3, 2017

The Internal Revenue Service has found what it considers to be the first evidence supporting its suspicions of tax evasion by Caterpillar in the wake of a raid of its headquarters in March, The Wall Street Journal reported Monday.

The WSJ said federal investigators had found that Caterpillar had failed to submit a raft of required paperwork tied to exports in recent years, and unearthed discrepancies between Caterpillar’s regular filings and what it passed to authorities in response to subpoenas prior to the raids.

Caterpillar has rejected any suggestion of avoiding taxes and CEO Jim Umpleby has promised to cooperate with the authorities.

The IRS, which is investigating the Peoria, Ill.-based maker of earth-moving equipment, suspects it of trying to depress its tax liability in the U.S. by as much as $2 billion, by assigning the profit from sales of replacement parts to customers worldwide to the books of a subsidiary in Switzerland. The issue was first mooted in 2014, but the Securities and Exchanges Commission closed an inquiry into it in 2015 without any enforcement actions.

According to the WSJ, government inspectors, as part of their investigation, have commissioned a report by a professor at Dartmouth’s Tuck School of Business which came to the conclusion that the company had indeed committed tax and accounting fraud. That report isn’t public and Caterpillar hasn’t commented on it, but the WSJ said it disagreed with the professor’s assumption and conclusions.

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