A tax bill that the U.S. government claims is owed by Fitzgerald Glider Kits has ballooned to $83 million as the company continues to dispute the original charges.
Crossville, Tennessee-based Fitzgerald, one of the country’s largest manufacturers of refurbished highway tractors, took the government to the U.S. District Court for the Middle District of Tennessee in February after being notified it owed more than $64 million in tax assessments spanning three years, from 2012-14.
Fitzgerald argued before the court that because its costs and profits in assembling a glider kit (typically consisting of, among other things, a cab, frame, steering gear, front axle, front wheels and tires) doesn’t exceed 75 percent of the retail price of a new highway tractor, it is entitled to a “safe harbor” exception to a federal 12 percent excise tax imposed on new highway tractors.
The company based that assertion on the results of multiple prior tax audits on Fitzgerald by the U.S. Internal Revenue Service (IRS) beginning in 1991.
“After decades of telling [Fitzgerald] and other taxpayers that gliders can qualify for the safe harbor…in 2014 the IRS decided to target the glider industry, and specifically [Fitzgerald], and reversed its position in secret, without any public announcement,” the company alleged in its complaint. “Rather than revoke or modify those prior rulings and other published guidance which contradict its new position, the IRS waited until 2017 to inform the public of its new position in a nonbinding and cryptic notice.”
Fitzgerald also claimed it had mediated a settlement in October 2016 for the back taxes, but that government officials later withdrew the settlement.
In a response and counterclaim filed with the district court on July 29, however, attorneys with the U.S. Justice Department’s tax division maintained that for most of Fitzgerald’s allegations, the government lacked “information sufficient to form a belief about the truth” of them or denied them outright.
The government also asserted that the amount owed by Fitzgerald had increased to $83,007,547.47 as of February 18, 2019, based on interest accrued since the IRS assessed its tax bill in April 2017. But Fitzgerald claims it is no position to pay the disputed bill because it had not been collecting the excise tax from its customers to cover it.
“The IRS’ assessments for the relevant tax periods represent amounts that [Fitzgerald] never charged to its customers because it reasonably believed (and was induced to believe) that the 75 percent safe harbor math test applied,” the company stated in its complaint.
“Under the circumstances, requiring [Fitzgerald] to pay almost $65 million in excise taxes, penalties and interest would cause [Fitzgerald] to suffer an unconscionable injury and undue hardship.”
When contacted for a response, a lawyer for Fitzgerald cited an opinion filed in the case by district judge Waverly Crenshaw denying previous motions by the government to dismiss Fitzgerald’s complaint.
Many of the glider trucks manufactured by Fitzgerald and its competitors are purchased by smaller carriers and independent owner-operators that can’t afford the cost of a new truck, which can cost up to $200,000 or more.
Fitzgerald had commissioned a study in 2017 with Tennessee Technological University that found glider engines do not pollute any more than modern systems from original equipment manufacturers. However, a government watchdog recently concluded that the U.S Environmental Protection Agency used valid testing procedures in finding that glider kits do pollute more than new trucks.