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Amgen, IRS in a Row over $10.7B Tax Bill. How will AMGN Stock Price be Affected?

Story Highlights

Amgen is staring at a $10.7 billion tax bill for allegedly underreporting its taxable income over the past decade. The IRS accuses the company of allocating the U.S. income to Puerto Rico entities in order to reduce its tax obligations.

The Wall Street Journal (WSJ) reports that Amgen (AMGN) is in trouble over its low tax rate of 12.5% compared to the industry average of 18% in the last decade. While the low tax burden is attributed to the company’s operations in low-tax haven Puerto Rico, the Internal Revenue Service (IRS) is hearing none of it. The company is entangled in a fierce battle over back taxes and penalties that could rise to $10.7 billion.

Amgen vs. IRS Tax

According to Amgen’s press release, it confirmed receiving a notice of deficiency from the IRS related to its allocation of profits between the U.S. and Puerto Rico entities, in April. At the time, the IRS sought to increase the company’s taxable income for 2013-2015, resulting in an additional federal tax of $5.1 billion. The agency also proposed penalties of about $2 billion.

The latest WSJ report indicates that back taxes owed might have increased to $10.7 billion on the company underreporting taxable income by nearly $24 billion between 2010 and 2015. The IRS alleges that the company allocated the U.S. profits to a Puerto Rico subsidiary to take advantage of the low tax rate in the island territory.

Amgen enjoyed one of the lowest tax rates in 2013 at 3.5%, compared to the 35% rate under federal law at the time. Last year, the company’s tax rate fell to 12.1% from the statutory 21%. Its low tax rate over the years has allowed it to beat analysts’ and quarterly earnings estimates effectively.

Amgen and IRS Tussle in Detail

In the company’s defense, a spokeswoman says they have always been compliant with the law. She adds that the IRS has always agreed on the proportion of profit that should be allocated between U.S. and Puerto Rico operations. The company has also taken issue with the fact that the IRS never raised issues with its tax practices, even on editing its methodology for the eight years before 2010.

Amgen is not the only company to find itself in trouble with the IRS over tax practices. Coca-Cola (KO) and Meta Platforms (META) are also facing billion-dollar lawsuits over how they tax profits that result from operations abroad. In addition, the Senate finance committee has also taken AbbVie (ABBV) to task over how it reduces its tax payments for sales of its blockbuster drug Humira in the U.S.

Wall Street is on the Fence over Amgen Stock

The stock has a Hold consensus rating, based on two Buy, eight Holds, and one Sell. The average Amgen price target of $248.40 implies a little over 1% upside potential from current levels.

J.P. Morgan analyst Chris Schott initiated a Hold rating on Amgen stock with a price target of $227. The analyst’s price target indicates 8% downside potential.

Amgen’s Q2 Earnings Expected This Week

Amgen is scheduled to report its Q2 results on August 4, 2022. TipRanks estimates earnings per share (EPS) for the quarter at $4.39. The company could shed more light on the tax bill tussle with the IRS as it did while reporting Q1 results.

Key Takeaway for Investors

Amgen stock could take a significant hit, as it did in April after confirming the $7.1 billion in back taxes that the IRS was seeking. Its sentiments in the market could turn sour as a $10.7 billion tax bill would have a significant impact on its financials.

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