In the midst of its negotiation with the federal government over revised terms of its bailout, American International Group Inc. sued the U.S. on Friday over a disputed $306 million in taxes, interest and penalties.
The suit steps up a battle with the Internal Revenue Service largely over AIG's use of a controversial type of "tax arbitrage" transaction that authorities are challenging across the world.
With the company essentially suing its owner, the suit highlights the awkwardness of national control of AIG, which the government rescued from potential bankruptcy in September. If through litigation "you're moving money from one pocket to another, why should we be paying lawyers to do that?" says David Weisbach, a tax law professor at the University of Chicago.
"AIG is taking this action to ensure that it is not required to pay more than its fair share of taxes," said a company spokeswoman. An IRS spokesman declined to comment.
In its lawsuit, filed in U.S. District Court in Manhattan, AIG for the first time laid out significant details about its role in the so-called "foreign tax generators" in dispute with the IRS. The general nature of the disagreement was previously disclosed in company securities filings and reported by The Wall Street Journal in May.
