After enduring countless embarrassing headlines, the drugmaker has agreed to settle a long-running tax dispute with the Internal Revenue Service.

The definitive agreement covers IRS scrutiny for 1993 through 2001. The final net cash cost is expected to be approximately $2.3 billion which covers federal tax, net interest after federal tax deductions and penalties, according to a press release. The impact for years subsequent to 2001 of the previously disclosed tax disputes is included in the settlement, although those years remain open in all other respects. Hmmm…..

Although Merck called the $2.3 billion a “theoretical” number, it jives with $2.3 billion related to a partnership deal going back to 1993. That involved a controversial arrangement in which Merck shifted taxable income to a subsidiary of a UK bank, while avoiding the financial loss of shifting comparable income.

To assuage investors, Merck notes that reserves were previously set aside for the tax disputes and the settlement shouldn’t have any material impact on 2007 earnings. Gracious as ever, the drugmaker “acknowledges that this agreement was reached as a result of the cooperation and reasonableness of the IRS and the Company.”

No mention of the $1.7 billion tax dispute with Canada, though.

[tags]IRS, Merck[/tags]