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(Bloomberg) -- Caterpillar Inc. said the Internal Revenue Service has “proposed” tax increases and penalties of about $1 billion after examining its U.S. returns for 2007 to 2009, including a loss carryback to 2005.

The IRS has proposed taxing U.S. profits the company earned from certain parts transactions by its Caterpillar SARL unit based in Switzerland, Caterpillar said in a securities filing Tuesday. The IRS is also disallowing about $125 million of foreign tax credits from financings unrelated to the Swiss entity. The company received the IRS revenue agent’s report on Jan. 30.

“We intend to vigorously contest through the IRS appeals process,” Caterpillar said in the filing.

The Peoria, Illinois-based manufacturer said it complied with tax laws relevant to the parts transactions. Based on current information, it does not anticipate “a significant increase or decrease” to its tax benefits for these matters in the next 12 months and does not expect a “material adverse effect,” according to the filing.

Caterpillar is among several multinational companies whose overseas profit and taxes are being questioned by government agencies and Congress.

Geneva-based Caterpillar SARL and its predecessor entity have sold replacement parts, machines and engines to non-U.S. dealers for more than 50 years, spokeswoman Rachel Potts said in an e-mail Tuesday. Caterpillar SARL has employed several hundred employees in Switzerland and other countries who work with dealers and customers in non-U.S. markets, she said.

Potts declined to comment beyond the securities filing.

On Sept. 12, 2014, the company was notified that the Securities and Exchange Commission was conducting an informal investigation relating to its Caterpillar SARL unit and related structures, according to the filing. The SEC asked Caterpillar “to preserve relevant documents” and the company voluntarily made a presentation to the agency’s staff on those topics, according to the filing.

Separate Subpoena

Separately, Caterpillar on Jan. 8 received a grand jury subpoena from the U.S. District Court for the Central District of Illinois requesting information about matters including the movement of cash among its U.S. and non-U.S. units, according to the filing. The company declined to specify which units the subpoena covers.

Caterpillar said it is cooperating with the SEC and the court.

Questions about Caterpillar’s Switzerland business have also been raised by the U.S. Senate. On April 1, an investigative subcommittee held a hearing that focused on Caterpillar’s 1999 decision to run its global parts business from Switzerland through a subsidiary with tax rates as low as 4 percent.

Senate Probe

The inquiry found that Caterpillar saved as much as $2.4 billion in taxes over 13 years from what Senator Carl Levin, then chairman of the committee, said was a “paper change.” According to a report by the committee’s majority staff, Caterpillar was able to take a profitable U.S.-based business, change little if anything about its operations and locate it in Switzerland for tax purposes. Julie Lagacy, who at the time oversaw Caterpillar’s tax operations, said the company engaged in standard, prudent business transactions.

“We cannot remain competitive, we cannot create jobs and we cannot increase exports by incurring unnecessary expenses,” Lagacy told a Senate investigative committee. “Americans pay the taxes they owe, but not more. And as an American company, we pay the taxes we owe, not more.” A month after the hearing, Caterpillar disclosed that the IRS was investigating the parts maneuvers.

Caroline Nolan, a spokeswoman for PricewaterhouseCoopers LLP, which helped create the transactions, had no immediate comment on the matter.

--With assistance from Zachary R. Mider in New York.

To contact the reporters on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Jim Efstathiou Jr., Will Wade

Bloomberg