Yum! Brands Sues IRS Over $4 Billion Realignment Tax Bill (1)

Restaurant giant Yum! Brands Inc. sued the IRS late Wednesday in an attempt to block a $4 billion tax bill over corporate reorganization transactions that the company contends should be tax-free.

The company’s complaint, filed in US Tax Court, alleges that the IRS made erroneous adjustments to the company’s 2013-2015 taxes in attempting to levy taxes and penalties on transactions related to a 2014 series of reorganizations by Yum, which owns restaurant chains KFC, Pizza Hut, and Taco Bell.

Yum maintained that it didn’t underpay its taxes, as the IRS had alleged. The complaint asks the court to determine that the company’s taxes had “no deficiencies.”

An IRS spokesperson didn’t immediately respond to a request for comment on the lawsuit.

In the reorganizations in question, Yum realigned its divisions around each of its individual restaurant brands instead of on a geographic basis. The realignments were intended “to drive greater brand and geographic focus and propel global growth,” the company said in the complaint.

Each of the reorganizations involved exchanges of debt for stock that Yum maintains are non-taxable, according to the complaint.

But after an audit, the IRS disagreed with the company’s stance. The agency told the company in 2022 that it had underpaid its taxes by $2.1 billion, and also owed $418 million in penalties. Yum has also said in its securities filings that it owes interest on the IRS’s assessments that now amounts to $1.5 billion.

Yum has said that it and the IRS attempted to resolve the matter through the IRS Independent Office of Appeals but were unable to do so.

Yum also argued in the complaint that the regulations that the IRS relied on in assessing the taxes are invalid because the IRS exceeded its authority and violated the Administrative Procedure Act in promulgating them.

Mayer Brown LLP represents Yum.

The case is Yum! Brands Inc. and Subsidiaries v. Commissioner, T.C., No. 8287-25, 6/4/25.