In a brewing courtroom clash that pits fast-food empire against federal power, Yum Brands Inc.—the parent company of KFC, Taco Bell, and Pizza Hut—is challenging a colossal $4 billion tax bill tied to a corporate restructuring the IRS claims triggered billions in taxable income.
The dispute, now sizzling in U.S. Tax Court, centers on $2.1 billion in alleged unpaid taxes, $400 million in penalties, and a staggering $1.5 billion in interest stemming from a 2014 international reorganization designed to streamline Yum’s global operations. In a petition served Thursday, Yum called the Internal Revenue Service’s conclusions both legally flawed and procedurally unsound.
Finger-Lickin’ Fine? IRS Sees Taxable $6B Shift, Yum Sees Lawful Strategy
In what began as a routine restructuring, Yum in 2013 merged its U.S.-based brand divisions with international operations to create global business lines based on restaurant brands rather than geography. This meant unifying KFC, Pizza Hut, and Taco Bell under brand-specific umbrellas worldwide.
But the IRS, following an audit of Yum’s 2013–2015 filings, said the 2014 reorg created over $6 billion in taxable distributions through note-for-stock exchanges. According to IRS agents, the transactions amounted to foreign income disguised as tax-free moves, triggering Subpart F income under Treasury Regulation §1.367(b).
Yum countered that the restructuring complied with federal tax code, specifically rules covering non-taxable corporate reorganizations involving foreign entities. The company warned the IRS was twisting the law and relying on improper interpretations of its own regulations—or, worse, enforcing rules that are invalid under the Administrative Procedure Act.
