An expert witness for the Internal Revenue Service questioned the financial projections prepared by Eaton Corp.'s experts Friday in U.S. Tax Court, saying the data they relied on wasn't available in 2012, when the company took on debt to acquire Ireland-based Cooper Industries, a global electrical products manufacturer, for $13 billion.

An expert witness for the IRS argued in U.S. Tax Court on Friday that financial projections prepared by Eaton Corp.'s experts relied on data that wasn't available in 2012, when the company took on debt to acquire Ireland-based Cooper Industries for $13 billion. The financial information compiled by Jonathan Rush of Ankura Consulting Group LLC to assess the creditworthiness of Eaton in the U.S. didn't exist at the time the transaction was conducted, IRS expert Ann Hughes of Coherent Economics told the court. Hughes testified the same day as Eaton's expert Shannon Anderson, a professor at University of California, Davis Graduate School of Management, who relied on data from Rush for projections in her report.

At issue are interest rates and guarantee fees Eaton in the U.S. paid to its new Irish parent, Eaton PLC, after it acquired Cooper and inverted. The IRS contends Eaton failed to consider "implicit support" from its parent, which should have greatly reduced the interest rates and guarantee fees.

Eaton had asked Rush to assess the creditworthiness of what it refers to as New Eaton U.S. — all entities that were intended to be majority-owned by Eaton in the United States after the Cooper acquisition and inversion. His analysis separated the U.S. and non-U.S. entities into two groups using historical financial statements from the pre-acquisition Cooper and Eaton groups.

Hughes pointed out that Eaton's accounting systems in 2012 weren't capable of creating segmented financial statements for the U.S. business.

"That information was not known or knowable at the time the transaction was conducted," she said, adding that the financial statements Rush compiled weren't audited or considered by any internal or external stakeholders.

Hughes' own report was accepted over the objection of one of Eaton's attorneys, Juliana Hunter of Skadden Arps Slate Meagher & Flom, who said its main purpose was to critique Eaton's "flexible model" for cash flow projections. Given that Eaton itself is not using the flexible model, the report "seems like a distraction," Hunter said.

Judge Albert Lauber, however, said he found Hughes' report "helpful in several ways."

The trial over the financing of the Cooper acquisition is just one part of Eaton's larger case against the government, in which it contests total deficiencies of more than $600 million and $76 million in penalties for 2012 and 2013. No penalties are at issue regarding the interest rates and guarantee fees, and the deficiency amount related to those items is roughly $291 million.

Eaton is represented by Rajiv Madan, Nathan Wacker, Royce L. Tidwell, Melinda H. Gammello, Juliana D. Hunter, Elizabeth J. Smith, Ryan K. Fackler, Dominic M. Reilly, Paige Levenberg, Tanushree Bansal and Rachel D. Harper of Skadden Arps Slate Meagher & Flom LLP.

The IRS is represented by Timothy L. Smith, Jeannine Zabrenski, Emily Snider, Elizabeth Turnbull, Steven Balahtsis, Shannon Bambery, Mark Frazer, Trevor Maddison, John Altman, Blake Corry, John Guarnieri and Ronald S. Collins Jr.

The cases are Eaton Corp. & Subsidiaries v. Commissioner of Internal Revenue, docket numbers 2607-23 and 2608-23, in the U.S. Tax Court.