Aug 6 (Reuters) - The U.S. Internal Revenue Service has

backed off a $1.4 billion claim in its lawsuit against the

Federal Deposit Insurance Corp, saying Tuesday that it will

reach a smaller settlement over taxes that went unpaid when

Silicon Valley Bank collapsed.

The IRS sued the FDIC in Washington, D.C., federal court in

February, asking a judge to overrule the FDIC's complete

rejection of the federal government's tax demands during FDIC's

effort to repay SVB's creditors after the bank collapsed in

March 2023. But after filing its lawsuit and completing a review

of SVB's tax filings, the IRS is now seeking $43.9 million for

corporate income taxes owed between 2020 and 2022.

In a status report filed on Tuesday, the two agencies told a

judge that they are close to resolving the dispute over SVB's

taxes.

The IRS said its initial $1.45 billion demand was an

estimated total for corporate income taxes and employment taxes

going back to 2020, and that it was still reviewing SVB's tax

returns when it filed the claim.

A big chunk of the IRS claim resulted from its disallowance

of a 2022 reported loss based on SVB's use of "mark-to-market"

accounting for certain assets whose values fluctuated over time.

The IRS later resolved the "mark-to-market" dispute with SVB

Financial Group ( SIVBQ ), Silicon Valley Bank's former parent company,

and amended its tax claims to seek a total of $43.9 million in

corporate income tax payments for the years 2020 to 2022,

according to the status report.

The IRS has agreed to continue discussions with SVB

Financial Group ( SIVBQ ) about its remaining tax claims as part of SVB

Financial Group's ( SIVBQ ) bankruptcy.

The IRS and FDIC asked a judge not to take any action on the

IRS's lawsuit for at least 90 days, which would give the two

agencies time to "engage in settlement discussions with the

hopes of resolving this matter without further involvement of

the Court."

The IRS and the FDIC did not immediately respond to requests

for comment on the lawsuit.

SVB Financial Group ( SIVBQ ) received court approval of its

bankruptcy plan on Friday, agreeing to turn over its assets to

creditors while it continues a separate lawsuit against FDIC

over the regulator's seizure of $1.9 billion from SVB Financial

Group's ( SIVBQ ) accounts during the bank's collapse.

Silicon Valley Bank was acquired by First Citizens

BancShares after its March 2023 collapse.

The case is United States v. Federal Deposit Insurance Corp

as receiver for Silicon Valley Bank, U.S. District Court for the

District of Columbia, No. 1:24-cv-427

For the IRS: Kristina Portner of the U.S. Department of

Justice, Tax Division

For FDIC: Alicia Hunt of the Federal Deposit Insurance Corp

Read more:

IRS sues FDIC over Silicon Valley Bank's $1.4 billion tax

debt

Silicon Valley Bank's former owner gains approval to end

bankruptcy

Silicon Valley Bank's former owner, FDIC bracing for fight

over $2 bln

Regional banks face big hurdles a year after SVB collapse

(Reporting by Dietrich Knauth in New York)