Kevin McCoy

USA TODAY

Shares of Caterpillar (CAT) fell sharply Thursday as federal authorities searched the U.S. heavy equipment giant's Peoria, Illinois headquarters and two nearby facilities in what the company described as a tax investigation with billions of dollars at stake.

The stock, one of the 30 components of the Dow Jones Industrial Average, closed nearly 4.3% lower at $94.36 a share.

"Law enforcement is present in various Peoria-area Caterpillar facilities executing a search warrant," company spokeswoman Corrie Heck Scott said in an email that stated Caterpillar is cooperating with investigators.

Sharon Paul, a spokeswoman for the U.S. Attorney's Office for the Central District of Illinois, confirmed that federal law enforcement activity was conducted in Peoria, East Peoria, and Morton.

Investigators executing search warrants represented the Federal Deposit Insurance Corporation's Office of Inspector General, the IRS' Criminal Investigation Division and the U.S. Department of Commerce's, Office of Export Enforcement, Paul confirmed.

After trading markets closed, Caterpillar issued a statement that said its officials believe the search focused at least in part on export filings involving a Swiss subsidiary known as CSARL. The company's 2014 annual report disclosed that the Securities and Exchange Commission had begun an informal investigation of the Swiss subsidiary and had sought preservation of related records.

Federal search warrants specifically cited records related to CSARL.

Caterpillar 2017 Search Warrants

Updating the issue in its 2016 annual report filed last month, Caterpillar said CSARL accounted for a major amount of undistributed profits from foreign subsidiaries that the company had "determined to be indefinitely reinvested outside the U.S."

Those profits taxed in Switzerland, where business levies are typically far lower than the 35% U.S. top corporate rate. However, the IRS has proposed to tax profits earned from certain machine and other parts transactions by CSARL in tax years 2007 to 2012 at higher U.S. rates, the company disclosed.

"We are vigorously contesting the proposed increases to tax and penalties for these years of approximately $2 billion," Caterpillar said in the 2016 filing. "We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines."

Caterpillar announces plans to move headquarters to Chicago area

The filing also predicted that a final decision on the issue would not have a material adverse effect on Caterpillar's financial position, liquidity or operations results.

Report: Caterpillar avoided U.S. taxes - USATODAY.com

The issue was spotlighted by a 2014 U.S. Senate report that said Caterpillar avoided $2.4 billion in U.S. taxes by reaching a corporate deal with Switzerland and shifting profits to the CSARL subsidiary. The agreement transferred the company's international parts distribution division to the Swiss-based unit, according to the report by the staff of the then-Democratic majority of the Senate Permanent Subcommittee on Investigations.

Despite the estimated $8 billion profit shift, no Caterpillar personnel or business activities moved from the U.S. to Switzerland, and most of the firm's parts business remained in the U.S., the report said.

Caterpillar officials said at the time that the company's effective income tax rate averaged approximately 29%. The company added that it "takes very seriously its obligation to comply with the tax laws enacted by the Congress, by the states" and other jurisdictions.

Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc