MILAN (Reuters) - Fiat Chrysler FCHA.MI has challenged a claim by Italy's tax authorities over the valuing of its U.S. Chrysler business that could leave it with an unwanted tax bill just days ahead of an expected key merger agreement with Peugeot owner PSA PEUP.PA.

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On Wednesday, a source close to the matter said the Italian tax agency believed Fiat Chrysler (FCA) had underestimated the value of its U.S. business, after its phased acquisition of Chrysler by 5.1 billion euros.

“We strongly disagree with this preliminary report,” an FCA spokesperson said on Thursday.

The tax audit comes at a delicate time for the carmaker which is finalizing talks with PSA, the maker of Peugeot and Citroen, over a planned $50 billion merger to create the world’s fourth-largest automaker.

A source close to PSA said the information was public and came as no surprise for the French carmaker.

The tax audit is “another complication” in the way of a binding merger agreement with PSA, but one but which FCA can manage, an analyst at Italian broker Equita said.

“We think it will be less relevant than the GM lawsuit, as negotiations with tax authorities are ongoing, which are expected to be closed by year-end and possibly leading to an accord on a much lower amount,” Martino De Ambroggi said.

Last month rival General Motors filed a racketeering lawsuit against FCA, alleging it bribed union officials in the U.S. over many years to corrupt the bargaining process.

FCA has called the allegation “groundless”.

The Italian tax authority audit, which concerns transactions dating back to 2014, could result in FCA having to pay back taxes for $1.5 billion, the source said.

“We are confident we will successfully make the case for a material reduction in the assessment,” the FCA spokesperson said.

In its third-quarter report in October, FCA said Italy’s inland revenue had issued the company with a final audit report in October this year.

It said the issuance of a final audit report starts a 60-day negotiation period, which ends with the issuance of a final audit assessment expected to be received by the end of December 2019.

If confirmed, the audit could result in a material proposed tax adjustment relating to the 2014 merger of Fiat into FCA NV, it said.

“Any remaining taxable gain assessed would be offset by carry forward tax losses with no material cash outflow or impact on earnings,” the FCA spokesman said on Thursday.

FCA shares were down 0.64% by 1255 GMT, underperforming a 0.4% rise of Italian blue-chip index FTSE MIB .FTMIB.