Monday, June 23, 2008

Leaky Tax Shelter

"The [IRS] is fighting with billionaire Philip Anschultz to force the Denver-based mogul to pay back taxes totalling $143.6 million. ... The deals netted him cash, as well as a share of any future rise in the stock price, with a toal value of roughly $429 million. The arrangement is also set up to protect him against losses if the stock price falls. He contends the deals technically weren't completed sales for tax purposes, and thus didn't trigger tax obligations, according to filings in U.S. Tax Court in Washington. ... In transactions like the one used by Mr. Anschutz, an executive agrees to turn over his shares to an investment bank on a specific date in the future, and meanwhile loans the bank the same amount of stock. The bank gives the executive cash up front, generally equal to as much as 80% of the shares' fair value. ... 'You've got all the elements of a completed sale: One guy's got the money, and the other guy's got the stock,' said Robert Willens, a former Wall Street tax aanlayst who runs his own corporate-tax advisory firm in New York. 'What more do you need for a sale?' ... Investment banks benefit by charging wealthy clients fees for services like these. ... An important part of the arrangement involved Mr. Anschutz also loaning nine million shares to DLJ for the length of the tranasaction. That would allow the invesment bank to engage in a 'short sale' of the shares to hedge its risk against a loss in the original transaction stemming from a drop in the stock price", WSJ, 9 June 2008.

I agree with Willens, there is no substance to this arrangement. Anschutz, pay up.

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