AUSWR
The Association of U S West Retirees
 

 

 

When is a sale not a sale? 
By Al Lewis
Denver Post
Tuesday, June 10, 2008

Denver billionaire Phil Anschutz got a letter from the Internal Revenue Service last year, demanding $143.6 million in back taxes.

You don't get to be a billionaire by paying taxes every time the IRS writes a letter.  So Anschutz is fighting back in U.S. Tax Court.

Trial is set for June 23.  Meanwhile, Anschutz is the poster boy for the IRS's latest crackdown on creative tax strategies, garnering a front-page story in The Wall Street Journal on Monday.

At issue is whether some of Anschutz's stock sales at Union Pacific Corp. and Anadarko Petroleum Corp. (which Union Pacific acquired) are really sales for tax purposes.  Anschutz argues they are not, even though he reportedly bagged about $429 million from these deals in 2000 and 2001.

"These transactions were done in complete daylight," Anschutz spokesman Jim Monaghan said.  "The Anschutz Co. consults with the very best tax attorneys in the country . . . and had every reason to believe these transactions were within (IRS) guidelines."

In divesting his shares in Union Pacific in late 2000 and early 2001, Anschutz entered into "forward sales arrangements" that would allow him to defer capital-gains taxes for up to 10 years.  These deals also allowed him to benefit from appreciation in the stock, even after he pledged it for sale.

On the other side of these complex transactions was Donaldson, Lufkin & Jenrette Inc.  Well, actually, a subsidiary of DLJ based in the ... Cayman Islands.

DLJ presumably earned a huge fee to set up this offshore deal.

And since DLJ was on the hook for any price depreciation in the pledged stock over the 10 years, DLJ likely sold Union Pacific shares short betting the price would fall to hedge against losses.  To do so, it "borrowed" the stock.

So Anschutz got cash.  DLJ got stock.  And the IRS got nothing.

This brings up another interesting question, though.  Anschutz was vice chairman of Union Pacific at the time these deals were cut, and entered into transactions that would result in short sales.

In a rare appearance in a Jan. 8, 2001, press release, Anschutz hardly sounded like he was bearish on the stock he was selling, or not selling, or whatever he was doing.

"Union Pacific is a great company with an unparalleled railroad franchise and a strong management team," he said.

The headline on that press release:  "The Anschutz Corp completes sale of three million shares . . . ."  So you can see why some IRS guys might feel confused.

"It's a question of when the ownership of a property transferred from one person to the other," said University of Denver tax-law professor Edward Roche.  "There's no bright line."

No bright line because attorneys and tax experts get paid to smudge it.  The IRS, on the other hand, appears to have allowed these transactions for years and is now cracking down.

"The IRS is having buyer's remorse," Wall Street tax analyst Robert Willens said.  "The IRS is saying, 'This was always the rule;  we just didn't articulate it.' "

All this to avoid paying capital-gains taxes?  I guess some people would rather push the envelope than stick a check inside and lick it shut.

Al Lewis: alewis@denverpost.com

http://www.denverpost.com/business/ci_9534396