Wednesday, July 28, 2010
Following up on last week's post, Tax Court Rejects Billionaire Anschutz's Use of Variable Prepaid Forward Contracts to Avoid $144m Capital Gain: Forbes, IRS Demands $45 Million From Billionaire McCombs, by Janet Novack:
The IRS is demanding $45 million in back 2002 and 2003 taxes from San Antonio billionaire Billy Joe “Red” McCombs for his use of a tax strategy similar to one a judge disallowed last week for billionaire Philip Anschutz. [Anschutz Co. v. Commissioner, 135 T.C. No. 5 (July 22, 2010).]
In a previously unreported lawsuit filed in May in U.S. Tax Court, the 82-year-old McCombs is contesting the IRS' assertion that he should have reported $213.4 million in long-term capital gains in 2002 from the sale of 11.3 million shares of Clear Channel Communications Inc. -- the company he cofounded in 1972. He's also disputing an additional $3.3 million in 2003 capital gains in connection with the same purported sale. In all, the IRS asserts, McCombs had $245 million in taxable income for 2002 and 2003, rather than the $18 million he reported and owed $53 million in income tax, not the $8 million he paid.
The case involves a complicated strategy, which was widely peddled by Wall Street as a way for rich folks like Anschutz and McCombs to raise cash from highly appreciated stock positions, while deferring capital gains tax. “It's like a who's who of business that entered into these things,'' observed Robert Willens, an independent tax analyst in New York who was a managing director in the equity research department at Lehman Brothers for 20 years. The Anschutz U.S. Tax Court decision was the first on the strategy, and the Anschutz Co. has already said it will “vigorously appeal” the adverse ruling.
Prior TaxProf Blog coverage:
- IRS Targets Billionaire's Variable Prepaid Forward Contract Tax Strategy (June 9, 2008)
- Johnston: Anschutz and a 21st Century Tax System (May 10, 2010)