… unless you’re Sam Zell.<\/p>\n
Most of you have heard by now how our hometown paper, the Los Angeles Times<\/a> has been sold by the Chicago Tribune<\/a> to Sam Zell<\/a> — in fact, all Tribune properties have been sold. You may be thinking to yourself… boy, those Chandlers<\/a> (former owners of the Times) knew how to avoid taxes, but the Tribune as a whole is probably a good upstanding corporate citizen, and under Zell ownership, will be paying its fair share of taxes.<\/p>\n Think again, oh naive readers.<\/p>\n After the transaction completes, do you know how much tax Sam Zell will pay on Tribune and its income? A big fat Zero. Goose Egg. No taxes.<\/p>\n How, you may ask, is Zell doing this? Both LA Biz Observed<\/a> and the Washington Post<\/a> are describing the scheme. Zell is using a provision that was stuck into a minimum-wage-increase bill in 1996 at the behest of the owner of a small Minnesota company who wanted to sell a stake to his workers via an employee stock-ownership plan. The company couldn’t do the ESOP<\/a> because it was an S corporation<\/a> (usually small businesses that have income taxed directly to its shareholders) rather than a C corporation (generally large ones). The provision permitted S corporations to do ESOPs<\/a>.<\/p>\n So what is Zell doing? The $34-a-share, $8.2 billion buyout of Tribune is being run through an ESOP, using borrowed money, for a total transaction cost of $13B. Zell is lending the post-buyout company — which will be an S corporation — $225 million. He’ll pay it an additional $90 million for a warrant that gives him the right to buy 40% of it for prices ranging from $500 million to $600 million. The post-buyout Tribune (call it S-Tribune) will be an S corp, with its only shareholder the employee stock ownership plan, which — like all ESOPs and other employee-benefit plans — is tax-exempt. Had it been a C-Tribune, the post buyout taxes would have had $527 million in pretax profit and a $167 million tax bill, according to a recent filing. Taxes for S-Tribune: $0. <\/p>\n As for Zell himself? Zell and Tribune’s management avoid taxes on their pieces of S-Tribune by having “phantom stock,” not real stock. These are warrants giving the rights to buy the stock, but not actual ownership, and thus no tax liabilitity. <\/p>\n I find this really problematic, for the government will still need the money to finance its activities. So where will it go to get it? You guessed it. <\/p>\n I think we should call this to the attention of our congress-critters, and see if something can be done about it.<\/p>\n","protected":false},"excerpt":{"rendered":" … unless you’re Sam Zell. Most of you have heard by now how our hometown paper, the Los Angeles Times has been sold by the Chicago Tribune to Sam Zell — in fact, all Tribune properties have been sold. You may be thinking to yourself… boy, those Chandlers (former owners of the Times) knew how Read More …<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[273,125],"class_list":["post-2176","post","type-post","status-publish","format-standard","hentry","category-lj-xfer","tag-media","tag-money"],"_links":{"self":[{"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=\/wp\/v2\/posts\/2176","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2176"}],"version-history":[{"count":0,"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=\/wp\/v2\/posts\/2176\/revisions"}],"wp:attachment":[{"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2176"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2176"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/cahighways.org\/wordpress\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2176"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}