When is a sale not a sale?
By Al Lewis
Tuesday, June 10, 2008
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.
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)
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
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
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
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.