Wednesday, September 23, 2009

Tax Chat

Our pal Corn Cob Dress at the Wax Paper Beer Cup blog is one of the few Cubs bloggers who follows the financial side of the Cubs as much as this site does. Yesterday, ccd linked to a fascinating article about Sam Zell, the Tribune, and tax dodging:

(It's estimated that the) Tribune would have about a $720 million gain — the $740 million, less 95 percent of the $21 million Tribune paid for the Cubs in 1981. At a 40 percent federal-state combined rate, the gain would generate about $290 million in taxes. Instead, that money would go to Tribune's creditors.

This is similar to the 2008 deal in which Zell unloaded 97.14 percent of the Long Island newspaper Newsday onto Cablevision Systems, walking off with $650 million in cash. “This is somewhat less egregious, but it’s still egregious,” said Willens, whose views are followed closely on Wall Street and in Washington.


It wouldn’t surprise me if the IRS challenges both the Newsday and Cubs deals. That would add a whole new dimension to the best-known phrase in Cubsland, uttered by the legendary shortstop Ernie Banks: "Let's play two."

The article was written by Allan Sloan, Senior Editor at Large for Fortune Magazine.

I took the liberty and contacted Allan to ask him this question: "Any idea when the IRS would announce if they were challenging the deals? And what such a challenge would do to the timing of the closing of a Cubs sale?"

His response was, "I doubt it would happen before the closing. ... My guess is that we won't know for months, and if it happens, neither the IRS nor Tribune will issue any news releases."

What this means is that the Cubs sale would most likely close long before the IRS challenges the transaction. Such a post-close challenge would have no effect on the then-Ricketts-owned Cubs. The re-direction of $290 million in proceeds from the "transfer" (don't call it a sale!) to the IRS would hurt two parties - Tribune creditors and members of the Tribune ESOP.

Looks like this is only an issue for the Tribune employees and creditors who have claims in the Tribune bankruptcy. The Cubs would sail (not sale!) onward with no IRS issues from the transaction.

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