Go merge yourself
TAX WIZARDRY THROUGH AN OFFBEAT MERGER Classic tax shelters used in the 1990s have become unattractive to most companies, thanks to enforcement actions by the Internal Revenue Service, coupled with changes in accounting and reporting requirements, Victor Fleischer writes in DealBook. Yet executives and tax directors have found other ways to avoid taxes – taking advantage of tax rules written in the days when assets were tangible and difficult to move. “For multinational corporations, the most common method of tax avoidance relies on moving intellectual property overseas, where profits derived from those assets can be sheltered in low-tax jurisdictions.”
“Other methods of tax avoidance have received less news media attention but are no less troubling. A recent deal by LIN Media, a media company backed by the private equity firm HM Capital Partners and the investment manager Royal W. Carson III, highlights two techniques. LIN Media owns 43 local television stations around the country, including the CBS affiliate WIVB in Buffalo, the Fox affiliate KHON in Honolulu and the CBS affiliate WISH in Indianapolis, along with other media assets,” Mr. Fleischer writes.
“In July, it merged with itself. Who knew this was possible? While the merger was trivial from a business standpoint, it generated half a billion dollars in tax losses that the company used to shelter its gain from an earlier deal and eliminate its tax liability.”
if distribution of appreciated assets results in a taxable gain, its only fair that the converse would be true, too.