L.A. Times caught in tax liability

Los Angeles times building, WikimediaJune 25, 2013 

By Wayne Lusvardi

File this under Hoist With Your Own Petard.

As I wrote last month, the Los Angeles Times mistakenly said Michael Dell used a tax dodge to avoid $1.1 million in property taxes on his purchase of the Miramar Hotel in Santa Monica. It was blamed on a loophole in Proposition 13, the 1978 tax-limitation measure.

Now it turns out the IRS ruled the Tribune Company, which owns the Times, owes $190 million in unpaid taxes for a similar tax dodge from when it sold the Long Island Newsday newspaper to Cablevision in 2008. The IRS tacked on a 20 percent penalty for “negligence or disregard of rules or regulations.” The Newsday deal was also very similar to the 2005 purchase of the LA Times.

Worse, today the Chicago Tribune, the Tribune Company’s flagship newspaper, reported that the total owed by the company to the IRS could be as much as $500 million.

And all this comes just months after the company emerged from a long bankruptcy ordeal.

Newsday deal was not tax exempt

The Tribune Company contended its 2008 sale of Newsday was not a sale at all because the Tribune as seller and Cablevision as buyer formed a partnership.  The Tribune contributed Newsday to the partnership and Cablevision contributed an I.O.U. based on borrowed money from a bank due in 10 years.  The Tribune asserted there was no tax due until the loan was repaid in 2018.

The Tribune had only one shareholder in the partnership with Cablevision, an employee stock ownership plan, called ESOP.  In essence, the Tribune’s employees assumed ownership of Newsday and folded it into a partnership with Cablevision.

According to the New York Times, tax analyst Robert Willens said, “It would have been probably the greatest tax avoidance structure ever devised, had they earned income.” Newsday did not earn any net income and thus the whole arrangement was ruled to be a tax dodge.

LA Times purchase of 2005 also likely not tax exempt

Billionaire Sam Zell bought the Tribune newspaper and broadcast chain in 2007 for $8 billion.  When Zell bought the Tribune, the ownership of the LA Times changed from a “C” Corporation to a Subchapter “S” Employee Stock Ownership Plan.

A “C” corporation is a conventional ownership and tax structure for corporations.  An “S” corporation pays no income taxes, but its stock shareholders do pay taxes on profits even though they may not have been paid dividends. “S Corps” is the preferred structure for small businesses with less than 100 stock shareholders.  The LA Times is not a small business and alone has a 500-person editorial/newsroom staff.

Glass houses 

The Times’ series of articles was about how Dell and his wife avoided $1.1 million in property taxes on their $200 million purchase of a majority share of the Miramar Hotel business in 2005.  The Times has made the Miramar Hotel into a symbol of how “Big Business” exploits loopholes in Prop. 13 to escape property taxes.

But as I wrote earlier, Michael Dell and his wife probably paid much higher taxes on their 2005 purchase of the Miramar Hotel operating company than buying the hotel real estate.  That is because California real estate taxes are 1 percent of the assessed value of a property.  Conversely, corporate taxes on the same sum to buy a hotel business in 2005 would have been assessed at a rate of 8.84 percent.

The backdrop to the Times series is the threatened elimination of Prop. 13 for commercial properties.  State Senate President Pro Tem Darrell Steinberg, D-Sacramento, next year is going to bring up eliminating the Prop. 13 protections for commercial properties.

The Times’ editorial stance long has been that taxes should be raised, including by modifying Prop. 13. Now, the Times is getting its wish by having to pay a lot more taxes itself through the Tribune Company.

To coin a phrase, those who live in glass houses shouldn’t throw stone newspapers.

4 comments

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  1. Dyspeptic
    Dyspeptic 25 June, 2013, 12:26

    “File this under Hoist With Your Own Petard.”

    One of my favorite metaphors because it is so powerfully evocative. In my minds eye I am picturing the entire editorial, opinion and “news reporting” staff of The Slimes being blown to smithereens by their own immensely hypocritical machinations. Couldn’t happen to a more loathsome bunch of ProgBot hacks.

    “The IRS tacked on a 20 percent penalty for ‘negligence or disregard of rules or regulations.’”

    So when does the Infernal Revenue Service get assessed a 20% penalty for negligence and disregard of the U.S. Constitution?

    “And all this comes just months after the company emerged from a long bankruptcy ordeal.”

    It seems only fitting that an industry that for so long has been morally and intellectually bankrupt should also be financially destitute. I hope every major metropolitan daily newsrag in the country goes bankrupt and it’s reporters and editors have to find honest and productive work doing something other than shilling for The Ruling Elite and it’s Corporatist/Crony Capitalist/Fascist agenda.

    I suppose we could trust these journalistic frauds to do something mundane like flip burgers or sell fake Birkenstocks at the swap meet. On the other hand, maybe the pencil necked, feminized, clueless, regressive weenies might not even be able to handle that.

    The definition of Schadenfreude – Taking delight in the financial ruin of ones enemies.

    Reply this comment
  2. Itachee
    Itachee 25 June, 2013, 16:13

    Could not happen to a more deserving entity.

    Reply this comment
  3. us citizen
    us citizen 25 June, 2013, 16:45

    ahhhh, tiny violin music here for them.

    Reply this comment
  4. The Ted System
    The Ted System 26 June, 2013, 20:42

    I like the Times.

    Reply this comment

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