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Cover Story

The 'No Sale' Sale

An executive has $200 million of company shares. He wants cash but doesn't want to trigger $30 million or so in capital-gains taxes.

1. The executive borrows about $200 million from an investment bank, with the shares as collateral. Now he has cash.

2. To freeze the value of the collateral shares, he buys and sells "puts" and "calls." These are options granting him the right to buy and sell them later at a fixed price, insuring against a crash.

3. He eventually can return the cash, or he can keep it. If he keeps it, he has to hand over the shares. The tax bill comes years after the initial borrowing. His money has been working for him all the while.

The IRS challenged versions of these deals used by billionaire Philip Anschutz and Clear Channel Communications co-founder Red McCombs. A U.S. Tax Court judge last year ruled Anschutz owed $94 million in taxes on transactions entered into in 2000 and 2001. He is appealing the decision. McCombs settled his case last month. Despite the court cases, such strategies "are alive and well," says Robert Willens, who runs an independent firm that advises investors on tax issues.

Next: The Skyscraper Shuffle

Drucker is a reporter-at-large for Bloomberg News.

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