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Billionaire Anschutz Loses Capital Gains Ruling Over $144 Million Tax Bill

Denver billionaire Philip Anschutz lost a fight with the Internal Revenue Service over a $143.8 million personal and company tax bill for 2000 and 2001.

The U.S. Tax Court in Washington yesterday found that Anschutz Co. was required to recognize built-in gains upon entering into an agreement to sell shares to an investment bank, while also lending the same shares to the bank.

Anschutz filed a petition after the IRS challenged his use of 13 transactions that he claimed deferred capital gains taxes related to his company’s merger of Union Pacific Corp. and Anadarko Petroleum Corp. in 2000. The transactions being challenged occurred from May 2000 to April 2001.

Anschutz Co. will appeal the court decision, the company said yesterday in an e-mailed statement.

The company, acting on legal advice, determined the capital gains taxes didn’t need to be paid until the agreements matured and the transactions settled 10 to 11 years from the time they were put in place, Anschutz Co. said.

The case tested a 2003 IRS ruling that pledging shares as collateral for a so-called variable prepaid forward contract doesn’t amount to a sale of assets for tax purposes.

A prepaid forward contract gives an investor an upfront payment in exchange for delivery of an asset in the future. The contracts have grown in popularity among corporate executives looking to lock in stock gains while delaying tax.

To contact the reporter on this story: William McQuillen in Washington at bmcquillen@bloomberg.net.

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