Daley Can Defer Taxes on $8.3 Million JPMorgan Sale

William Daley, President Barack Obama’s new chief of staff, can defer the payment of capital gains taxes on his sale of almost $8.3 million of JPMorgan Chase & Co. shares, based on government ethics rules.

Daley filed a notice with the Securities and Exchange Commission yesterday on the sale of 186,190 shares of JPMorgan, where he was vice chairman. As Daley divests his holdings to work at the White House, he is eligible to take advantage of a law that allows people forced to sell assets when they accept government jobs to reinvest the proceeds and delay capital gains liability until the new investments are sold.

Daley likely will still face a steep income tax bill this year, said Robert Willens, founder and president of Robert Willens LLC, a consulting firm that advises investors on tax and accounting rules. On Jan. 6, Daley acquired almost 202,000 restricted shares and stock appreciation rights for an average of about $17.23 apiece, according to an SEC filing.

Daley probably would owe income tax on the difference between the cost of acquiring those shares and the market price that day, when JPMorgan closed at $44.48, Willens said.

The capital gains deferral could let Daley put off payment of upwards of $625,000, assuming the average acquisition price of his total JPMorgan holdings is roughly half the current share price, Willens said. JPMorgan rose $1.04 to $44.75 in New York Stock Exchange composite trading.

Photographer: Tim Boyle/Bloomberg

William M. Daley, President Obama's new chief of staff. Close

William M. Daley, President Obama's new chief of staff.

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Photographer: Tim Boyle/Bloomberg

William M. Daley, President Obama's new chief of staff.

Daley listed yesterday in the filing as the approximate date of sale for the 186,190 shares.

Taxpayer’s Option

The capital gains deferral is the taxpayer’s option and Daley doesn’t have to exercise it. Full details about Daley’s divestitures would likely be released in personal financial disclosure documents that are due within 30 days after he assumed the job.

To delay capital gains taxes, Daley would have to reinvest the proceeds from the sale within 60 days and he could only do so in permitted property, which includes any U.S. government obligation or any diversified investment fund approved by the Office of Government Ethics, Willens said.

“In effect, he will have converted his concentrated position in JPMorgan into a diversified position which is always considered a favorable or a positive investment move,” Willens said. “But, unlike everybody else, he’s going to be able to do it without tax consequences.”

Conflicts of Interest

To join the White House, Daley can’t hold a specific equity, such as the JPMorgan shares, unless he seeks a waiver. Like all top federal executives, judges and members of Congress, Daley also must disclose assets, liabilities and memberships on boards to comply with conflict-of-interest rules under a 1974 ethics law. Those documents will give a fuller picture of Daley’s wealth.

Daley’s last day as a vice chairman at JPMorgan was Jan. 7. He resigned from the boards of Boeing Co. and Abbott Laboratories the same day.

He replaced Pete Rouse, whom Obama named on Oct. 1 to fill the role on an interim basis after Rahm Emanuel resigned to run for mayor of Chicago. Daley is the brother of the city’s current mayor, Richard M. Daley, who is retiring.

Daley’s background in business and finance -- he joined New York-based JPMorgan, the second-biggest U.S. bank by assets, in 2004 -- was among the reasons Obama picked him for the job.

Daley was President Bill Clinton’s commerce secretary from January 1997 to June 2000. He served as president of SBC Communications Inc., now AT&T Inc., for more than two years before moving to JPMorgan.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net;

To contact the editor responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net.

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