Nacchio Seeks $18 Million Refund for Taxes on Illegal Trades

Joseph Nacchio, the former Qwest Communications International Inc. (Q) chairman convicted of insider trading, sued the U.S. seeking a refund of almost $18 million in taxes he paid on gains from illegal stock sales.

In a lawsuit filed yesterday in the U.S. Court of Federal Claims in Washington, Nacchio said he and his wife are owed a refund because court-ordered disgorgement of those gains wiped out their tax liability.

Nacchio, 62, received a 70-month prison sentence after his conviction in 2007 for selling stock in Denver-based Qwest in 2001 based on inside information. Nacchio of Rumson, New Jersey, made more than $44 million on the sale, according to court papers. CenturyLink Inc., a telecommunications company based in Monroe, Louisiana, bought Qwest last year for $24 billion.

The suit claims that “$44,632,464.38 was included in plaintiffs’ gross income for tax year 2007 because it appeared that the plaintiffs had an unrestricted right” to the money. “As such, plaintiffs paid $17,999,030.00 in federal income tax.”

In the criminal case, Nacchio was ordered to pay a $19 million fine and forfeit $44.6 million.

The Internal Revenue Service rejected an earlier request for a tax credit on Nacchio’s payment, claiming it would “violate public policy as it would force a portion of the penalty to be borne by the U.S. government,” according to a letter from the IRS cited in the suit.

William Lipkind, Nacchio’s lawyer in the tax lawsuit, didn’t immediately return a telephone message seeking comment on the filing.

Grant Williams, an IRS spokesman, said federal law prohibits the agency from discussing or commenting on any particular taxpayer situation or case.

The case is Nacchio v. U.S., 12-00020, U.S. Court of Federal Claims (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.