Don't Try This at Home; a Media Family Builds Itself a Big Tax Loophole

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A media family builds itself a big tax loophole

FOR MOST OF US, THE DOG DAYS OF August are hardly the time to think about next April's day of reckoning with the Internal Revenue Service. But for some people, tax season lasts all year. Consider, if you will, the Chandler family, which controls one of the nation's biggest newspaper companies, Times Mirror. While much of the United States was vegging out in early August, the taxophobic Chandlers completed an innovative Tax-Avoidance Tango, dancing around the tax laws with Times Mirror as their partner.

We last saw the Chandlers' fancy stepping two years ago, when the family managed to increase its dividend income while other holders' income was slashed. Times Mirror had cut its dividend after selling its cable-TV systems to Cox Communications in a tax-free, $2.3 billion deal. Regular stockholders got Cox shares that paid no dividend. The Chandlers got Times Mirror preferred shares paying a fat 8 percent.

This time around, the Chandlers aren't trashing the other shareholders. This two-part deal, completed Aug. 8, helps the nonChandler holders--though, in my humble opinion, far less than it helps the Chandlers, who cut their stake in the company to 84 percent from 89 percent without paying a single penny of income tax. Other holders benefit because the deals will increase Times Minor's per-share profits, presumably making the stock sell at a higher price than it otherwise would.

To keep this simple, we'll gloss over one of the deals, in which Times Minor gave the Chandlers a big slug of stock in return for a family company whose major asset was a big slug of stock. It saves the Chandlers a few million in corporate taxes and gives them a slightly higher income, but it's small beer compared with the big deal (chart).

This is a classic. Even though the company and the family each put $475 million of assets into a partnership, they don't split the proceeds equally. It's not clear if the IRS will challenge this little jewel, but let's assume for now that it goes through. "We're well within the comfort zone," insists Thomas Unterman, Times Minor's chief financial officer.

And what a zone it is. The partnership, TMCT (for Times Mirror Chandler Trusts), uses something called "disproportionate allocation" to share income and profits. Think of it as dancers who end up wearing each other's clothes. The Chandlers will get 80 percent of the income from the 8475 million of cash and real estate that Times Minor put into TMCT, Times Minor gets 80 percent of the income from the $475 million of Times Minor stock the family put in. …