Issues & Opinions

Or so the financial world would seem.

Today’s WSJ piece, “IBM’s Under-the-Wire Tax Break“, while apparently trying to be rational and even-handed, still managed to give the impression that Big Blue scored a coup, unavailable to anyone else.

The Internal Revenue Service moved to shut a corporate tax loophole last week, just two days after International Business Machines Corp. used it to save an estimated $1.6 billion, according to a person familiar with the transaction.

Was IBM the first to have thought about or entered into such a transaction? Of course not. So why the interest in their supposed windfall?

Because, shortly thereafter, the IRS acted:

On May 31, the IRS announced plans to issue regulations making companies pay U.S. taxes when they buy back their stock, even if the shares are purchased by an international subsidiary. It said the planned ban on the practice would take effect that day, even though the regulations won’t be finalized for some time.

So I guess that makes the transaction interesting. But it’s not as though IBM did anything even remotely shady.

Mr. Rosenbloom (ed: David Rosenbloom, a tax attorney with Caplin & Drysdale in Washington) said that it is possible that the IRS could challenge IBM’s structure on the grounds that it didn’t serve any business purpose except reducing taxes. However, other attorneys noted that the IRS had previously asked for comments about such transactions, indicating it accepted them.

All no big deal, then, and if the IRS hadn’t acted, nobody in the financial press would have given the transaction even a second glance.

And then it hit me - the problem wasn’t the story, since the story’s both interesting and completely fact-based, as I expect from the Journal. It was the choice of headline. A better one might have been:

“Embarrassed, IRS Trots Out New Tax Law Interpretation”

Bookmark to: