Thursday, March 20, 2014

Bloomberg: Buffett Cuts Tax Bill, Tells Others Not to Complain, by Noah Buhayar & Richard Rubin:

Warren Buffett, who has criticized businesses for complaining about tax rates, showed last week how adept he is at lowering his company’s payments to the U.S.

Berkshire Hathaway plans to limit taxes on more than $1 billion of gains in Graham Holdings Co. stock by swapping the shares for assets owned by the former Washington Post publisher, according to a March 12 regulatory filing outlining terms. Either side can cancel the agreement if lawyers determine it doesn’t qualify for the intended tax treatment.

The deal highlights how Buffett works to reduce obligations to the government at Omaha, Nebraska-based Berkshire. The billionaire chairman and chief executive officer used Internal Revenue Service rules to benefit his shareholders in transactions including a swap with White Mountains Insurance Group and the sale of ConocoPhillips stock.

“He has been a student of the tax code really all his adult life,” said Jeff Matthews, a Berkshire shareholder and author of books on the company. “His knowledge is encyclopedic, and he’s always used it to his financial advantage.” ...

In the Graham deal, known as a cash-rich split-off, Berkshire agreed to hand over about $1.09 billion in shares of Graham, which rose more than 100-fold since Buffett bought the stake in the 1970s. Graham will give up a Miami television station, stock it holds in Buffett’s company and about $328 million in cash. ...

Split-offs are a mainstay of corporate tax practice, and allowing companies to break apart makes sense as policy, said Lawrence Zelenak, a tax law professor at Duke University in Durham, North Carolina. Liberty Media Corp. used this structure in a 2007 deal to acquire the Atlanta Braves baseball team. Transactions like the Berkshire-Graham deal don’t push the envelope, Zelenak said. “It’s more the avoidance of a bad result than getting a wonderful result,” he said. “I don’t think he’s ever suggested that he’s not going to take advantage of things that work under current law because he thinks they’re bad policy.” ...

Buffett, the second-richest person in the U.S. with a net worth of about $63 billion, has been vocal about tax policy and lent his name to a proposal by President Barack Obama to require a minimum rate on the highest earners. In 2011, Buffett wrote in the New York Times that he paid 17.4 percent of his taxable income to the U.S., the lowest rate in his office. A year later he said in the newspaper that it was “sickening that a Cayman Islands mail drop can be central to tax maneuvering by wealthy individuals and corporations.”...

Robert Willens, an independent tax consultant, said the Graham deal is consistent with Buffett’s other efforts. “He does do things that are tax efficient for the corporation,” Willens said. “No question.”

While companies typically seek to limit their tax burden on deals, Berkshire stands out because of Buffett’s public posture on paying one’s fair share of taxes, [said Jeff Matthews, a Berkshire shareholder and author of books on the company]. "If it were anybody but Warren Buffett, there’d be no story,” Matthews said. “But this is a guy who takes companies to task for going to great lengths to minimize their tax burdens, and he’s been doing it all his career.”

https://taxprof.typepad.com/taxprof_blog/2014/03/buffett-cuts.html