Zell and taxes

With everything else going on it's a topic that tends to get lost in the shuffle, but Fortune's Alan Sloan reminds us that the Tribune Co. CEO has this history of dodging taxes. That's how the billionaire investor got control of Tribune in the first place, and it's showing up in all his divestiture efforts. That includes the $650-million sale of the Long Island newspaper Newsday, which for the purposes of the IRS isn't exactly a sale. Here's the simplified version:

Tribune put Newsday into a partnership to which Cablevision Systems contributed $650 million of promissory notes. The partnership borrowed money secured by the notes and paid $630 million of the proceeds to Tribune. Tribune ended up with all that cash and a 2.8571% sliver of Newsday. Cablevision ended up with 97.1429% of Newsday and operating control. Tribune claims the money is a nontaxable distribution from a leveraged partnership - "leveraged" means using borrowed money - rather than proceeds from a sale. Well, excuse me, but if it walks like a duck... A leading tax authority, Robert Willens of Robert Willens LLC, found the Newsday transaction so gamy that he's told clients he expects the IRS to go after it.

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I've had this dance before with Zell, one of the business world's true characters. He even included me in a marvelous artwork, by John Rush, he commissioned to celebrate a 1992 tax-avoiding asset sale that I'd written about. Zell zapped me by placing me in the lowest circle of Hell, misspelling my name to bust my chops, and describing me thusly: "He wrote on a slate with a poisonous pen/Muckraking drivel which was boring and flat/How Newsday could print it was beyond our ken." What's not so funny, though, is what Zell is doing to Tribune, where he's gutting newsgathering functions in an attempt to stay afloat. He's also telling employees they are clueless. He forgets to mention his own cluelessness in overpaying and overborrowing to buy newspapers in a hideous market.

Of course, we shouldn't forget that the Chandlers have had a long history of dodging the IRS as well.