By: Mark Fitzgerald More than two years after the then-Pulitzer Publishing Co. sold its TV and radio properties to Hearst-Argyle Television Inc. and spun off its newspapers to form a new company, the Internal Revenue Service is claiming Pulitzer Inc. owes nearly $30 million in taxes on the deal.
Pulitzer says the spinoff actually yielded a loss, and that the IRS is, in effect, moving the goal posts to establish a taxable gain. "If we measure the value [of the spinoff] on the date of the transaction, we get one value, and if we measure the value as of one day later, we get a much different value," said Alan G. Silverglat, Pulitzer?s senior vice president-finance. "Their own regulations stipulate [value should be measured] on the day of [a transaction] rather than the day after."
Pulitzer said the IRS formally proposed in October that the taxable amount of the deal should be about $80.4 million, which by the company?s calculations would leave it with federal and state tax bills of a whopping $29.4 million. As part of its deal with Hearst-Argyle, Pulitzer agreed to indemnify the broadcaster for certain tax liabilities.
In May 1998, Pulitzer entered into the deal, publicly valued at $1.85 billion, in which Hearst-Argyle took over Pulitzer?s nine TV stations and five radio properties. As part of the deal, Pulitzer spun off its newspapers, plus $450 million, to the new Pulitzer Inc., owned by stockholders of the old Pulitzer.
Hearst-Argyle also issued some 37 million shares of its common stock to stockholders of the old Pulitzer. In November 1998, the IRS ruled the transaction, which closed March 18, 1999, would be tax-free to shareholders. The current dispute with the IRS does not affect that tax-free determination, Silverglat said.
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