Tax Trib-ulations as IRS, 'Tribune' Head to Court Over $885 Million

By: E&P Staff In a little-noticed statement tucked into its first-quarter filing with the Securities and Exchange Commission last month, Chicago-based Tribune Co. said its three-year-old tax dispute with the Internal Revenue Service (IRS) has been set for trial this December.

According to the earnings statement -- filed April 15 but not reported by the press until a Crain's Chicago Business item this morning -- the IRS is demanding $600 million in back taxes plus interest that reached $285 million as of March 28.

The dispute stemmed from transactions undertaken by Times Mirror Co. two years before Tribune bought it in 2000 for $8 billion. Times Mirror disposed of its Matthew Bender and Mosby publishing subsidiaries in separate reorganizations that were designed to mimic a tax-free merger. After auditing the transactions, the IRS in 2001 ruled that they were taxable events -- and increased Times Mirror's 1998 taxable income by some $1.6 billion. "If the IRS prevails, the Company's federal and state income tax liability would be approximately $600 million, plus interest," the Tribune filing states.

Tribune said it "intends to vigorously defend its position in U.S. Tax Court." It said it has established a tax reserve related to the dispute of $180 million, plus $58 million in interest.

In one of the disputed transactions Times Mirror disposed of Matthew Bender & Co. Inc., a law-products publisher, plus the chain's 50% share in Shepard's Co., a legal-citation publisher. The properties went to Reed Elsevier PLC, and Times Mirror reported a total gain of about $1 billion, E&P reported on Aug.30, 2002. In the other transaction later in 1998, Times Mirror sent legal publisher Mosby Inc. to Harcourt General Inc. in a deal that left it in control of a $432 million subsidiary, E&P reported that same issue.