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PAY IT FORWARD, VARIABLY

June 09, 2008

Today's Wall Street Journal discusses the IRS attack on "prepaid variable forward contracts" to defer tax on a stock sale. Under these deals a taxpayer agrees to sell stock at a future date at todays price, with the cash delivered up front but without title to the stock changing hands. The seller then "loans" the shares to the buyer, who can short them to protect against price declines until the actual shares are delivered.

It's easy to see why the IRS doesn't care for these. The piece quotes tax expert Robert Willens:

"You've got all the elements of a completed sale: One guy's got the money, and the other guy's got the stock," said Robert Willens, a former Wall Street tax analyst who runs his own corporate-tax advisory firm in New York. "What more do you need for a sale?"

According to the story, the IRS is seeking $143.6 million from investor Philip Anschutz on such deals for 2000 and 2001.

UPDATE: The TaxProf has more.

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