Stake yields break
Diller avoids $60 mil in taxes in Vivendi deal
But that may have been nothing compared to Diller's latest move on Uncle Sam.
Through a series of tricky -- but completely legal -- accounting moves, Diller is expected to reap nearly $60 million in tax savings from the deal, according to a report in the latest issue of Newsweek.
Diller stressed in a press release announcing the pact that he had no contract and would not draw a salary in his post as chief exec of Vivendi Universal Entertainment, a new partnership created to house the two companies' TV and film properties.
Instead, he gets the right to receive a 1.5% stake, valued at $275 million, in VUE once he comes aboard. Vivendi U, meanwhile, will take a 93.1% interest in the partnership, while Diller's alma mater, USA Networks, gets 5.4%.
Capital idea
If Diller's stake were considered regular compensation, he would have to give more than 40% of it -- roughly $113 million -- to the taxman. But the stake is classified as a capital gain in the eyes of the IRS.
That's when his biggest accounting coup takes effect: According to Newsweek, for tax purposes, the deal assumes Diller has owned his VUE stake since 1995, when he first got involved with USA. So if he decides to sell, the proceeds are considered long-term capital gains.
That means the tax bite is just 20%, or about $55 million -- a far cry from the $113 million he'd have to shell out if that money came in the form of a paycheck. And since his take is not actually equity, but rather the right to own equity, Diller pays no taxes at all unless he elects to cash out.
