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    Tax Rules Could Force Bezos to Play Active Role at Washington Post

    Amazon CEO Jeff Bezos (R) arrives at the annual Allen and Co. conference at the Sun Valley, Idaho Resort, July 12, 2013.
    Amazon CEO Jeff Bezos (R) arrives at the annual Allen and Co. conference at the Sun Valley, Idaho Resort, July 12, 2013.
    Reuters
    If tax considerations played a role in Jeff Bezos' $250 million purchase of The Washington Post, he may need to reconsider his hands-off approach if he hopes to offset gains from other ventures with losses at the newspaper.
     
    In announcing the deal on Monday, the 49-year-old multi-billionaire founder and chief executive of Seattle-based Amazon.com Inc told Post staff in an open letter: “I won't be leading The Washington Post day-to-day.”
     
    ​Bezos will stay in Seattle where he will focus on his day job as head of the world's largest online retailer. He promised to preserve the paper's journalistic tradition, while driving innovation in a business facing unprecedented challenges as advertising revenue and readership decline.
     
    A morning edition of the Washington Post lies in a driveway after delivery in this photo illustration taken in Silver Spring, Maryland, August 6, 2013.A morning edition of the Washington Post lies in a driveway after delivery in this photo illustration taken in Silver Spring, Maryland, August 6, 2013.
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    A morning edition of the Washington Post lies in a driveway after delivery in this photo illustration taken in Silver Spring, Maryland, August 6, 2013.
    A morning edition of the Washington Post lies in a driveway after delivery in this photo illustration taken in Silver Spring, Maryland, August 6, 2013.
    But tax experts said on Tuesday that playing a limited role at the Post could prevent Bezos from realizing individual income tax benefits that he might be able to claim as a result of owning the Post.
     
    For the first six months of the year through June, the Post's newspaper division reported an operating loss of $49.3 million, compared with a loss of $33.2 million during the same period last year.
     
    Such losses could relieve Bezos of some tax burdens. For tax purposes, a business owner or partner can deduct from income any losses from operating that business. By reducing taxable income, losses can reduce a business owner's overall tax bill.
     
    It was unclear how Bezos - the world's 19th richest person with a fortune of $25.2 billion, according to Forbes magazine - would manage his new businesses for tax purposes. U.S. individual tax returns are private, meaning that he has no obligation to disclose publicly how he might use the newspaper purchase to his tax advantage. His 2012 compensation from Amazon was $1.7 million; he owns nearly 19 percent of Amazon.

    Nearly 10 hours a week
     
    In an effort to root out tax shelters, Congress passed tax rules that prevent an individual from claiming business tax breaks without playing an active role in the business itself.
     
    Before the law, “people would be passive investors in a business, the business would throw off losses and they would use depreciation losses to offset other income,” said David Kautter, managing director of the Kogod Tax Center at the Kogod School of Business at American University.
     
    To realize the business tax benefits, Bezos may need to spend 500 hours a year in managing the Post's business, tax experts said, citing Internal Revenue Service rules. That comes to an average of 9.6 hours a week.
     
    Such rules may influence Bezos' participation at the Post. An Amazon spokesman for Bezos did not respond to requests for comment. A Post spokeswoman declined to comment.
     
    The law is murky in defining what qualifies as business activity for tax breaks, and subject to interpretation, but it generally includes making decisions and telling people what to do, experts said.
     
    “A lot of it depends on how you count hours ... It's a fair amount of time you have to spend, it's not inconsequential,” said Bill Smith, a managing director with CBIZ MHM, an accounting firm.
     
    The paper's operations will be kept separate from Amazon.com. The deal is notable also because Bezos bought the Post's assets, not shares in the Washington Post Company, which would not entitle him to business tax breaks. The Post's parent company will be selling some additional publishing assets, but no real estate, into a limited liability Delaware company set up for Bezos.

    A 'nice problem' potentially
     
    Bezos faces the same tax considerations as anyone buying a business, accountants said.
     
    “This is designed so that he can save on taxes,” said David Lifson, an accountant with Crowe Horwath LLP, who advises wealthy clients. “It's no different than if he was buying a hotdog stand.”
     
    For Bezos to start receiving tax benefits, he will need to add up the value of all assets, ranging from phones to printing presses. That figure will determine how much he can deduct from his income taxes as the assets get older and lose value through depreciation and amortization.
     
    In the years ahead, Bezos can realize tax savings if he pours his own money into rejuvenating the business model of the Post, the seventh largest daily newspaper in the United States. Most money an individual spends on operating a business can be deducted.
     
    Should the Post start making money, that would be taxed to Bezos as ordinary business income.
     
    “It's a nice problem to have,” Kautter said.

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