News / Economy

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.
x
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.

You May Like

Video British Fighters on Frontline of Islamic State Information War

It’s estimated that several hundred British citizens are fighting for Islamic State alongside other foreign jihadists More

Pakistan's Political Turmoil Again Shines Spotlight on Military

Thousands of protesters calling for PM Sharif to step down continue protests in front of parliament, as critics fear political impasse could spur another military coup More

Photogallery Ebola Quarantines Spark Anxiety in Liberian Capital

Food prices rise sharply as residents attempting purchases clash with security forces, leaving one person dead More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Native Bees May Help Save Cropsi
X
Deborah Block
August 22, 2014 12:23 AM
U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video Native Bees May Help Save Crops

U.S. President Barack Obama has called for a federal strategy to promote the health of bees that have been declining. The honeybee has been waning due to parasites, disease and pesticides. Wild bees may be used to take over their role as crop pollinators. Scientists first need to learn a lot more about wild bees, says biologist Sam Droege, who is pioneering the first national inventory on native bees. VOA’s Deborah Block went to his research laboratory in Beltsville, Maryland, to bring you more.
Video

Video US Defense Officials Plan for Long-Term Strategy to Contain Islamic State

U.S. defense officials say American air strikes in Iraq have helped deter Islamic State militants for the time being, but that a broad international effort is needed to defeat the extremists permanently. Defense Secretary Chuck Hagel warned Thursday that the group formerly known as the Islamic State in Iraq and the Levant, or ISIL, is better organized, and financially and militarily stronger than any other known terrorist group. Zlatica Hoke has more.
Video

Video Drug-Resistant Malaria Spreads in Southeast Asia

On Thailand’s border with Myanmar, also known as Burma, a malaria research and treatment clinic is stepping up efforts to eliminate a drug-resistant form of the parasite - before it spreads abroad. Steve Sandford reports from Mae Sot, Thailand.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7492
JPY
USD
102.27
GBP
USD
0.5960
CAD
USD
1.0950
INR
USD
61.300

Rates may not be current.