Sprint CEO Fears Losing Everything in IRS Audit
William T. Esrey, who recently resigned as CEO of Sprint Corporation, fears for his financial future as he places his fate in the hands of the Internal Revenue Service. Although the former executive expects Sprint to pay him $1 million per year for the next three years, that sum won't go far if he is charged a projected $63 million in taxes as well as interest and penalties.
The IRS is investigating participants in a tax shelter sold by Big Four firm Ernst & Young. The shelter, called Equity Compensation Strategy or E.C.S., was marketed by the accounting firm as an opportunity for executives with stock options to postpone taxes for 30 years on the income from their options.
According to a letter written by Mr. Esrey and distributed via e-mail to Sprint employees, participants in the shelter were required to "sign a nondisclosure agreement because of the unique and proprietary nature" of the tax strategy promoted by E&Y. "I was assured by Ernst & Young that the investment and the tax strategy was perfectly legal," Mr. Esrey said.
The IRS may have a different interpretation of the legality of the shelter, and that worries Mr. Esrey. The former Sprint CEO postponed taxes on $159 million in profits from stock options during 1998, 1999, and 2000. Unfortunately for Mr. Esrey, the amount he received is in the form of Sprint stock, the value of which has plummeted. The stock, now worth only an estimated $39.4 million, won't come close to paying the tax bill.
"In the event of an extreme adverse outcome, and in the event of low prices for Sprint stocks, future taxes could take up most, if not all, of my assets since I have nearly all my assets in Sprint stock," Mr. Esrey said.
The IRS audit of Mr. Esrey's taxes and the agency's examination of the Ernst & Young shelter are underway.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.