Saw this expose on the failure of the Chicago Tribune linked in a number of places. Caught this gem in the middle [emphasis mine]:

Mr. Zell’s first innovation was the deal itself. He used debt in combination with an employee stock ownership plan, called an ESOP, to buy the company, while contributing only $315 million of his own money. Under the plan, the company’s discretionary matching contributions to the 401(k) retirement plan for nonunionized Tribune employees were diverted into an ownership stake. The structure of the deal allowed the Tribune to become an S corporation, which pays no federal taxes, making taxpayers essentially silent partners in the deal.

So unbelievably wrong. In the event that you don’t know, an S corporation turns the company into a pass-through entity, whereby the shareholders report the income or loss of the company on their personal tax returns as personal income, and pay taxes according to personal income tax code and rates. Being n S corp or a C corp does not enable one to evade paying income taxes. At best it enables one to stop paying double taxes, once on the corporate level and again as a capital gain distribution. That is why its so often used by small businesses, and also why so-called taxes on the “rich” just amount to extra taxes on small businesses.

You’d think that the New York Times would put an article like this in front of a business editor who might understand these differences before publishing. Jeez.

Tags: C Corps, Chicago Tribune, New York Times, S Corps, Sam Zell, Taxes

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