Leading US Telecoms Firm Sacks Top Executives Over Tax Shelter Use

by Leroy Baker, Tax-News.com, New York

06 February 2003

The Wall Street Journal reported yesterday that the two top executives at leading US telecommunications firm, Sprint, have been forced out by the company's board over concerns regarding their use of tax shelters now deemed questionable by the IRS.

According to the WSJ, William Esrey, Sprint's chairman and chief executive, and Ronald Le May, its president and chief operating officer, used the shelters to defer taxes on the many millions of dollars which resulted from their exercise of stock options in 1999 and 2000.

Although the two men are potentially facing increased IRS scrutiny, there has been no indication so far that anything illegal took place, and the vehicle was actually recommended and established by Sprint's own auditor, Ernst & Young LLP.

However, despite this the board, after seeking legal advice, decided that it could not appoint Mr Le May to succeed Mr Esrey (who was due to depart anyway, having been recently diagnosed as suffering from lymphatic cancer), and forced the two men out of the company.

According to the Wall Street Journal:

'The tax shelter used by the executives is a type that big accounting firms were peddling to corporate executives during the bull market of the late 1990s. The so-called tax deferral method seeks to offset the big tax bill that comes due on profits from the exercise of options. The technique recommended by Ernst & Young involved setting up a separate investment that enables the executive to exercise his stock options without paying the taxes that would normally be due that year.'

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