A Tax Rule Could Save Treasury Nominee Millions

[NVMojo]

June 2, 2006

Henry M. Paulson Jr., the nominee for Treasury secretary, has a big reason to support tax relief.

Because of a little-known provision in the federal tax code, Mr. Paulson, the departing Goldman Sachs chief executive, could receive a tax break of at least $48 million if he is confirmed.

The tax rule, Section 1043 of the Internal Revenue Code, allows individuals who are forced to sell stock to meet federal conflict-of-interest rules to defer paying capital gains tax, so long as the proceeds are reinvested in government bonds, diversified index funds and other similar instruments. The provision applies only to employees in the Executive Branch (Congressional lawmakers, Supreme Court justices or ordinary taxpayers need not apply) and is intended to "minimize the burden of government service" resulting from a forced divestiture.

If confirmed, Mr. Paulson is expected to give up control of at least $700 million, a fortune built largely from Goldman Sachs stock, by putting those assets in a blind trust. Then, it is likely that Mr. Paulson will be required to sell his Goldman Sachs shares to avoid any conflict of interest. The tax provision, accounting specialists said, represents an opportunity for Mr. Paulson to use the sale to diversify his holdings without paying capital gains tax on the bulk of those Goldman shares, which have almost tripled in value since the investment bank's initial offering in May 1999.

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http://www.nytimes.com/2006/06/02/business/02tax.html?_r=1&dlbk&oref=slogin