IRS audits Tribune Co.'s ESOP

Tribune Co. is facing an Internal Revenue Service audit of a transaction key to the $8 billion deal, led by real estate mogul Sam Zell, that took the company private in 2007. The IRS audit could create a hefty bill for the media company. As much as $1.8 billion could be at stake, the amount that Tribune wrote off in net deferred income tax liabilities after Mr. Zell's takeover was completed in December 2007. Under scrutiny is a $250-million purchase of Tribune shares in April 2007 by the company's newly minted employee stock ownership plan. The ESOP was the first step in Mr. Zell's privatization of the company. The IRS disclosed the audit in a motion filed Friday in Tribune's Chapter 11 bankruptcy proceedings. IRS investigators are "attempting to determine if the transaction was for the benefit of employees," according to a declaration filed by a Waukesha, Wis.-based agent in charge of the probe. If the IRS determines that the transaction wasn't prudent, Tribune could be subject to an excise tax and corporate income tax for 2008, the declaration said. The IRS asked the Bankruptcy Court judge to grant a six-month extension to a June 12 deadline for filing claims because its investigation "has been hampered by debtor's delays in providing accurate information to the auditors."