Next week, the Federal Communications Commission is holding its DTV incentive auction repurpose the nation’s spectrum. While most broadcasters are likely aware of this, few may realize that, whether large or small, they can benefit from auction-related tax savings. MMTC Media and Telecom Brokers can help design tax strategies that can include opportunities for broadcasters – large and small – to do business with new entrants, particularly minority and women entrepreneurs.
Broadcast industry observers have noted that the adding machines in the tax and legal departments of major broadcasters are busily crunching numbers in anticipation of the tax gains that can be made as a result of the reverse auction. The same tax benefits these major companies are considering are also available to small and mid-sized broadcasters. MMTC Media and Telecom Brokers has a history of facilitating tax-deferred exchanges as part of its portfolio of nearly $2 billion in deals since 1997.
Prior to the January auction filing deadline, many broadcasters worked feverishly toward acquiring spectrum that it could sell back to the Commission in the auction. As part of those acquisitions, some acquiring companies availed themselves of the IRS like-kind exchange rules to defer tax on the transactions. For example, Spanish Broadcasting System exchanged three radio stations, plus $1.9 million, in Puerto Rico in exchange for three television stations that it intends to include in the auction for a profit. By structuring similar acquisitions under IRS like-kind rules, many broadcasters have been able to defer tax on any gains from the sale of their existing stations.
Those same tax breaks can also be used after the auction to leverage auction sale proceeds into tax-deferred acquisitions. Major broadcasters are running the numbers to determine if their auction proceeds can be plowed back into spectrum because, as Broadcasting and Cable’s John Eggerton puts it, the companies are “Eyeing Selling Spectrum Twice.”
Small and mid-sized stations may be able to avail themselves of the same tax benefits by using auction proceeds to acquire other broadcast spectrum or other set-aside spectrum which could be used to continue operations or generate other communications revenue. In anticipation of broadcasters reinvesting their auction proceeds, the IRS recently issued two letters confirming that proceeds may be used in tax-deferred transactions. The IRS summarized its rules in a July 2014 letter and, a year later, a July 2015 letter dealing with non-profit.
The FCC is strictly enforcing its rules against auction participants revealing their bidding strategies and bids. Readers should use the greatest caution in discussing their auction plans with outside parties. However, subject to strict confidentiality, MMTC Media and Telecom Brokers can offer assistance to broadcasters in planning and identifying target opportunities for the reinvestment of auction proceeds. In addition, broadcasters who are looking to sell properties outside of the auction can use MMTC Media and Telecom Brokers to market their properties to eager auction winners and other buyers.
To discuss auction-related tax and reinvestment strategy, call MMTC Media and Telecom Brokers President David Honig at 202-332-7005 (e-mail firstname.lastname@example.org).
NOTE: MMTC Media and Telecom Brokers, its parent and affiliates, do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction discussed in this post.