Altaba’s End-of-Year Surprise to Investors: Setting Aside an Additional $235+ Million for Increased Tax Risks

By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

The December 21 announcement ^[1] by Altaba Inc. (Altaba) regarding another shareholder distribution was paired with some not-so-merry news.  While the company would be making an additional interim distribution (payable on December 30) to shareholders of 67 cents per share (nearly $350 million in total) in connection with its liquidation, Altaba explained that the Internal Revenue Service (IRS) approved it to release ^[2] nearly $475 million from the amount it was holding back in escrow exclusively for IRS claims.  The company decided not to release the full amount to account for “various tax matters, proposed legislation changes and other contingencies.”  (We will detail each of these below.) Further, Altaba had certain other amounts (not associated with the IRS holdback) that would have been available for distribution, but that it instead decided to retain.  It is a reasonable inference that the company’s decision not to distribute all of the excess reserves available effectively reflects an increased set-aside of at least another $235 million. ^[3] 

Why the change of heart?  The company’s more pessimistic, cautious posture is likely in response to a combination of a hardened stance by the IRS as evidenced by the conclusion of the examination of Altaba’s 2018 and 2019 tax returns (directionally suggesting a more expensive outcome in Appeals) and the continuing risk that retroactive tax legislation poses to Altaba (that, while a low probability, presents the possibility of a large additional tax).  For more on the second risk, see “‘Proposed Legislation Changes’” below.

As disclosed by Altaba November 12, ^[4] the IRS assessed additional taxes of nearly $550 million (which is more than half of the $1,027 million of additional taxes the IRS thought Altaba might owe for those years as disclosed in the IRS’s May 15, 2020 claim summary ^[5] but nearly the same as the proposed increase in tax liability of approximately $566 million that the IRS was assessing in a series of draft Notices of Proposed Adjustment (NOPAs) as disclosed by the company back in August^[6]).

More surprisingly, the IRS asserted about $110 million in penalties for 2018 and 2019— something Altaba had not been expecting (as was clearly established during the three-day trial in April^[7]).  Even though it had not done so for Altaba’s 2016 and 2017 tax years, ^[8] it appears that the IRS decided to impose a 20-percent accuracy related penalty (specifically, a substantial understatement penalty) pursuant to Internal Revenue Code (IRC) Section 6222 (which can generally apply when a corporation understates the amount of its income tax on its return by more than $10 million).  For more on the penalty, see “Defense to Penalty” below.

Back in August, Altaba stated that it “disagrees with the IRS’s draft NOPAs for the 2018 and 2019 tax years, and is evaluating the actions it will take in response to the [Revenue Agent’s Report (RAR)] that the IRS will issue at the conclusion of the IRS examination.  If the Fund is not able to resolve the proposed adjustments in the draft NOPAs or any future NOPAs at the IRS examination-level, the Fund plans to pursue all available administrative and, if necessary, judicial remedies which may include entering into administrative settlement discussions with IRS Appeals and petitioning the U.S. Tax Court for redetermination if an acceptable outcome cannot be reached with IRS Appeals.  However, if the IRS prevails in the assessment of additional tax, interest and penalties, such outcome could be material.  The Fund regularly assesses the likelihood of an adverse outcome, settlement or other resolution resulting from these proceedings to determine the adequacy of the Fund’s tax accruals.” ^[9]   Once the exam was complete, Altaba confirmed this appeal-and-prepare-for-Tax-Court strategy. ^[10] 

Notably, this means that—unlike with 2016 and 2017—Altaba has decided that it will not pay the assessed taxes and sue for a refund in U.S. District Court or the Court of Federal Claims, but is opting instead to contest the assessment in the U.S. Tax Court (the only non-prepayment forum) if efforts to settle in IRS Appeals ^[11] are unsuccessful.  As far as we know, Altaba has not made a deposit to stop the accrual of interest.

In summary, the 2018/2019 final assessment is essentially the same as what was reflected in the 2018/2019 draft NOPAs, ^[12] penalties were added (increasing the amount due by 20 percent, not including interest^[13]) and now Altaba essentially seems to have deemed its holdback to account for an adverse tax outcome insufficient.  Is it possible that Altaba now thinks the IRS holdback currently in escrow (the so-called Agreed Security Amount) ^[14] plus the $85 million holdback for unknown claims ^[15] may not be enough to cover potential future tax claims?

Recall that the IRS-Altaba Agreement ^[16] concerning the Agreed Security Amount contemplates that the IRS can always make adjustments for items not identified in the Third Revised Claims, ^[17]  increasing Altaba’s potential liability above the amount held in escrow (at least until the statute of limitations for assessment expires, which—for Altaba’s 2018 and 2019 tax years—is expected to happen in April 2022, although Altaba could decide to extend it (for more, see footnote 11)).  Further, the Agreed Security Amount, which seems to have taken into account some interest, ^[18] did not explicitly anticipate the assertion of a 20-percent penalty when it was originally derived (although we are assuming the IRS’s fourth quarter release of $473,560,463 from the Agreed Security Amount reflected a new, implied holdback for the $112.8 million of estimated penalties contained in the final RAR for 2018 and 2019 received by Altaba in October 2021).

History of Liquidating Distributions

Below we list all of the liquidating distributions made/announced by Altaba to-date:

Recall that some investors originally estimated they might receive $23.80 per share in aggregate post-dissolution liquidating distributions. ^[19]  In October 2019, we modeled out a (rather pessimistic, at the time) scenario where 25 percent ($5.95, assuming the $23.80) was distributed at year one, 70 percent at year two ($16.66) and the remaining 5 percent ($1.19) at year three.  Apparently, we were not pessimistic enough.  More than two years into the dissolution, Altaba has only distributed a total of nearly 72 percent (again, assuming the $23.80 is accurate), falling short of expectations.  Further, according to our rough calculations, everything would have to resolve in Altaba’s favor in order for investors to receive aggregate post-dissolution liquidating distributions even close to $23.80 per share (see footnote 25).

That being said, there is still a fair amount of assets that Altaba investors expect to ultimately be available for distribution, especially once the IRS dispute is resolved (assuming it is resolved in Altaba’s favor).  Consider just the Agreed Security Amount (the security for claims asserted by the IRS that is sitting in escrow) and the reductions to it that have been disclosed thus far:

If the entire amount in escrow were released by the IRS (pursuant to the conditions of the IRS-Altaba Agreement ²³ ) and distributed out to shareholders, they would be looking at a per-share distribution of about $1.89. ^[24]  But is that likely?  And when would such a distribution be made?  For more on the federal tax issues, see “Various Tax Matters” below.

While most of the uncertainty is related to taxes, significant non-tax related reserves could also free up in the coming months—those associated with the three buckets of disputed items:  Verizon Communications Inc. (Verizon), ^[25] Droplets, Inc. (Droplets) and Emily Larocque.

On October 8, 2021, Judge Laster decided that Altaba should continue to reserve $400 million (representing an additional $341.25 million over the $58.75 million Altaba already paid out in connection with the settlement) for Verizon’s indemnification claim related to the National Customer Class Action data breach litigation in the United States (the settlement associated with the litigation is currently being appealed to the Ninth Circuit).  If the Court of Appeals ultimately affirms the settlement, then the additional $341.25 million can be distributed to shareholders.  The case is scheduled for oral argument on February 16, 2022. ^[26] 

Altaba has also been reserving $800 million ^[27] for the Larocque matter (associated with a Canadian class action related to data breach claims against Altaba’s predecessor Yahoo! Inc.), awaiting a ruling by the Saskatchewan Court.  On October 15, Judge Laster stayed proceedings concerning the Canadian claims ^[28] for 90 days, writing that “[a]lthough a ninety-day stay will force the Company’s stockholders to wait a bit longer before receiving additional funds, that is not a meaningful hardship The Company’s stockholders have received considerable funds already.” ^[29]  At this time, there is no indication that the Saskatchewan Court will have ruled before the 90 days is up.  Judge Laster acknowledged that he cannot indefinitely delay a determination on the matter.

Finally, Altaba has also been reserving nearly $750 million for Droplets (associated with a federal intellectual property patent infringement lawsuit).  On July 30, Judge Laster issued an order granting Droplets’ motion for a new trial to determine the amount of security needed for its claim.  While the parties have been involved in discovery in the Delaware trial, it is not yet clear that a trial date has been established.  Further, the underlying patent trial, which had been scheduled for January 2022, was postponed in September until at least March 7, 2022. ^[30] 

Assuming these three disputed items are resolved in Altaba’s favor, that could free up as much as $3.72 per share in additional distributions.^[31] As we are primarily focused on the tax disputes at issue in Altaba’s dissolution, we will not venture a guess as to the likelihood and timing of such distributions, but will turn instead to a more in-depth review of the “various tax matters” that likely spurred the company to (albeit informally) increase its set aside.

‘Various Tax Matters’

As far as we know, the substantive income tax issues for 2018 and 2019 that the IRS and Altaba are at odds over remain the same as those we outlined in our June 24, 2020 report “IRS Sues Altaba to Protect Its $1+ Billion Tax Claim” and those that were discussed at the April 2021 trial.  The largest (by dollar amount) disputes ^[32] likely involve three primary areas:

1. Disallowance of foreign tax credits (FTCs); ^[33] 
2. Disallowance of global intangible low-taxed income (GILTI) basis step-up; and
3. Disallowance of blockage discount with respect to Altaba’ stake in Alibaba Group Holding Limited (NYSE: BABA).

The first two issues are impacted by stock attribution rules that were changed by the 2017 Tax Cuts and Jobs Act (TCJA).  Specifically, TCJA repealed Section 958(b)(4), effectively turning back on downward attribution from a foreign person to a U.S. person.  Altaba was apparently of the view that the change caused a U.S. subsidiary of a foreign group (say, Alibaba) to own the parent’s share of the stock of other foreign entities in the group, creating a controlled foreign corporation (CFC) where one otherwise did not exist.  Because of that, arguably more FTCs became available to Altaba.  Also because of that, Altaba apparently took GILTI inclusions associated with Alibaba that substantially increased Altaba’s tax basis in its Alibaba shares.  In both cases (the FTCs and the GILTI step-up), Altaba benefitted from the broad downward attribution change of TCJA by being able to reduce the tax that it paid by (according to some estimates) hundreds of millions of dollars.

It is our understanding that this—the impact of TCJA’s broad downward attribution change on Altaba—remains a difference of opinion between the parties.  It seems very likely the company is able to document the factual predicate for downward attribution, and it seems doubtful that the IRS would be disputing the way downward attribution actually operates under the statute as amended by TCJA.  So it is most likely that the disagreement is about exactly the consequences of the change.  Put another way, the difference of opinion may be more nuanced than whether the repeal of Section 958(b)(4) gave Altaba access to FTCs.  For example, in its exhibits, the IRS cited guidance (Rev. Proc. 2019-40 ^[34] ), making clear that the alternative safe harbor documentation it allowed for determining certain inclusion amounts did not extend to FTC substantiation.  At least with respect to the FTC dispute, it is still very possible that it is limited to substantiation.  We think that FTC substantiation is something that the parties should be able to settle in Appeals.  If all goes well, Altaba could possibly reach a settlement with the IRS in about a year.  However, if negotiations devolve and the parties end up in Tax Court, resolution could potentially be dragged out for several years.

How could that impact the dissolution?  Altaba began its court-supervised winding-up process in October 2019, and that process runs for at least three years (through October 2022).  But a court-supervised dissolution does not override the rules of federal tax claims.  If Altaba is still in IRS Appeals or is litigating federal tax claims when October 2022 rolls around, then such a proceeding would likely automatically extend the dissolution until the claims are finally resolved.  At some point, it is expected that Altaba will transfer its assets and liabilities to a liquidating trust to complete the wind down, but it is not clear that that would happen while the IRS and Altaba are actively fighting over some $700+ million³⁵in tax claims for 2018 and 2019. ³⁶ 

‘Proposed Legislation Changes’

Another reason Altaba gave for not distributing all of the released IRS holdback concerns “proposed legislation changes and other contingencies.”  As we have written about,³⁷ an early draft³⁸of the so-called Build Back Better Act (BBB, H.R. 5376) contained a proposal to effectively reinstate (retroactive back to TCJA) Section 958(b)(4).  Although it provided an election out, it was not clear that Altaba would have been able to rely on it.

Later versions of the BBB legislation^[39]modified the proposal so that the change to Section 958(b)(4) was prospective only (technically, it only applies to distributions made after the date of enactment).  That is good news for Altaba, but the legislation is still under consideration in Congress and could change yet again.  While the prospects for something similar to the latest BBB proposal being enacted sometime in the near future are still very much up in the air, Altaba has reason to keep an eye out, as the provision is scored as a revenue raiser.⁴⁰

As for what Altaba meant by “other contingencies,” we can only guess that it is a general catch-all.  But given that the bulk of the uncertainties associated with Altaba at this point stem from tax risks, we suspect that it is largely related to tax as well.

Defense to the Penalty

Based on the limited disclosure in Altaba’s November 12, 2021, Form 8-K,⁴¹IRS assessed estimated penalties of about $112.8 million on additional taxes for 2018 and 2019 of about $549.8 million (representing a penalty of just over 20 percent).  This is a strong indication that the IRS asserted a 20-percent substantial understatement penalty pursuant to Section 6662(d).

However, Altaba may assert a defense to the penalty.  Under Section 6664(c)(1), a taxpayer may be able to claim the reasonable cause exception if it can show that there was a reasonable cause for (and the taxpayer acted in good faith with respect to) the understatement.  While the success of relying on the exception is heavily dependent on the taxpayer’s specific facts, the IRS will generally look at the extent to which the taxpayer relied on a professional tax advisor (in particular, did the advisor have expertise in the relevant aspects of Federal tax law, did the taxpayer provide the advisor with all pertinent facts and did the taxpayer rely on the advisor’s judgment ⁴² ).  Given these factors, we suspect Altaba will be successful in asserting the reasonable cause exception to the substantial understatement penalty and that the penalty will not be sustained (and, presumably, the penalty would be dropped if Appeals negotiations are successful).

^{[1]Press Release, Altaba, Altaba Announces Liquidating Distribution of $0.67 Per Share (Dec. 21, 2021) (https://www.sec.gov/Archives/edgar/data/1011006/000119312521363121/d443323dex991.htm).}

^{[2] Release of the IRS holdback currently in escrow (the so-called Agreed Security Amount) as reflected in the IRS-Altaba Agreement contained in “Joint Motion Regarding Claims Raised by Claimant the Internal Revenue Service - filed by United States of America,” filed Aug. 13, 2020 (Case No. 1:20-cv-00813-LPS).}

^{[3] About $125 million of the $235 million estimate is associated with the IRS Agreed Security Amount that Altaba decided to retain ($473,560,463 – $348,072,615 = $125,487,848).  The remaining $110 million comes largely from the $100 million that Altaba had been holding back (in addition to the IRS Agreed Security Amount) for the Verizon federal tax claims for 2016 and 2017 (plus another $8.4 million for flow through state tax claims).  The federal amounts generally should have been released October 16, 2021 (pursuant to the Stipulation and [Proposed] Order Regarding Final Holdback for Tax-Related Indemnification Claims of Verizon Communications Inc. and Oath Holdings Inc. granted by Judge Laster July 15, 2021 (In re Altaba, Inc., Del. Ch. (Case No. 2020-0413-JTL))), a day after the expiration of the statute of limitations for assessment for 2016 and 2017 (October 15, 2021) because Altaba paid all federal income taxes for those years that had been assessed by the IRS.  Further, about $2.4 million was associated with the June Reduction Notice, in which the IRS agreed that Altaba could reduce the Agreed Security Amount by $282,967,328 (which we assume Altaba did), but Altaba only distributed out to shareholders Sept. 1, 2021 $280,536,137.64.  It is believed there could be other small amounts available for distribution as well.  For example, Altaba was only required to hold back $10 million for the 25 former Yahoo officers and employees until December 14, 2021.}

^{[4] Form 8-K, Altaba, filed Nov. 12, 2021 (https://www.sec.gov/Archives/edgar/data/1011006/000119312521328086/d232062d8k.htm).}

^{[5] See Exhibit 35 to Altaba’s Section 280 petition with the Delaware Court of Chancery (Case No. 2020-0413-JTL) (estimated additional income tax for 2018 and 2019 of $549,510,900 and $474,825,144, respectively, plus estimated additional employment tax for 2019 of $2,986,927—the associated estimated interest is not included).}

^{[6] N-CSRS, Altaba, filed Aug. 20, 2021 (https://www.sec.gov/Archives/edgar/data/1011006/000119312521252721/d177662dncsrs.htm).}

^{[7] See our prior report “Developments from Altaba’s Trial—Judge Indicates Path Likely for Second Interim Distribution” (April 22, 2021).}

^{[8] At the conclusion of the 2016 and 2017 audit in June 2021, Altaba paid additional taxes of about $17.7 million—a large enough understatement to have qualified for the assertion of a substantial understatement penalty—and estimated interest of about $2.8 million and then filed an amended return requesting a full refund of the entire $20.5 million (Supra, note 4).  Note that apparently Altaba booked a receivable assuming it will get the full $20.5 million back—with no discount for a possible loss to the IRS—as potentially reflected in the increase in its “Other assets” line from March 31, 2021 to Aug. 20, 2021 of at least that much.}

^{[9] Id.}

^{[10] Altaba’s reserve for deferred and other tax liabilities has not materially changed in recent months (it was about $174 million as of June 30, 2021 when Altaba had received the IRS’s draft NOPAs for the 2018 and 2019 tax years and it was about $175 million as of Sept. 30, 2021).  The final RAR was not issued until October 2021.  It is believed that about $150 million of that amount is associated with FASB ASC Topic 740 (more commonly known by its old name FIN 48) reserves for uncertain tax positions.}

^{[11] Note that Altaba has not publicly indicated that it is prepared to further extend the statute of limitations for assessment for tax years 2018 and 2019 past April 2022.  However, we presume that Altaba is contemplating a statute extension given that it has expressed interest in pursuing settlement negotiations in Appeals.  In general, the IRS statute of limitations on assessment is three years, starting when you file your return.  As Altaba filed its original 2019 return on April 27, 2000, it is not entirely clear why its 2019 statute of limitations runs in April 2022.  Pursuant to the IRS’s Internal Revenue Manual (specifically, IRM 4.10.8.12), a case is generally ineligible for Appeals if less than a year remains on the statute.  Altaba said that if it cannot acceptably resolve the dispute in Appeals, then it may file a petition with the Tax Court, at which point IRS Chief Counsel may refer the case back to Appeals for settlement consideration (for more information on how docketed Tax Court cases can still be resolved in Appeals, see Rev. Proc. 2016-22 (https://www.irs.gov/pub/irs-drop/rp-16-22.pdf)).}

^{[12] “The [final RAR for the 2018 and 2019 tax years] reflected all previously disclosed draft Notice of Proposed Adjustments,” according to Form 8-K, Altaba, filed Nov. 12, 2021 (https://www.sec.gov/Archives/edgar/data/1011006/000119312521328086/d232062d8k.htm).}

^{[13] In general, the underpayment interest rate for corporations is the federal short-term rate plus 3 percentage points, but that is increased to the federal short-term rate plus 5 percentage points for large corporate underpayments (if the amount of such underpayment for a taxable period exceeds $100,000).  Interest is compounded daily and is charged on many penalties (including the failure to pay penalty and the substantial understatement penalty).}

^{[14] Supra, note 2.}

^{[15] This “cushion” was originally $250 million, but was reduced to $85 million, as reflected in the “Revised [Proposed] Order Entering Partial Final Judgment” granted by Judge Laster July 20, 2021 (In re Altaba, Inc., Del. Ch. (Case No. 2020-0413-JTL)).  However, other amounts are reserved for in the final monetary holdback including $34.6 million additional for expense overrun, about $66.1 million for costs and expenses during wind-down and about $38.2 million for other current liabilities.}

^{[16] For our prior report that addresses the IRS-Altaba Agreement in detail, see “Altaba and IRS Agree to Initial Holdback of $1.7 Billion” (Aug. 19, 2020).  The IRS-Altaba Agreement is contained in the “Joint Motion Regarding Claims Raised by Claimant the Internal Revenue Service - filed by United States of America,” filed Aug. 13, 2020 in U.S. v. Altaba Inc., D. Del. (Case No. 1:20-cv-00813-LPS).}

^{[17] The Third Revised Claims, issued by the IRS Aug. 11, 2020, covering certain of Altaba’s federal income tax liabilities for taxable years 2016 through 2029 and certain of its employment taxes for 2014 through 2017 and 2019 through 2029.}

^{[18] There was never disclosed to the public a detailed breakdown of the Agreed Security Amount.  But we can assume that the bulk of it was associated with the claims detailed in the “Complaint to Reduce Tax Liabilities to Judgment” in U.S. v. Altaba Inc., D. Del., filed June 16, 2020 (Case No. 1:20-cv-00811-LPS), later amended July 21, 2020 and memorialized Aug. 11, 2020 (the so-called Third Revised Claims) totaling $1,767,376,190.  Given the amounts disclosed in the original and revised complaint, we assume this amount not only includes “additional tax” as outlined in the IRS’s filings, but also “interest.”}

^{[19] See “Altaba’s Announced Amount of Pre‐Dissolution Liquidating Distribution Is Lower Than Expected” (Sept. 12, 2019).}

^{[20] These reductions were presumably made prior to April 22, 2021 and were disclosed by Altaba Chief Financial and Accounting Officer Alexi Wellman during the trial.  See “Developments from Altaba’s Trial—Judge Indicates Path Likely for Second Interim Distribution” (April 22, 2021).  Note that, according to the “Revised [Proposed] Order Entering Partial Final Judgment” granted by Judge Laster July 20, 2021 (In re Altaba, Inc., Del. Ch. (Case No. 2020-0413-JTL)), the Agreed Security Amount had been reduced to $1,722,868,960 at that time.  But it is unclear which portion of that reduction may have been reflected in the June 2021 reduction notice, listed next.}

^{[21] Press Release, Altaba, Altaba Announces Liquidating Distribution of $0.54 Per Share (Aug. 20, 2021) (https://www.altaba.com/news-releases/news-release-details/altaba-announces-liquidating-distribution-054-share).}

^{[22] Press Release, Altaba, Altaba Announces Liquidating Distribution of $0.67 Per Share (Dec. 21, 2021) (https://www.altaba.com/news-releases/news-release-details/altaba-announces-liquidating-distribution-067-share).}

^{[23] Recall that even if the IRS and Altaba agree to resolve 99% of the disputed items (and Altaba pays the agreed amounts) right away, Altaba is only allowed to reduce the Agreed Security Amount by 25%, 50% and 75% (at the first, second and third anniversaries of the agreement, so in Aug. 2021, 2022, 2023) until such time as 100% of the disputed items have been agreed to, at which point the agreement will effectively become moot.}

^{[24] $983,848,399 / 519,511,366 outstanding shares = $1.89; final monetary holdback from July 20, 2021 NOT including IRS claim = $447,130,038 / 519,511,366 = $0.86; disputed claims holdback from July 20, 2021 = $1,933.75 (and see footnotes 27 and 31) / 519,511,366 = $3.72; $17.02 + $1.89 + $0.86 + $3.72 = $23.49.}

^{[25] In this report, references to Verizon should be read to include Oath Holdings Inc., formerly known as Yahoo! Holdings, Inc.}

^{[26] In re Ronald Schwartz, et al v. Yahoo! Inc., et al [Yahoo! Inc. Customer Data Sec. Breach Litig.], No. 20-16633 (9th Cir. Aug. 24, 2020).}

^{[27] Note that, if the settlement agreement to resolve all class claims in the Canadian Class Actions is resolved such that the $50 million holdback associated with the Ontario Superior Court of Justice is no longer necessary, then Altaba should be able to release the excess (above the $7.5 million it paid out in satisfaction of its share of the agreed-upon settlement), freeing up another $42.5 million.}

^{[28] Larocque v. Yahoo! and Yahoo! Canada Co., Saskatchewan Queen’s Bench Court File No. QBG 1245 of 2017.}

^{[29] “Order Staying Proceedings as to Canadian Claims for Ninety Days,” filed Oct. 15, 2021 (In re Altaba, Inc., Del. Ch. (Case No. 2020-0413-JTL)).}

^{[30] Droplets, Inc. v. Yahoo! Inc., N.D. Cal. No. 12-cv-03733-JST.}

^{[31] $341.25 million + $800 million + $42.5 million + $750 million = $1,933.75 million / 519,511,366 = $3.72}

^{[32] According to U.S. v. Altaba Inc., D. Del. (Case No. 1:20-cv-00811-UNA) (the IRS Complaint).}

^{[33] These would be credits that Altaba could take for foreign taxes that Alibaba and Yahoo Japan paid with respect to their earnings.}

^{[34] Rev. Proc. 2019-40, https://www.irs.gov/pub/irs-drop/rp-19-40.pdf.}

^{[35] The IRS assessed additional taxes for 2018 and 2019 of nearly $550 million, plus about $110 million in penalties and a growing amount of interest adds up to at least $700 million.}

^{[36] Note that, starting in February 2021, Altaba modified its risk disclosure concerning the establishment of a liquidating trust to include the following:  “Moreover, when seeking ‘no action’ relief from the [Securities and Exchange Commission (SEC)] in connection with the creation of the liquidating trust, it is possible that the SEC could require us to request that The Depository Trust Company (‘DTC’) terminate further transfers of the DTC escrow CUSIPs.  As previously disclosed, beneficial owners who held our stock through DTC now hold the DTC escrow CUSIPs, which currently give these holders the ability to transfer their beneficial ownership interests in the Fund along with the associated right to receive future liquidating distributions.  If DTC terminates transfers of the escrow CUSIPs, such action could adversely affect these holders’ ability to realize the value of such interests.”}

^{[37] See, for example, “Congress Considering Retroactive Tax Change as Reconciliation Payfor that Could Cost Altaba Millions” (Sept. 14, 2021).}

^{[38] Press Release, Chairman Neal Announces Additional Days of Markup of the Build Back Better Act, House Ways And Means Committee (Sept. 13, 2021) (https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announcesadditional-days-markup-build-back-better-act); for a section-by-section summary of the tax changes (Subtitle I), see https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SubtitleISxS.pdf; for the legislative text, see §138128 at https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/NEAL_032_xml.pdf.}

^{[39] On Oct. 28, 2021, the Committee on Rules of the House of Representatives released legislative placeholder text (see §138128).  Legislative text:  https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117-17.pdf; section-by-section summary:  https://rules.house.gov/sites/democrats.rules.house.gov/files/Section-by-Section-117HR5376RH-RCP117-17.pdf; then, on Dec. 11, 2021, the Senate Finance Committee released updated text to the tax title of the BBB, available here (see §128128):  https://www.finance.senate.gov/imo/media/doc/12.11.21%20Finance%20Text.pdf}

^{[40] Notably, the change from retroactive with an election out to prospective did not impact the revenue score.  According to JCX-46-21, the revenue score for “Deduction for foreign source portion of dividends limited to controlled foreign corporations, etc.” as passed by the House Nov. 19, 2021, was $451 million over 10 years.  According to JCX-42-21, the version as marked up by the House Ways and Means Committee Sept. 14, 2021, was also $451 million over 10 years.  We were under the impression that the retroactive change to §958(b)(4) would generally reduce taxes/provide relief to most shareholders (other than Altaba).}

^{[41] https://www.sec.gov/Archives/edgar/data/1011006/000119312521328086/d232062d8k.htm}

^{[42] Treas. Reg. §1.6664-4(b).}