Stock Swap Complexities

Mr. Allan Sloan’s article (“Holiday Inns Danced the Tax-Avoidance Two-Step,” Sept. 3) concerning the so-called “tax avoidance” by Holiday Corp. resulting from its stock swap with Bass PLC overlooks a crucial point. There is a significant economic difference between the sale of an asset for cash and a sale that results in a continuing equity interest in the acquiring company. Basic tax policy recognizes that taxation generally ought to occur when cash is available to pay the tax. In the case of the Holiday Corp. shareholders, that will occur when they decide to sell their shares in Bass PLC.

While transactions such as those described in Mr. Sloan’s article do raise important issues concerning the role of the current corporate tax scheme in complex reorganization transactions, the simplistic labeling of the entire transaction as the exploitation of a loophole does not contribute to the dialogue.

Any changes in the tax laws ought to be the subject of full and open debate by all parties concerned. Unfortunately, many of the tax changes that the United States has seen over the last nine years have been “loophole closers” generated by dramatic headlines reporting that certain taxpayers are abusing the system. Articles such as Mr. Sloan’s will likely perpetuate the trend.

DOUGLAS A. SCHAAF

Los Angeles