Tax Ruling Prompts TCI to End Spinoff Plans

Tele-Communications Inc., the nation’s largest cable operator, abandoned plans Wednesday to split itself up after the Internal Revenue Service declined to rule the transaction tax-free.

The Englewood, Colo.-based firm announced in December that it would spin off its Liberty Media programming arm and international and satellite services businesses to simplify its structure and unlock the value of those affiliates.

TCI needed IRS approval of the spinoffs as tax-free transactions to proceed. But the IRS will not approve such spinoffs if large shareholders cannot guarantee holding their positions for a given period. The estate of Bob Magness, the former chairman of TCI who died in November, could not make such guarantees because it is expected to sell stock to pay taxes due this year.

TCI said it may consider refiling its request with the IRS.

Analysts said Liberty, which owns interests in more than 90 cable channels, will remain undervalued without a spinoff as a “tracking stock” of its parent TCI.

The IRS ruling comes at a time when TCI is trying to turn its finances around and return to the basic cable business.