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Scaramucci May Defer SkyBridge Capital Interest Sale Gain

Posted on July 27, 2017 by Nathan J. Richman, Emily L. Foster

With the right facts and circumstances, new White House Communications Director Anthony Scaramucci may be able to roll over the gain from the pending sale of his controlling interest in SkyBridge Capital into a diversified portfolio of mutual funds and Treasury securities rather than recognize it, according to practitioners.

Under section 1043, incoming executive branch officers who have to sell assets because of a potential conflict of interest may defer gain on sales of those assets if the proceeds are used to buy “any obligation of the United States or any diversified investment fund approved by regulations issued by the Office of Government Ethics [OGE].” Any sale must be “pursuant to a certificate of divestiture” that lists the conflict of interest requiring the sale, comes from the president or the OGE director, and specifies the property to be sold.

Section 1043 requires the replacement assets to be purchased within 60 days of the sale. The transaction is reported on Form 8824, “Like-Kind Exchanges (and section 1043 conflict-of-interest sales).”

According to media reports, Scaramucci had been considered for a job in the Trump administration even before Inauguration Day. On January 17, SkyBridge announced“that it has signed a definitive purchase agreement” to sell a majority stake in the firm and that the transaction was then expected to close in the second quarter of this year. The announcement also stated that Scaramucci, the firm’s founder, “will step down from his role as co-managing partner and will no longer be affiliated with SkyBridge.”

It has been reported that Scaramucci missed out on the job he had been seeking in January, director of the Office of Public Engagement and Intergovernmental Affairs, but then joined the Export-Import Bank as a vice president on June 19.

According to media reports, the SkyBridge sale has not yet closed.

An OGE presentation on certificates of divestiture states that a request for a certificate of divestiture must come within 90 days of either when an asset becomes a prohibited holding or an order to divest is issued. The presentation also states that no certificate of divestiture can be issued for property that has already been sold. Those principles resemble rules described in 5 C.F.R. section 2634.802(b) and Example 3 of 5 C.F.R. section 2634.1004(b).

The Export-Import Bank told Tax Analysts that Scaramucci submitted his request for a certificate of divestiture on June 26.

OGE declined to comment on any of its specific cases, and the White House did not respond by press time.

On July 23 former OGE Director Walter M. Shaub Jr. tweeted, “Even if the sale of SkyBridge Capital hasn’t closed yet, it would be hard to argue that the government forced him to enter into the deal to resolve conflict of interest with the White House Communications Director job.” Shaub left OGE on July 19 and is now senior director of ethics at the Campaign Legal Center.

Donald Williamson, executive director of the Kogod Tax Center at American University, said that the pertinent sale date under section 1043 should be the date the sale is closed. “One wouldn’t sell their stocks and bonds until they knew they actually had the position. They might set the deal up and be ready to go, but they are not going to sell until they have the job,” he said.

There’s not much guidance on how Scaramucci’s situation would be treated beyond what’s in section 1043, but it would be a facts and circumstances analysis, said Andrew Whitehair of Cohen & Co. The result would likely depend on how far along the sale process is before Scaramucci is required to dispose of his stake under the conflict of interest rules, Whitehair said. If there’s a signed purchase agreement with due diligence and other steps completed, “that’s probably bad facts,” but if there’s only a letter of intent with many of the necessary steps in the process remaining, then Scaramucci may have a better argument for qualifying for section 1043 treatment, he said.

Williamson said that some executive branch civil service jobs may not qualify for section 1043 treatment, but that the two jobs Scaramucci has had would clearly fit the statute. For example, an assistant secretary position would be covered, he said.

Whitehair said he believes that in Scaramucci’s situation, “it would be extremely bad publicity if he were able to take advantage of this.”

Williamson said that section 1043 comes with two benefits: a carried-over basis similar to the benefit under section 1031 like-kind exchanges, and the ability to convert a concentrated investment position into diversified and safe investments. While people who accept relevant government positions come away with a tax benefit under section 1043, they don’t take the jobs for the tax break, he said.