Tuesday, May 12, 2009

How Newhouse Dynasty Obtained Wealth Historically--Conclusion

(The following article first appeared in the 11/18/92 issue of the now-defunct Lower East Side alternative newspaper Downtown)

By the time the Newhouse family somehow found the capital to purchase more newspapers in Syracuse, Jersey City and Harrisburg in the 1940s and in St. Louis, Oregon and Alabama in the 1950s, some people began to wonder how the Newhouse family obtained so much money. And by the time the Newhouse family—whose wealth approached $200 million [in 1950’s money] in the late 1950s—laid down its cash to gobble up Vogue and the other Conde’ Nast magazines, more suspicions about the Newhouse family’s source of wealth had developed. As the book Newspaperman by Richard Meeker recalled:

“Newspaper analysts were so suspicious of the source of Newhouse’s funds that they discussed openly the possibility that he was laundering money…Some went so far as to suggest that his newspaper operations had been used as a front for the notorious Reinfeld mob, a group of booze-peddling hoodlums, whose boss had made millions during prohibition.”

One way the Newhouse family apparently was able to accumulate so much money so rapidly during the 20th Century was by hiring accountants and lawyers who figured out unique ways for the Newhouse Dynasty to avoid paying a fair share of taxes on their rapidly growing family wealth. As Newspaperman reported:

“`They played every tax game there was,’ recalled one man who once served as publisher for several Newhouse newspapers. That meant that every cost that could conceivably be written off as a business deduction was, that assets were depreciated as rapidly as possible, ant that new acquisitions were `written up’ as high as the law allowed…Where Newhouse developed a special advantage was in the way he avoided paying taxes for the profits that remained to him after the payment of corporate taxes…

“Thanks to an ingenious device created by his accountant, Louis Glickman, and implemented by his attorney, Charles Goldman, Newhouse was able to avoid paying taxes on accumulated earnings and, thus, to multiply the value of his earnings several times. Doing so involved the creation of a special corporate structure for the various newspapers…Because the Goldman-Glickman construct kept the various enterprises separate—for tax purposes at least—each could claim the right to its own surplus. Taken together, the accumulation that resulted was many times what the IRS would have allowed had Newhouse simply treated all of his operations as a single corporation.”

The same book also characterized the Samuel I. Newhouse Foundation as “a charity his [Samuel I. Newhouse I’s] lawyers had created as an additional tax dodge” and charged that Newhouse Foundation funds were used by the Newhouse family to finance its $18 million purchase of Alabama’s Birmingham News in 1955.

After Samuel Newhouse I died in 1979, his two sons, S.I. Newhouse, Jr. and Donald Newhouse, were accused of tax evasion by the IRS during the 1980s.

Six months after their father’s death, S.I. Newhouse, Jr. and Donald Newhouse valued his estate at $181.9 million and filed a tax return which claimed they owed $48.7 million in inheritance taxes. In 1983, however, the IRS informed the Newhouse brothers that their father’s estate “was worth an estimated $1.2 billion, and thus the tax as computed was deficient by more than $609 million” and “the government tacked on a 50 percent penalty ($304 million and change) for civil fraud,” according to the March 13, 1989 issue of The Nation magazine.

Although the IRS dropped its tax fraud charge against the Newhouse Dynasty later in the 1980s, it increased its tax delinquency bill for the Newhouse family to $1.2 billion, since it claimed the Newhouse estate was actually worth $2.2 billion—not $1.2 billion—when Samuel Newhouse I died in 1979, according to The Nation.

The U.S. court system was apparently not too eager, however, to rule against the Newhouse Dynasty and the “Newhouse Tax Evasion Case” ended with a favorable “not guilty” verdict for the Newhouse brothers.

Besides owning Parade and his other Big Media publishing properties, in the 1990s S.I. Newhouse, Jr. also owned a big collection of post-World War II paintings; and in the late 1980s, he spent $17 million to purchase modern artist Jasper Johns’ “False Start”. Coincidentally, the owner of Jasper Johns’ modern work of art also sat on Midtown Manhattan’s Museum of Modern Art’s board of trustees in the early 1990s. (end of article)

(Downtown 11/18/92)