Yellowstone Club Founder Challenges Bogus State Tax Bill in Montana

Dec 17, 2010, 11:00 ET from Tim Blixseth

HELENA, Mont., Dec. 17, 2010 /PRNewswire/ -- Recent newspaper stories have reported that Yellowstone Club founder Tim Blixseth owes $57 million in back taxes to the Montana Department of Revenue. Blixseth strongly denies this claim, stating that Montana officials have misinterpreted key evidence in calculating the tax bill.

"Anyone who has a mortgage or who has ever purchased a car on credit knows that you don't pay taxes on a loan. You pay interest on a loan," Mr. Blixseth said. "In these circumstances, I paid nearly $40 million of interest on the very same loan that the Montana Department of Revenue now seeks to tax. In doing so, Montana tax officials are ignoring the IRS's determination and the results of multiple independent audits. I intend to vigorously defend myself and will litigate the matter if necessary."

The Loan

On September 30, 2005, the Yellowstone Club resort in Montana borrowed $375 million from Credit Suisse, the Boston-based bank, as part of a five-year loan. Credit Suisse officials and the Yellowstone Club's Montana-based attorney approved all the loan terms and conditions.

One such approved term was that the parent company of the Yellowstone Club, BGI, could borrow $209 million from the club after the loan was finalized. BGI borrowed that amount and loaned Mr. Blixseth, the sole BGI shareholder, the same amount. Mr. Blixseth then re-invested a large portion of the loan into business ventures related to the Yellowstone Club, called "Yellowstone Club World," that he hoped would result in international business and branding opportunities for the Yellowstone Club and additional jobs and revenue for Montana.

Prior to closing, Credit Suisse had proposed treating the $209 million as a dividend. Mr. Blixseth said that treating the loan as a dividend would have allowed the sale of multi-million-dollar credit default swaps--a financial mechanism blamed by many as a key contributor to the sub-prime mortgage crisis--and enabled Credit Suisse to bill millions more in fees.

Heeding the advice of Yellowstone Club's accountants, however, Mr. Blixseth decided to take the proceeds in the form of a loan--even though that action would require him to make large interest payments. Indeed, Mr. Blixseth paid nearly $40 million in interest on the loan to BGI, which in turn paid that same amount to the Yellowstone Club. The Club's auditors approved of the plan and treated the funds as a loan.

The Internal Revenue Service agreed. The IRS conducted an extensive, nearly two-year audit and determined that the $209 million was a loan, and not a dividend.

No Taxes Due on a Loan

According to recent media reports, however, the Montana Department of Revenue has taken the position that the loan is a dividend upon which taxes are due. In doing so, Mr. Blixseth asserts, the Montana Department of Revenue has apparently ignored the determinations of the IRS, outside company auditors, Credit Suisse and legal counsel, all of whom recognized and determined that the transaction constituted a loan.

The Montana tax officials may have made this determination based on statements by Mr. Blixseth's ex-wife. Ms. Blixseth reportedly told state tax officials that certain company assets were not used for business purposes, which would disqualify them as tax deductions. Mr. Blixseth denies the claim and said that his ex-wife gave conflicting sworn testimony on July 9, 2009, when she testified that company assets were used on a regular basis for business purposes.

"Since the Yellowstone Club was founded over ten years ago, thousands of good-paying jobs have been created in Montana," Mr. Blixseth said. "We have paid millions of dollars in state income taxes, and, by my estimation, hundreds of millions more have been injected into the local economy. I am proud to pay legitimate taxes to a state I truly love. But Montana's tax officials need to study the facts and stop trying to pressure me into paying a bogus tax bill I don't owe," Mr. Blixseth said.

SOURCE Tim Blixseth