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Viacom cable deal in jeopardy

THE BALTIMORE SUN

WASHINGTON -- The House Ways and Means Committee approved a bill last night that would repeal a tax break for minority-owned media companies, a move that could kill Viacom Inc.'s plan to sell its cable television systems for $2.3 billion while avoiding hundreds of millions of dollars in taxes.

The bill, which was approved on a voice vote and was supported by House Republican leaders, is part of a broader Republican effort to end government programs that offer preferences to women and members of minorities.

Repeal of the tax break for minority-owned media companies could save the government an estimated $1.6 billion over five years, according to the bill's sponsors, who included Bill Archer, the Texas Republican who is the committee's chairman, and Robert T. Matsui, a California Democrat who also is a committee member.

The savings would be used to help pay for tax deductions on health insurance expenses for self-employed people.

After the vote, Viacom officials would only reiterate their position that the bill was unjustly punitive because it would be applied retroactively on a deal that had been based on existing law. They also said the cable deal could not be preserved unless the tax break was preserved.

At issue is a law that allows a company to avoid capital-gains taxes when it sells a broadcasting or cable television system to a company controlled by members of a minority.

The Federal Communications Commission has used the law to encourage minority ownership of media properties by effectively reducing the purchase price of those properties. Even with the tax credit, though, minority-owned companies run only about 2.9 percent of all television stations. There are no current federal statistics on minority ownership of cable television properties.

House Republicans have seized on the Viacom deal as an example of why the law should be repealed, saying the program primarily appears to benefit some of the nation's biggest media conglomerates.

Viacom, whose media properties include Paramount Pictures, publisher Simon & Schuster and the MTV cable channel, would avoid between $440 million and $660 million in capital-gains taxes if its cable deal went through, according to congressional estimates.

Under the deal, Viacom plans to sell its cable television systems to a tiny Sacramento, Calif., company called Mitgo, owned by a black entrepreneur, Frank Washington. But Mr. Washington's company will get almost all the money for the purchase from a group called Intermedia Partners, a limited partnership whose largest shareholder is Tele-Communications Inc., the nation's biggest operator of cable TV systems.

Intermedia would also receive an option to buy out Washington's company after three years.

The bill would eliminate the tax program entirely, explicitly blocking the Viacom transaction even if the sale is completed before the bill actually becomes law. Under current law, the deal requires the approval of the FCC.

FCC officials, though unwilling to defend the Viacom deal, have indicated that the Viacom cable sale appears to meet the criteria for a minority tax break.

"It's unfortunate that the Viacom deal, which is not characteristic of minority-certificate programs, has obscured the real purposes the program," said William Kennard, general counsel to the FCC.

The bill was part of a larger measure addressing the health insurance issue. Before the vote, Rep. Charles B. Rangel, a New York Democrat, offered an amendment to preserve the minority tax break. That amendment was defeated 26-10. The larger bill then passed on a voice vote.

The bill is seen as having a strong chance of quick approval by the full House, though its ultimate passage into law is not assured, since no parallel measure has appeared yet in the Senate.

But the bill is consistent with positions staked out in recent weeks by House Speaker Newt Gingrich, Republican of Georgia, and the Senate majority leader, Bob Dole, of Kansas. Both have criticized minority preference programs, and Mr. Dole has called for a review of all laws and federal programs that provide such preferences. Sen. Larry Pressler of South Dakota, the new chairman of the Senate Commerce Committee, has also said he opposes minority set-aside programs.

House Republicans framed the measure in a way that makes it bTC hard for Democrats to oppose, by using it to help finance a popular middle-class tax break: deductions on health-insurance expenses for self-employed people.

Mr. Archer said yesterday that the tax program, as carried out by the FCC, had been abused. "The FCC standards for qualifying are so vague that the provision is subject to significant abuse," he said.

But the program's defenders said it had indeed helped increase minority ownership in radio and television. Mr. Kennard of the FCC said the average deal involving the sale of television stations under the program was $38 million and that one-third of the tax certificates awarded since 1978 were still held by the minority-owned companies.

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