TEXT OF INTERVIEW

SCOTT JAGOW: Last week the Tribune Company took the first step in going private: A buyback of $4 billion in shares. Real estate tycoon Sam Zell is buying the Tribune. Newsweek's Allan Sloan has been looking into the deal and found that Zell is doing one heckuva of a tax dodge.

ALLAN SLOAN: He's combining called an employee stock ownership plan and something called an S corporation, which is usually for small businesses, and he's turning Tribune into an S corporation that will be owned by this employee stock ownership plan and at the end of the day what this means is that the Tribune Company after the deal will pay no income taxes.

JAGOW: No income taxes whatsoever?

SLOAN: Right. And that's because it will be owned, at least on paper, entirely by this employee stock ownership plan and an employee stock ownership plan, you know like a pension fund, doesn't pay taxes on its income. And it's breaking new ground in tax avoidance.

JAGOW: What makes this possible that he can do this?

SLOAN: Oh man, well to give you the very short radio version: Eleven years ago there was a minimum wage increase bill passed in Congress. OK, one of the 10 billion provisions of this bill, employee stock ownership plans were allowed to be involved with S corporations. And somebody in Zell's camp figured out how to take advantage of this thing involving an S corporation and an ESOP. And because the after-buyout company won't pay any income tax, it would you know have more money than it would if it did pay income tax, so because his finances would be stronger, he could borrow more money and he could borrow enough money to do a $34 a share deal as opposed to a $30 or $31 or $32 a share deal which the Tribune board wouldn't have taken.

JAGOW: Is there anybody shouting about this?

SLOAN: Well right now the only person shouting about it is me, but I've talked to a batch of people in Washington and I've found all sorts of people who are annoyed at this, and I actually talked to the sponsor of original legislation and he said, 'this isn't what I had in mind when I sponsored this.' So I think sooner or later there will be some sort of action because doing Tribune in a $12 or $13 billion transaction is not what this provision in the law was designed for, trust me.

JAGOW: Alright Allan thanks a lot.

SLOAN: Anytime Scott.

JAGOW: Allan Sloan, Wall Street editor at Newsweek Magazine. In Los Angeles, I'm Scott Jagow. Thanks for listening and enjoy your day.