Former Qwest Communications CEO gets shot at $17 million tax refund

The convicted former chief executive officer of Qwest Communications, Joseph P. Nacchio, has a shot at claiming a $17.9 million tax refund, under a court ruling.

Nacchio and Anne M. Esker seek a refund of $17,974,832 in taxes paid on a $44 million gain Nacchio realized in 2001, but forfeited in 2007 when he was convicted of insider trading. Nacchio was sentenced to 70 months in prison, and released last year.

In the new ruling, the U.S. Court of Federal Claims sided with Nacchio in ruling the tax paid on the forfeited money could potentially be deducted as a loss. This gets Nacchio over the first hurdle; now, he must show he believed he had a bona fide claim on the trading gains.

The first hurdle was a big one, as the court rejected the government’s arguments that permitting a deduction for insider-trader gains would be bad public policy. The judge didn’t buy it.

There is no reason to compound Mr. Nacchio’s criminal punishment with a tax burden Congress has neither expressly nor impliedly directed. As the Government recognizes, Mr. Nacchio’s forfeiture is a loss. The proceeds from Mr. Nacchio’s insider trading evaporated -- they were disgorged,” Court of Federal Claims Judge Mary Ellen Coster Williams stated.

Williams added that “ disallowing the deduction would result in a ‘double sting’ by requiring the taxpayers to both make restitution and pay taxes on income they did not retain.”

Nacchio is represented by William D. Lipkind and Thomas A. Gentile of Lampf, Lipkind, Prupis & Petigrow.