Gary Barber, a producer of movies such as “Seabiscuit,” “Ace Ventura: Pet Detective” and “Unbreakable,” faces a huge tax bill resulting from his acrimonious departure from Morgan Creek Productions.
The Internal Revenue Service has found that Barber and his wife, Margo, owe $10.7 million in back taxes resulting from Morgan Creek’s repurchase of his 10 percent interest in the company when he departed in July 1997. The couple appealed the ruling to the U.S. Tax Court in early September, and the IRS has until Nov. 8 to issue its response.
Depending on that response, said Michael Cohen, a tax partner at DeCastro West Chodorow Glickfeld & Nass Inc. representing Barber, the matter could drag on for months.
“It will be another year before it goes to trial,” he said. “We are going to talk to the IRS about the settlement and if there isn’t a settlement, we’ll go to trial.”
At the heart of the dispute is the value of the stake at the time Barber acquired it in 1995, and three years later, when he sold it back to the company for $13.2 million.
Barber has argued that the $2 million he paid for the 10 percent share represented its fair market value at the time, while Morgan Creek officials have said he paid a discounted rate for an interest that was really worth nearly $29 million.
The dispute came to the attention of the IRS when Barber and James Robinson, Morgan Creek’s chief executive, filed tax returns that accounted for the transactions in wildly different ways.
When Robinson filed for a 1998 employee payroll tax deduction for selling shares at a discount price, he alleged to the IRS the total value of the Barber’s stock was about $28.8 million, according to tax court documents.
The IRS denied the company’s refund claim on grounds that Morgan Creek could only claim an amount equal to that claimed by Barber.
“All Mr. Robinson did is report the proper value that should have been reported” by Barber, said Howard Kaplan, Morgan Creek’s chief financial officer. “Mr. Robinson took the stock and sold it to Gary at a huge discount. Morgan Creek was worth hundreds of millions of dollars. (Barber) tried to screw the company out of its deduction.”
Robinson challenged the IRS ruling in a suit filed in the U.S. Court of Federal Claims, which hears finance cases brought against the government, and lost. He then brought the case to the U.S. Court of Appeals, which reversed the lower court ruling.
Robinson and the IRS settled the case for an undisclosed sum.
Victor Omelczenko, an IRS spokesman, said the agency doesn’t comment on tax cases.
Cohen said Barber is in the right.
“We think that Robinson’s position is wrong and we are confident that we will prevail with the IRS,” said Cohen. “Our view is he paid fair market value for (the stock.) We’re fighting it very aggressively.”
After leaving Morgan Creek, Barber formed Spyglass Entertainment Group LLC with producer Roger Birnbaum in 1998, producing “The Sixth Sense,” ($661 million worldwide box office), “Bruce Almighty,” ($485 million worldwide) and “Seabiscuit” ($120.2 million in the U.S.)
Contributing reporter Jerry Moskal contributed to this story.
