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HP's Ray Lane faces $100m tax bill over 'sham' tax shelter

Picks accountants like he does software firms

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It seems ex-HP chairman Ray Lane is as good at picking tax shelters as software companies, since the IRS now says he owes them $100m in unpaid taxes from an investment scheme that has been ruled illegal.

Papers filed in the Washington tax court show claim Lane, who stepped down from HP in April in the wake of the botched Autonomy buy, used a "sham" tax shelter to hide $251m in misreported losses. Lane has reportedly paid the bill already – he left Oracle in 2000 with nearly a billion in pay and stock options – but a bill like that has to hurt.

"My tax advisers put me into an investment. Somewhere along the way I knew these things were being questioned by the IRS," Lane told Bloomberg. "The amount of taxes I pay are staggering, and this is the only transaction I've been audited on."

Lane said that he was advised to invest $25m in an account to fund technology startups, with any losses being offset by tax. The IRS said that these losses used to provide "a tax shelter investor to claim a permanent non-economic loss," which could be used to bring down the tax bill.

The tax shelter, called the Velocity Partners Fund, was set up in 2000. The shelter scheme was dubbed POPS - for Partnership Option Portfolio Securities – and similar investment vehicles have been extensively targeted by the tax authorities as illegal.

"Most of these types of tax shelters have flushed through the system," said Bryan Skarlatos, a tax attorney at Kostelanetz & Fink in New York who advises on POPS. "The ones like you're seeing with Lane are some of the stragglers. It's not the very last dinosaur caught in the tar pit, but it's one of the last."

Lane insists that for the last 15 years he has paid between 32 and 38 per cent of his income in taxes, and has settled his business with the IRS.

The irony is that Lane made his bones in the technology elite by sorting out accounting issues that had stricken Larry Ellison's Oracle. In the early 1990s Oracle had to restate its earnings several times after sales executives started gaming the bonus scheme by misreporting sales.

Lane was brought in as COO to help clean out the Augean stables, and grew revenue tenfold before falling out with Larry and quitting as president unexpectedly in 2000. On leaving he joined up with venerable Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, but he and Ellison clashed again when Lane took up the chairmanship of HP.

He joined HP at the same time as ill-fated CEO Léo Apotheker, and soon had a very public war of words with the former CEO Mark Hurd, who he said had "violated the trust of the Board by repeatedly lying to them in the course of an investigation into his conduct." After being pushed out, Hurd ran straight into Larry Ellison's arms, joining Oracle as co-president, who also had harsh words for his former colleague.

Apotheker's decision to buy British software house Autonomy in August 2011 for $10.7bn was overseen by Lane, and part of the pressure for his dismissal came from the $8.8bn that HP had to write down after the deal turned sour.

Lane remains a member of the HP board, and supported Meg Whitman for the current CEO position at the troubled company. Whitman is hoping to become the first HP boss not to be fired by the board since 1999, when Lewis Platt decided he'd had enough and walked.

After being politely but firmly shown the door at HP, Lane has also had to step down from another board role with hybrid car makers Fisker after the company cratered in the wake of high costs and a highly combustible product. He's now concentrating on green investments for KPCB, and will be looking to earn back some of the $100m bill. ®

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