Commentary

May
20
2016

DISH Network Corporation (DISH)

DISH’s Billion-Dollar Tax Deductions Compound the Harm of Its Spectrum Squatting

Disclosure

We are short shares of DISH Network Corporation Please click here to read full disclosures.

Today we’re announcing that we sent what’s called a Form 3949-A (Information Referral) to the IRS explaining why we believe DISH is violating tax law by taking approximately a billion dollars per year in tax deductions that it isn’t eligible for. These tax deductions stem from DISH’s amortization of the cost of its spectrum purchases. Some analysts value the cumulative savings over time at $6 per share – roughly 13% of DISH’s current equity value. However, taxpayers are only permitted to amortize intangible assets used in the active conduct of a trade or business, and DISH is not conducting any business with its hoarded spectrum. Strong, recent precedents clearly show that businesses in situations extremely similar to DISH’s – sitting on unused FCC licenses but not actually deploying real networks – aren’t entitled to amortization deductions, and this legal conclusion has held up on appeal. We believe that ultimately DISH will not be able to retain the benefits it’s been claiming, leading to sharply reduced cash flow and additional regulatory headaches.

We’ve posted a copy of our submission to kerr.co/dish-tax.

We’re also hosting a 30-minute conference call at 4:00pm ET today to review this issue and take questions. To participate in the conference call, dial (888) 390-3983 (US and Canada) or (862) 255-5354 (international) and reference the Kerrisdale Capital conference call.