CMYK

Nxxx,2011-11-27,A,001,Bs-BK,E3

CLXI . . No. 55,602

The New York Times

VOL. CLXI .2011
. No.
55,602

2011 The
New York
27,YORK,
2011 SUNDA
VOL.
CLXI
. . Times
No. 55,602 NEW YORK,
2011 TheSUNDAY,
New York Times NOVEMBER
NEW
Late
Edition
NEW YORK, SUNDAY, NOVEMBER
2011 NOVEMBER
$6 beyond the gre
2011 The New York Times
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2011
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VOL. CLXI . . No. 55,602

2011 The New York Times

VOL. CLXI . . No. 55,602

VOL. CLXI . . No. 55,602

2011 The New York Times

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to mostly cloudy, mild, low 52. Tomorrow, cloudy, still mild, high 63.
Details, SportsSunday, Page 12.

NEW YORK, SUNDAY, NOVEMBER 27, 2011

NEWS ANALYSIS
NEW YORK, SUNDAY,
NOVEM

2011 The New York Times

NEW YORK, SUNDAY, NOVEMBER 27, 2011

Po
Post-Uprisin
NATO STRIKES KILL
A
Post-Uprising,
Po
A New
PAKISTANI
FORCES, Bat
A New Battle
$6 beyond the greater New York metropolitan area.

$5.00

NEWS ANALYSIS

Arab World Struggles

To Shape a New Order
By ANTHONY SHADID

AA
Arab World Strug
To
AT LEAST 25 SOLDIERS DIE
Ar
To Shape a New Or

RAISING TENSIONS

Anger in Islamabad

To

CAIRO Through elections,

protests, government formations
U.S. Offers Regrets
and armed struggle, Arab counand Vows Inquiry
tries in an arc from Libya to the
gulf were engaged this past week
more than ever in attempts not to
simply overthrow leaders, but to
By SALMAN MASOOD
CA
decisively shape the orders that
and ERIC SCHMITT
prote
follow.
ISLAMABAD, Pakistan PaThe center of that struggle was kistani officials said on Saturday
and a
again in Cairo, in the landmark
that NATO aircraft had killed at
tries
Tahrir Square, where a protest
least 25 soldiers in strikes against
movement was revived and doztwo military posts at the northgulf
ens were killed in violence. Some
western border with Afghanimore
hailed it as a new revolution, or
stan, and the countrys supreme
the opening of a front in the old
army commander called them
simp
one. But it might be better
unprovoked acts of aggression in
termed the end of the beginning,
decis
a new flash point between the
as within the span of just a week,
United States and Pakistan.
follow
events breaking out here and
The Pakistani government reacross the region seemed as semTh
sponded by ordering the Central
inal as any since that burst of opBEBETO MATTHEWS/ASSOCIATED PRESS
Intelligence Agency to vacate the
again
timism when the revolts erupted
drone operations it runs from
In 2006, Ronald S. Lauder, who is now worth $3.1 billion, paid $135 million for the Klimt painting Adele Bloch-Bauer I.
11 months ago.
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Shamsi Air Base, in western PaIn January, it was an uprising
kistan, within 15 days. It also
mov
against the dictatorship, and now
closed the two main NATO supit is an uprising against what is
ens w
ply routes into Afghanistan, inleft of that dictatorship, said
cluding the one at Torkham.
haile
Sateh Noureddine, a columnist in
NATO forces receive roughly 40
the leftist Lebanese newspaper
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percent of their supplies through
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that crossing, which runs
one.
not the revolution, but just a way
through the Khyber Pass, and Pato establish the foundations for
term
stock deal so audacious that Congress latBy DAVID KOCIENIEWSKI
kistan gave no estimate for how
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er enacted a law forbidding the tactic, Mr.
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for fragmentation, bloodshed
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savings that help defray the hundreds of
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In
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Yet for Mr. Lauder, an heir to the Este
forts to rebuild Jewish identity in Eastern
Continued on Page 12
ministration officials were also
breaks, saying that the current system
Sate
Lauder fortune whose net worth is estiEurope are just one facet of a sophisweighing the implications on a
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Anger After Death in Cairo turn for the worse after a Navy
richest and the rest of society, and shifts
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significance. As is often the case with his
him the worlds 362nd wealthiest person.
Fears of fresh clashes were Seal commando raid killed OsaFrom offshore havens to a tax-sheltering
activities, just beneath the surface was a
Continued on Page 20
not t
stirred after security forces killed ma bin Laden near Islamabad in
an unarmed protester. Page 6.
Continued on Page 10
to es

By ANTHONY SHADID
C

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aofcharitable
decade
and
were
devel.said
in
taxes.
Park
Avenue
and
holdings
the
tionsthe
helped
him
the youngest
The
deductions
generated
by
Mr.
saying
tax
increases
on
wealthy
would
A
Passion
for
Art
sued
a
prominent
case
against
the
biljust
to
make
ends
meet,
and
i.o.u.s
to
be
capital
gains
taxes
by
using
a
hedging
oped
by
accountants
and
tax
planners
oped
by
accountants
and
tax
planners
Hamptons.
Hamptons.
trustee
of
the
Metropolitan
Museum
of
ool
aboutoped
a decade
ago and wereand
develPark
Avenue
and
his
holdings
in by
thefutureAgenerations,
by accountants
taxLauder
planners
rublic
Companies
went
Este
Companies
went
public
Hamptons.
lionaire
Philip
Anschutz,
who used
one
Passion
for
Art
paid
off
said
InThis
the
United
States,
technique
knownpublic
asthat
shorting
against
Lauder

whose
donations
have
aided
causes
harm
the
economy
and
cost
jobs.
Mr.
maintain
He later
served
as
chairman
of the
Congress
closed
down
the
loophole
after
Congress
closed
loophole
This
welfare
for thedown
well-off

costwelfare
for theM
In
United
States,
Mr.
Lauder
has
ed
to Lauder
to
avoid
more than
$140
million
in fedped
bytheLauder
accountants
and
taxafter
planners
Senator
Coburn,
a
Republican,
who
hasthe Art.
Hamptons.
after
Congress
closed
down
the
loophole
Ronald
and
his
in
1995,
and
Ronald
Lauder
and
his
This
welfare
for
the
well-off
costbox.
focused
on
what
Museum
of Modern
Art has
and
remains
anhe cal
dmade
his in compliance
the
with
eral
taxes.
In
the
United
States,
Mr.
Lauder
on
the
Este
Lauder
public
offering.
on
the
Este
Lauder
public
offering.
called
for
limits
on
tax
breaks
for
high
focused
on
what
he
calls
his
greatest
ing
billions
of
dollars
a
year

is
being
ing
billions
of
dollars
a
varied
asLauder
hospitals
and
efforts
to
rebuild
JewAn
of public
documentsHe
involvTogether,
Lauder
and
hismother
mother
fter
Congress
closed
down
the
loophole
This
welfare
for
the
well-off
cost-examination
onasthe
Este
public
offering.
in hundreds
ofMr.millions
cashed
in orhundreds
of
millions
billions
ofwith
dollars
ayear
is being
honorary chairman.
hasart.
donated
2014.
passion

Whether
not ing
the I.R.S.
agrees
lions
earners.
R.S.
guidance
on
these
focused
on
what
he
calls
his
greatest
borrowed
13.8
million
shares
of
compaThe
I.R.S.
began
cracking
down
on
The
I.R.S.
began
cracking
down
on
passion

art.
paid
for
with
the
taxes
of
the
less
fortupaid
for
with
the
taxes
and lent
artwork to an assortment
of
n
Lauder
public
offering.
ing on
billions
of dollars
asideyeartaxes

isof
being
The
I.R.S.
began
cracking
down
ishwas
identity
in Eastern
Europe

are
just
one
yersthe
ock
butnyEste
managed
to sideof
dollarsMr.
in stock
but
managed
to
ing
Mr.
Lauders
investments
and
paid
for
with
the
the deducts
less
fortuLauders
contention
that
his
conMr.
Lauder
propertycompanies,
on
In
1976,
at age
32,
hisw
stock from
relatives
and sold
them to
sideactions
and
fully
remuseums.
of
hisgenerous
collection
ofdonalavpassion
taxes
art.
these
contracts
infor
2008,
and
has
purthese
contracts
in 2008,
has
purInand
1976,
atjobs
age Part
32, his
nate,
many
who
are
working
two
nate,
many
who
are
es
toofI.R.S.
tract
is purlegitimate,
some
tax
policy
ex-the
he
began
cracking
down
on
all
of
his
holdings,
hisjobs
spokesman
said.
paid
with
the
taxes
of
less
fortuthese
contracts
in
2008,
and
has
ns
millions
in
federal
step
paying
tens
of
millions
in
federal
nate,
many
who
are
working
two
the
public
during
the
offering
at
$26
a
facet
of asaid
sophisticated
tax
strategy
used
to
charities
offers
a
glimpse
of
the
wide
array
of
tions
helped
him
ishly
decorated
ceremonial
armor
is onbecom
deral by S.E.C.
uired
rules,
In
1976,
at
age
32,
his
generous
donaperts
say
the
deal
illustrates
how
the
sued
a
prominent
case
against
the
bilsued
a
prominent
case
against
the
bilhelped
the
youngest
Mr.
Lauder
declined
to meet,
say howtions
much
just
to
make
ends
and
i.o.u.s
to him
be become
justinto
make
ends meet,
share.
Selling
borrowed
shares
in against
this
hese
contracts
2008, and
has
purnate,
who
working
two
jobs
sued
aain
prominent
case
the
bil-many
axes
by
using
hedging
capital
gains
taxes
by just
using
aare
hedging
to
make
ends meet,
and
i.o.u.s
to
be
display at the Met,
a gallery
named
suof
the
Metropoli
wealthy
take advantage
of the
system.
dging
that
reduced
his federal
taxes,
but
said
n,
Gary
Lewi.
preserve
Forbes
magazine
says
legal
options
for
the
worlds
wealthiest
citizens
is
referredcase
to asaagainst
a fortune
shortlionaire
position.
tions
helped
him of
become
thetrustee
youngest
Philip
Anschutz,
who
used
one
lionaire
Philip
Anschutz,
who
used
one
trustee
the
Metropolitan
Museum
of ge
paid
off
by
future
generations,
said
paid
off
by
future
for
him.
ued
a way
prominent
thethat
billionaire
Philip
Anschutz,
who
used
one
just
to
make
ends
meet,
and
i.o.u.s
to
be
wn
shorting
against
technique
known
as
shorting
against
cent as
paid
off
by
future
generations,
said
Theres real truth to the idea that the
he
did
not
receive
tax
benefits
in
some
Art.
He
later
served
as c
Since
the
Lauders
retained
their
own
ainst
Mr.
is
scheduled
to
As
all
art
collectors
may,
Mr.
Lauder
trustee
of
the
Metropolitan
Museum
of
to
avoid
more
than
$140
million
in
fedto
avoid
more
than
$140
million
in
fedArt.
He
later
served
as
chairman
of
the
Senator
Coburn,
a
Republican,
who
has
Senator
Coburn,
a
Repu
aonaire
re-Lauder
himallowed
the
wealthiest
person.
to avoid
both atminihome
and abroad.
Philip
whoworlds
used
one362nd
tax code
foroff
the by
1 percent
isCoburn,
different
years
because
of
the alternative
tomakes
avoid
more
than
$140
million
in
fedpaid
future
generations,
said taxes
the
Senator
a Republican,
who
has
shares,
theAnschutz,
maneuver
thembox.
to
Museum
of
Modern
Art
is
entitled
to
deduct
the
full
market
valethe
ef- $72
million
when
the
Art.
He
later
served
as
chairman
of
the
taxes.
eral
from the tax code for the 99 percent,
of high
Modern
Art
andfor
remains
taxtaxes.
and
called
for other
limits
on tax Museum
breaks
for
called
limits an
on tax
a
neutral
the eral
stock,
not
o. the
avoidhave
more
thanposition
$140 inmillion
in
fed-to
eral
taxes.
Senator
Coburn,
aprofessor
Republican,
who
has
Lauder
and
his
mother
Together,
Lauder
and
his
mother
ue of include
artworkshonorary
donated
to museums.
called
limitsat onmum
tax
breaks
forlimits.
high
From
offshore
havens
aMr.
tax-sheltering
stock
His
vast
holdings
agrees
which
hundreds
He
other
said
Victor
Fleischer,
a agrees
lawfor
ctually
delivered
2014. Under
Museum
of
Modern
Art
andMr.
remains
an chairman.
subject
to priceinswings.
I.R.S.
Whether
or called
not
the
I.R.S.
with
Whether
or
not
the
I.R.S.
with
honorary
chairman.
He
has
donated
earners.
earners.
(For
years,
Lauder
availed
himself
ral
million
shares
of
compaborrowed
13.8
million
shares
of
compafor
limits
on
tax
breaks
for
high
tingtaxes.
Whether
or
not
the
I.R.S.
agrees
with
earners.
the
University
of
Colorado.
Any
taxand
lent
artwork
to
an
rules
at
the
time,
they
avoided
paying
mpadeal
so
audacious
that
Congress
later
enacted
ofMr.millions
in
stock,
one
of
largest
and Taxhonorary
Breaks
tsWhether
say wealthy
taxpayers
of
athe
quirk
in
the
code
that allowed
chairman.
He
has
donated
Mr.
Lauders
contention
that
his
con-to Charity
Lauders
contention
that
his
conand
lent
artwork
to tax
an
assortment
of p
bout
Lauder
deducts
property
taxes
onworlds
Mr.
Lauder
deducts
payer
lucky
to
have
appreciated
orsold
not
the
I.R.S.
agrees
with
elatives
them
to
nygains
stock
relatives
sold
them
Mr.
Lauders
contention
thatfrom
hisearners.
con-enoughand
much
as
$95
million
in capital
Mr.
Lauder
deducts Mr.
property
taxes
on
museums.
of his co
donors
toassortment
take a
deductionof
forPart
donating
em
to as and
2008,
accounting
techniques
to
and
lent
artwork
to
an
A
week
before
the
opening
at
the
property
is
usually
put
to
a
choice:
cash
tract
is
legitimate,
some
tax
policy
extract
is
legitimate,
some
tax
policy
exmuseums.
Part
of
his
collection
of
lava
law
forbidding
the
tactic,
Mr.
Lauder
has
for
private
collections
of
medieval
armor,
homes
in
all
of
his
holdings,
his
spokesman
said.
all
of
his
holdings,
his s
taxes
that
might
otherwise
have
been
Mr.
his public
conng Lauders
the offering
$26 a thatsome
the
during
offering
$26
a Neue
tractcontention
is at
legitimate,
tax policy
ex-the
Mr.
Lauder
deducts
property
on last month,
a portion of anishly
artwork,
without actuall
hisat
holdings,
histaxes
spokesman
said. Mr. Lauder
decorated
ceremon
$26
Galerie
out
and
pay some
tax,of
or hold
the propheirais
payment.
museums.
Part
of
his
collection
of
lavdue had they sold their own shares.
perts
say
the
deal
illustrates
how
the
perts
say
the
deal
illustrates
how
the
ishly
decorated
ceremonial
armor
is
on
Mr.
Lauder
declined
to
say
how
much
Mr.
Lauder
declined
to
ally
turning
over
the
art.
That
break,
ract
legitimate,
some
tax
policy
exborrowed
shares
in
this
share.
Selling
borrowed
shares
in
this
fully
decades
aggressively
taken
ofhis
tax
Washington,
D.C.,
on Park Avenue
asatwell
perts
say the
deal illustrates
how
all the
ofadvantage
his
holdings,
spokesman
said.
appeared
at how
another
gala, 40and
blocks
Mr. Lauder
declined
to say
much
erty
and
risk
the vagaries
of the
market.
display
Met, in a
transactions
allowed
investors take
this onSuch
rden
the
nations
su- wealthy
ishly
decorated
armor
is
on the
known
asMet,
fractional
was
elimadvantage
ofcan
the
system.
wealthy
take
advantage
of theceremonial
system.
display
at
the
in
adonation,
gallery
named
maythat
reduced
his
federal
taxes,
but
said
that
reduced
his
federa
south,
at
the
New
York
Public
Library,
Only
the truly
rich
use
derivatives
erts
say
the
deal
illustrates
how
dition.
to as
short
position.
way
is
referred
to
as
a
short
position.
wealthy
take
advantage
of
the
system.
Mr.
Lauder
declined
to
say
how
much
to a
cash
in
their
shareholdings
without
that reduced
his federal
taxes, but
said
for
him.
breaks
that
are useful
only
for
thetoofmost
affluent.
as did
oceanfront
mansions
inin
Palm
Beach
and
theallows tax b
inated
2006.)
Thenamed
tax
code also
x
reteadily
declined
in
display
at
thehim.
Met,
in
ainthe
gallery
to
the receive
Carnegie
Foundations
toreal
get the
bestretained
both idea
worlds
lots
of
for
Theres
truth
the
that
the
Theres
real
truth
to
idea
that
hereceive
not
tax
benefits
some
hetodid
not receive
paying
taxes.
Butrecent
theof
Lauders
use
wealthy
take
advantage
the system.
ders
their
own
Since
Lauders
their
own
that
reduced
his
federal
taxes,
but
said
Theres
real
truth
to
theofthe
idea
that
the
artwork
in offices
be
deducted
as a
he
did
not
receive
tax
benefits
in
some
gown
30 retained
As
all
art
collectors
m
Medal
of
Philanthropy.
cash
and
very
little
risk.
rding
to
a
sliver
of
data
refor
him.
The
over
to
reduce
shelthe technique
wasdebate
so aggressive
thatwhether
Hamptons
organized
inexpense.
a labyrinth
As all
artminicollectors
may,because
Mr.of
Lauder
tax
code
for
the
1 percent
istax
different
tax
code
for
the
1 percent
is business
different
years
because
of are
the
alternative
years
of the a
Theres
real
truth
to
idea
that
the
neuver
allowed
them
to
shares,
the
maneuver
allowed
them
to
city
he
did
not
receive
tax
benefits
in
some
tax
code
for
the
1
percent
is
different
years
because
of
the
alternative
miniThe
program
honored
people
who
While
Mr.
Lauders
stock
holdings
in
is
entitled
to
deduct
the
Congress
enacted
a law
afterward that
m
to
lly
by
the
I.R.S.
The
efAs
all
art
collectors
may,
Mr.
Lauder
Unlike
some
wealthy
collectors
who
is
entitled
to
deduct
the
full
market
valfrom
the
tax
code
for
the
99ofpercent,
from
the
taxother
code
for thein99 percent, and
me
incode
mum
tax
and
limits.
mumholding
tax and other limi
ters
and
preferences
for
the
rich
isin one
of
the
trusts,
limited
liability
corporations
publicly
traded
companies
show
some
given
profusely
to
charities,
position
in
the
stock,
have
a 99
neutral
position
the
stock,
not have
ax
for
the
1 tax
percent
isfor
different
years
because
the
alternative
minifrom
the
code
the
percent,
limited
length
ofnot
the tax
deferral.
mum
tax
and
other
limits.
ueusing
of tax
artworks
donated
arethe
criticized
for
breaks
to unk,
not
lestiincome
taxthe
rate
for
the
is entitled
to
deduct
full
market
value
ofprofessor
artworks
donated
to
museums.
ofFleischer,
his
tactics,
much
of his
wealth isI.R.S.
hardMr. Lauders
brother a
Leonard
said
Victor
a and
law
professor
at cluding
said Victor
Fleischer,
law
at
Andtax
the
Lauders
eventually
paid
tens
of
ce
swings.
Under
I.R.S.
subject
to
price
swings.
Under
rom
the
code
for
the
99
percent,
said
Victor
Fleischer,
a
law
professor
at
mum
tax
other
limits.
derwrite
private
collections
that
offer
most
volatile
in
Washington
and
will
move
to
companies,
some
of
which
his
lawyers
acknowl(For
years,
Mr.
Lauder
I.R.S.
er
to
examine
because
it
is
controlled
by
and
his
wife,
Evelyn
(who
died
Nov.
12),
tllion
taxpayers,
representing
ue of
of Colorado.
artworks
donated
toto the
museums.
millions in stock from the transaction.
(For years,
availed
himself
the
University
of
Colorado.
Anypaying
taxthe University
Any
tax-Lauder
little Mr.
access
public,
Mr. and
Lauder
is
me,
they
avoided
paying
rules
atatthe
time,
they held
avoided
aid Victor
Fleischer,
ataxlaw
the
University
ofprofessor
Colorado.
Any
taxCharity
and
Tax
Breaks
Charity
Br
a maze
of
privately
trusts
and
com-Tax
whose
causes
include
the Whitney
Muof
a
quirk
theTax
aying
Still,
the
familys
planning
was
efthe
presidential
campaign,
now
that
repeated
edge
are
intended
for
tax
purposes.
The
cable
Charity
and
Breaks
58
percent,
fell
from
about
(For
years,
Mr.
Lauder
availed
himself
widely
praised
forcode
making
his in
artwork
atax cod
of
a
quirk
in
the
tax
that
allowed
payer
lucky
enough
to
have
appreciated
payer
lucky
enough
to
have
appreciated
urns
panies.
Court
documents,
S.E.C.
filings
seum
and
the
pink
ribbon
campaign
for
5gains
million
in
capital
gains
as
much
as
$95
million
in
capital
gains
he
University
of
Colorado.
Any
taxpayer
lucky
to
have
appreciated
fective
enough
that enough
after Este
Lauder
donors
to
take
a
deducti
community
asset.
Charity
Tax
Breaks
make
1995 todied
18 in
percent
in
2008,
of a quirk
inathe
tax
code
that allowed
to
take
a deduction
for donating
A opening
weekawareness.
opening
at
the
AEurope,
week
before
the
property
records
spotlight
a few
property
isand
usually
put
toand
aAchoice:
property
isbefore
usually
putdonors
to
choice:
cash
breast
cancer
attempts
in down
Congress
to
strike
ataxgrand
bargain
television
network
he
built
in
Central
2004,
sheis
passed
nearly
ht
otherwise
have
taxes
might
otherwise
have cash
been
ayer
lucky
enough
tobeen
have
appreciated
week
before
the
at his
thethe
property
usually
put
to $4
a that
choice:
cashordinary
The
Neue
Galerie,
created
Mr.
aNeue
portion
of by
anactuartwork
been
of the
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roperty
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and
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erty
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ctions
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erty
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rty
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20

20

N
THE NEW YORK TIMES NATIONAL SUNDAY, N
THE NEW YORK TIMES NATIONAL SUNDAY, NOVEMBER 27, 2011
CME Enterprises, maintains an official headBillionaires Playbook for Tax Avoidance To re
S NATIONAL SUNDAY, NOVEMBER 27, 2011
20
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N
THE
NEW
YORK
TIMES
SUNDAY,
NOVEMBER
27,
2011
NATIONAL
founded,
CME
Enterprises,
operates
an
art
collection
worth
more
than
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of
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action, known as a variable prepaid forward,
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Page 1 stations in Europe but has
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onto
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Nxxx,2011-11-27,A,020,Bs-4C,E1
resisted,
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res Playbook
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Page
wealthy wouldFrom
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has used
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years.
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An
examination
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public
documents
THE
NEW YORK
TIMES
SUNDAY,
NOVEMBER
27,
2011
NATIONAL
E Enterprises, operates
an
art
collection
worth
more
than
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of
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worth
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Lauder
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common
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ations in Europeinvolving
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s in tax-friendly
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Page
,Bs-4C,E1
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his taxes, Ronald S. Lauder has used many of the techniques available
the wealthy
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the
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ES
SUNDAY,
NOVEMBER
27,
2011
ionNATIONAL
worth moreworlds
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ers to abandon
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examination
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oceanfront
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From Page 1 D.C., and on Park
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ollars.
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ying the tax increases
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uld harm the
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ork he built
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ly $400like
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from his bar mitzvah. Mr. Lauder grew so enthralled by politics as a young man that he told
friends he dreamed of becoming the first Jewish
president of the United States.
After studying in Brussels and Paris and at
the Wharton School at the University of Pennsylvania, he joined the family business in 1964
and served in a variety of limited roles. While
his older brother Leonard rose to become Este Lauders chief executive, Ronald engaged
in a variety of pursuits: becoming a major Republican fund-raiser; serving a rocky tenure
as ambassador to Austria; running for mayor,
an unsuccessful bid in which he spent $363 for
each vote he received; and starting an assortment of business ventures in Eastern Europe,
one of which went bankrupt during the technology bubble.
While the familys wealth was created by
hard work and ingenuity, it was bolstered by
aggressive tax planning, a skill that has become
Ronald Lauders specialty. When Mr. Lauders
father, Joseph, died in 1983, family members
fought the I.R.S. for more than a decade to reduce their estate tax. The dispute involved a
block of shares bequeathed to the family the
estate valued it at $29 million, while the I.R.S.
placed it at $89.5 million. A panel of judges ultimately decided on $50 million, a decision that
saved the estate more than $20 million in taxes.
Este Lauder Companies went public in
1995, and Ronald Lauder and his mother cashed
in hundreds of millions of dollars in stock but
managed to sidestep paying tens of millions in
federal capital gains taxes by using a hedging
technique known as shorting against the box.
Together, Mr. Lauder and his mother borrowed 13.8 million shares of company stock from
relatives and sold them to the public during the
offering at $26 a share. Selling borrowed shares
in this way is referred to as a short position.
Since the Lauders retained their own shares,
the maneuver allowed them to have a neutral
position in the stock, not subject to price swings.
Under I.R.S. rules at the time, they avoided paying as much as $95 million in capital gains taxes
that might otherwise have been due had they
sold their own shares.
Such transactions allowed investors to cash
in their shareholdings without paying taxes.
But the Lauders use of the technique was so aggressive that Congress enacted a law afterward

that limited the length of the tax deferral. And

the Lauders eventually paid tens of millions in
stock from the transaction.
Still, the familys tax planning was effective
enough that after Este Lauder died in 2004, she
passed down nearly $4 billion to her heirs, according to tax experts who studied the case and
estimated that the estate was taxed at an effective rate of 16 percent about a third of the top
estate tax rate at the time.
Ronald Lauder has not been a director of
the company since 2009, but he still serves as
the president of its Clinique Laboratories subdivision. He also sublets a full floor of office space
from Este Lauder, on the 42nd story of the General Motors Building in Manhattan, which serves
as the hub for the matrix of foundations, investment funds, partnerships and trusts used to control his businesses and personal finances.
His stake in Este Lauder Companies, according to regulatory filings, is valued at more
than $600 million. Nearly $400 million of that
stock is pledged to secure various lines of credit. Many financial planners consider it imprudent for principal shareholders in a company
to borrow against their stock. But it remains a
popular way for wealthy taxpayers to get cash
out of their holdings without selling and paying
taxes.
There is a certain irony that Mr. Lauder
has used $72 million worth of his Este Lauder
shares to carry out his latest state-of-the-art
tax reduction tactic. These contracts emerged
as a popular tool about a decade ago and were
developed by accountants and tax planners after Congress closed down the loophole on the
Este Lauder public offering. The I.R.S. began
cracking down on these contracts in 2008, and
has pursued a prominent case against the billionaire Philip Anschutz, who used one to avoid
more than $140 million in federal taxes.
Whether or not the I.R.S. agrees with Mr.
Lauders contention that his contract is legitimate, some tax policy experts say the deal illustrates how the wealthy take advantage of the
system.
Theres real truth to the idea that the tax
code for the 1 percent is different from the tax
code for the 99 percent, said Victor Fleischer,
a law professor at the University of Colorado.
Any taxpayer lucky enough to have appreciated property is usually put to a choice: cash

out and pay some tax, or hold the property and

risk the vagaries of the market. Only the truly
rich can use derivatives to get the best of both
worlds lots of cash and very little risk.
While Mr. Lauders stock holdings in publicly traded companies show some of his tactics,
much of his wealth is harder to examine because it is controlled by a maze of privately held
trusts and companies. Court documents, S.E.C.
filings and property tax records spotlight a few
of the more ordinary tax breaks used by affluent people.
Significant portions of his inherited stock
are held in family trusts, which reduce the ultimate estate tax. Mr. Lauder and his wife have
also established their own family trusts, allowing them to bequeath their wealth to their heirs
with minimal taxes.
Other trusts and partnerships control his
real estate properties in Palm Beach and the
Hamptons and at 740 Park Avenue, a building
that was once home to John D. Rockefeller, and
is known as one of the worlds wealthiest apartment buildings.
United States tax law allows taxpayers to
deduct mortgage interest on ones homes up
to $1.1 million in debt. Households with more
than $1 million in income claimed more than $27
billion in such deductions from 2006 to 09, according to a report this month by Senator Tom
Coburn of Oklahoma, who said some wealthy
taxpayers even deducted mortgage interest on
their yachts.
And there is no limit on the amount of property taxes that can be deducted from federal
income. So Mr. Lauder is entitled to deduct the
$400,000 he pays annually on his Palm Beach
mansion as well as what he pays on his home on
Park Avenue and his holdings in the Hamptons.
This welfare for the well-off costing billions of dollars a year is being paid for with
the taxes of the less fortunate, many who are
working two jobs just to make ends meet, and
i.o.u.s to be paid off by future generations, said
Senator Coburn, a Republican, who has called
for limits on tax breaks for high earners.
Mr. Lauder deducts property taxes on all of
his holdings, his spokesman said. Mr. Lauder
declined to say how much that reduced his federal taxes, but said he did not receive tax benefits in some years because of the alternative
minimum tax and other limits.

Charity and Tax Breaks

A week before the opening at the Neue Galerie last month, Mr. Lauder appeared at another gala, 40 blocks south, at the New York Public
Library, to receive the Carnegie Foundations
Medal of Philanthropy.
The program honored people who have given profusely to charities, including Mr. Lauders
brother Leonard and his wife, Evelyn (who died
Nov. 12), whose causes include the Whitney Museum and the pink ribbon campaign for breast
cancer awareness.
Ronald Lauder and his wife, Jo Carole, were
honored for a variety of contributions: the work
of their joint foundation supporting hospitals,
rebuilding monuments and refurbishing American embassies around the world more than
a quarter of a billion dollars over the last five
years, according to his spokesman.
The Ronald S. Lauder Foundation has donated tens of millions of dollars to rebuild Jewish communities devastated by the Holocaust
and communist rule. Mr. Lauder has also given
to a variety of Jewish and Israeli organizations,
including the World Jewish Congress, where
he has served as president since 2007. Richard
Parsons, the former Time Warner chairman,
presented the award, calling Mr. Lauder and his
wife two of the nations pre-eminent supporters of the arts and civic causes.
Mr. Lauder said his life was changed 25
years ago when he visited a kindergarten in
Austria and met a classroom full of Jewish children who were refugees from Russia. Still, he
said he found it odd to be referred to as a philanthropist.
I did what I wanted to do, he said. What I
thought was right.

A Passion for Art

In the United States, Mr. Lauder has focused
on what he calls his greatest passion art.
In 1976, at age 32, his generous donations
helped him become the youngest trustee of the
Metropolitan Museum of Art. He later served
as chairman of the Museum of Modern Art and
remains an honorary chairman. He has donated
and lent artwork to an assortment of museums.
Part of his collection of lavishly decorated ceremonial armor is on display at the Met, in a gallery named for him.
As all art collectors may, Mr. Lauder is enti-

tled to deduct the full market value of artworks

donated to museums. (For years, Mr. Lauder
availed himself of a quirk in the tax code that
allowed donors to take a deduction for donating
a portion of an artwork, without actually turning over the art. That break, known as fractional
donation, was eliminated in 2006.)
Unlike some wealthy collectors who are
criticized for using tax breaks to underwrite
private collections that offer little access to the
public, Mr. Lauder is widely praised for making
his artwork a community asset.
The Neue Galerie, created by Mr. Lauder
and Serge Sabarsky, who died in 1996, in a mansion once owned by Grace Wilson Vanderbilt,
the widow of Cornelius Vanderbilt III, offers
public viewing of an exquisite collection, worth
more than $200 million even before Mr. Lauder
added dozens of pieces for its 10th anniversary.
Sheldon Cohen, a former I.R.S. commissioner, said that when used as intended, the tax
codes breaks for art collectors balance private
interests with the public good.
If an art collector makes significant contributions, and the public actually gets access
to the works they are donating, then the major
thing the collector gets is prestige and social
status, said Mr. Cohen, now a lawyer in Washington.
At times, Mr. Lauders efforts to enhance
his art collection have coincided with tax avoidance techniques.
In 2006, three months after he agreed to pay
$135 million, a record at the time, for the Klimt
painting Adele Bloch-Bauer I, Mr. Lauder sold
a $190 million stake in his broadcast network
CME.
When asked about the sale, Mr. Lauders
spokesman said the proceeds were taxable in
the United States at the full capital gains rate.
Even then, though, CMEs complex corporate

structure it operates in Central Europe, is

organized as a Netherlands holding company,
keeps its headquarters in Bermuda and routed
the $190 million sale through two Cayman Island
companies allowed Mr. Lauder to minimize
taxes in countries outside the United States
where it does business.
Some tax reform advocates say that it is
unfair that the wealthiest can subsidize their
lifestyles using myriad offshore maneuvers and
complex accounting strategies.
Its admirable when people back their
charitable impulses up with donations, said
Scott Klinger, tax policy director of the group
Business for Shared Prosperity. But the tax
code shouldnt allow the wealthy the kind of
loopholes that let them, essentially, force other
taxpayers to underwrite donations to their pet
n
causes.
This article has been revised to reflect
the following correction published on
December 9, 2011:
An article on Nov. 26 about the tax strategies used by the businessman and philanthropist Ronald S. Lauder referred imprecisely to
the tax treatment of art in commercial settings.
While the purchase of decorative art or lease
payments on rented art may be deducted or depreciated as a business expense, the cost of acquiring fine art like the examples in Mr. Lauders collection is generally not deductible. The
article also misidentified the previous owner of
the Fifth Avenue mansion that is now the Neue
Galerie. It was owned by Grace Wilson Vanderbilt, the widow of Cornelius Vanderbilt III, not
by Cornelia Vanderbilt. Also, a picture with an
earlier version of this article was published in
error. It showed a house owned by Leonard A.
Lauder in Palm Beach, Fla., not the one owned
by Ronald S. Lauder.