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Kenneth Lay, late Enron CEO, wins
$3.9 million tax battle in U.S. Tax Court

August 30, 2011

Some nut jobs, folks who need lives, conspiracy theorists believe Kenneth Lay is living the good life on some faraway tropical island.

The Smartest Guys in the Room_Enron documentary They just don't buy that Lay, the former chief of Enron, died just weeks after being found guilty in May 2006 of 10 counts of fraud and conspiracy related to the collapse the energy company he founded.

Lay's death meant that he didn't have a chance to appeal his convictions, so they ultimately were thrown out.

And the erasure of the jury verdict meant that Lay's family (and if you go along with the fake death theory, the man himself) was able to escape the court-ordered forfeiture of millions in assets that accompanied the convictions.

To those who insist Lay is still alive, his passing was just too darn convenient.

Well, those folks are having a field day with the latest chapter in the Lay/Enron saga.

On Monday, the U.S. Tax Court ruled in favor of the deceased (or not) Enron chief executive, rejecting the Internal Revenue Service's attempt to collect $3.9 million from Lay's estate and his wife (widow) Linda.

The case concerned transactions in 2001 among Lay, Linda and Enron. That year, the Lays sold $10 million in annuities to Enron as part of an agreement for Lay to reassume the CEO position, with the stipulation that the annuities would be returned to Lay if he worked a 4.25-year term.

Enron, however, filed for bankruptcy protection in December 2001 after revelations of, shall we say, creative accounting led to the company's implosion.

The IRS contested the Lays' contention that the annuities were sold to Enron. In 2009, the IRS filed a notice of tax deficiency for $3.9 million, arguing that the Lays should have reported the $10 million as income in 2001.

Judge Joseph Goeke, however, disagreed with the government.

"The benefits and risks of ownership of the annuity contracts were transferred to Enron in the annuities transaction," wrote Goeke. "The Lays, therefore, properly reported the transaction on their federal income tax return as a sale of the two annuity contracts."

And that means the Lay estate doesn't have to hand over $3.9 million to the IRS.

Other lawsuits involving Enron's creditors, the government and Lay's estate remain. But the way things have gone so far, those fighting the Lays might want to rethink settling sooner rather than later.

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • Ken Lay wins in Tax Court. But he’s still dead.

    Ken Lay got $10 million from Enron in a deal structured as a sale by him of an annuity contract…

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