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Sprint CEO responds to tax questions

The company releases a letter from CEO Bill Esrey in which he discusses a tax shelter he used after exercising tens of millions of dollars in stock options in 1999 and 2000.

The Internal Revenue Service is investigating Sprint Chairman Bill Esrey's past use of tax shelters, and the embattled Sprint leader told employees Wednesday that he faces losing "most, if not all" of his assets.

Esrey's message to "fellow associates," which Sprint released Thursday, was prompted by a Wall Street Journal report that he and Ronald LeMay, Sprint's chief operating officer, used a controversial tax strategy after they exercised tens of millions of dollars in stock options in 1999 and 2000. The Journal reported that the shelter allowed the pair to defer the massive tax bill that would normally have come due following the transactions.

In the letter, Esrey said he willingly took part in a tax and investment strategy recommended to him in the late 1990s by Ernst & Young, the company's outside independent auditors and Esrey's personal tax preparer. Esrey wrote that he kept Sprint's board updated for more than two years about the personal matters.

"I was assured by Ernst & Young that the investment and tax strategy was perfectly legal, was within the rules of the complex IRS code, and that there was a high degree of probability that this would be accepted by the IRS, although the IRS would most likely audit the returns," Esrey wrote.

He wrote that he's since learned that Ernst & Young approached other Sprint executives with the same advice. A representative for Ernst & Young could not be reached Thursday for comment. A representative for Sprint had no comment Thursday.

In the letter, Esrey expressed confidence that he will be vindicated by an ongoing U.S. Internal Revenue Service audit of the transactions. An IRS representative had no comment when reached Thursday.

"I have a legal opinion from an outside law firm that the IRS should agree with the tax position taken," Esrey wrote. "I was assured that there would be no likelihood of penalties associated with the transaction even in the event of an adverse IRS stand regarding these investment transactions."

But should there be an unfavorable ruling, Esrey wrote, the results could be devastating. "In the event of an extreme adverse outcome, and in the event of low prices for Sprint stocks, future taxes could take up most, if not all, of my assets since I have nearly all my assets in Sprint stock," he wrote.