WPC90 2MBR9 Z3|PTimes New Roman (TT)New Roman Bold P6G;XPTimes New Roman (TT)RomanTimes New Roman (Bold) (TT)p||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxdXPPS - PSt 4M ROOM 228 LPT1XPPSPS.WRSSXj\  P6G;G"jXP2> X3|jTimes New Roman (TT)Romanman BoldTimes New Roman Italic P6G;\PXPTimes New Roman (TT)RomanTimes New Roman (Bold) (TT)Times New Roman (Italic) (TT)y.K8?XpK\  P@QP.7UC2XXU4  pQXW!0(Xh0\  P6QhPSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN/>/>/>/x]SSSSx]x]x]x]xSxSx]SSxSxSf]xSxSxSxIxIxWxIx{nInInInISSSWS]a?/?]?9?]]WW]n/nKn9nCn/x]xx]x]SSxxIxIxI]?]?]?]WnUn9nax]x]x]x]x]x]xxWnInInIx]n9x]]?n9xSz+SS8-8WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""d<d<CCYYdCCddCYCdYzzzzCCCCqodYYYYYYYYYYY8888dddddddnddddddd"5@^?(?SO_c(88?g(g(WOOOOOOOOOO((_g_GkOWSWSO[_,;WGc[WWWWOK_O_OSO888WO(OSKSK3KW,,S,WOSOCC;WG_OKG8 8_((((W,E(OWOOOOOOOOOOOwSKSKSKSKSK,,,,,,,,[WWOWOWOWO_W_W_W_W(KOOWSWOWOSKWOSSOOWWOOSKSKSKSKWWSK[K[O[[K[K_W_W,WWW,,,W;WSG,GE[W[WWW((WCWEOC((N((;S(GOOOS(OOOOKOOOOOO(((((((((((((((OOtOg\\GO\d*,KO.wROOn\CfxKxWlRx\]\cdIfIs`Wx\rriwgd((((((((((((((((((((((((((((((((?(?SO_c(88?g(g(WOOOOOOOOOO((_g_GkOWSWSO[_,;WGc[WWWWOK_O_OSO888WO(OSKSK3KW,,S,WOSOCC;WG_OKG8 8_(((((((((((((((((((((((((((((((((((KOOS,SWOOOOOOO,gOO(K;((OOOOOOGOOOOOOOSSSSS,,,,W[WWWWWOW____SSWOOOOOOwKKKKK,,,,OWOOOOOGOWWWWKS2,@#@E&@)K"5@^2Coddȧ8CCdr2C28ddddddddddCCrrrdzNdzoȐC8CtdCdoYoYCdo8Co8odooYNCodddYO,Oh2CC!CCPRCdodddddȐYYYYYN8N8N8N8oddddooooddoddddzodddYYYYYYddddooPoNoNCNodo8RoodȐYYoNoNNF2ldCdddddd>400000000009>9+@04242079$4+<744440-909020!!!4002-2--42O4020(($4+90-+!!94)0400000000000G2-2-2-2-2-744040404094949494-004240402-40220044002-2-2-2-442-7-7077-7-94944444$42++)7474444(4)0(N$2+00020000-00000000t0>77+0c7<&&209<!!&>>400000000009>9+@04242079$4+<744440-909020!!!4002-2--42O4020(($4+90-+!!9-002240000000>00-$000000+0000000222224744444049999224000000G-----0400000+04444-22@,70"5@^2CTdd+CCd2C28ddddddddddCCdzzzzCYozzdozzooN8NTdCddYdY8dd88Y8ddddNN8dYYYNP7Pl2CC!CCPRCddzdzdzdzdzdYzYzYzYzYC8C8C8C8dddddddddoYzddddoYdzdzdzdzdYYYzYzYzYddddddPdCdCCCdYYo8oRdddzNzRdNdNNF2idNdddddd7>d<d<CCoodCCddCoCddzzzzzzzzzzCCCCozdddddddYYYYY8888dddddddndddddYd X- X   cn X-x  Federal Communications Commission`x(# FCC 9790 ă  yxdddy O#X\  P6G;pP# Before the Federal Communications Commission  yO--Washington, D.C. 20554 ă  yOy-  X - #Xj\  P6G; XP#In re Request of hh,V) ` `  hh,V)  X-William C. De La Penahh,V)File No. BALCT 931119KE ` `  hh,V)  X-For Tax Certificate hh,V) ` `  hh,V)  Xh -|  MEMORANDUM OPINION AND ORDER  X: -Adopted: March 13, 1997hh,VppReleased: April 3, 1997  X - By the Commission:  X-  1.The Commission has before it for consideration the application for review of the April   14, 1995 staff action which granted, in part, the request for a tax certificate filed by William C.  X-  De La Pena. yO)-  ԍ We note that in April of 1995 President Clinton signed H.R. 831, which repealed Section 1071 of the Internal   <Revenue Code, the provision under which the Commission administered the tax certificate program. Thus, the   Commission no longer accepts applications for tax certificate, and it will only consider those tax certificate   applications that were filed on or before January 16, 1995. However, all the facts and circumstances of this case occurred prior to April 1995, and are properly before us for review. The application for review is unopposed.  That action was taken in a letter decision by the Chief, Video Services Division,   0Mass Media Bureau, in conjunction with the assignment of license of television station   WCTD(TV), Channel 35, Miami, Florida from New Miami Latino Broadcasting Corporation   ("New Miami") to the Christian Network, Inc. ("Christian Network"). At the time of the assignment, Mr. De La Pena was the sole shareholder of New Miami.  X&- 2.Background. In November 1991, as a part of a settlement agreement in a comparative   hearing proceeding, Mr. De La Pena, an Hispanic American, purchased a 45% equity interest in   New Miami, one of eight competing applicants for a new television construction permit for   Channel 35, Miami, Florida. His purchases represented 20% of the company's voting shares,   jwhile the remaining 80% of the voting stock was owned by two minority individuals. Pursuant   to this same settlement agreement, Mr. De La Pena loaned New Miami the funds necessary to  X-  settle with other competing applicants and to construct station WCTD(TV).x yO#-  y#X\  P6G;pP#э Through a minor change in ownership, New Miami became the successor to Miami Latino Broadcasting   Corporation, a minorityowned company which had been competing since 1984 with other applicants for a permit   to construct Channel 35 in Miami. A settlement agreement was entered into between New Miami and each of the   Zcompeting applicants for the construction permit for Channel 35. Pursuant to the settlement agreement, New   hMiami agreed to pay to the competing applicants the aggregate sum of $595,000 in return for the dismissal of their applications. As part of the loan   jagreement, New Miami gave Mr. De La Pena an option to purchase the remaining stock in New" ,))ZZ"   Miami. In 1992, Mr. De La Pena exercised his option to purchase the remaining stock of New   {Miami for $1.6 million minus (1) the purchase price of his initial 45%, (2) his loans to New   Miami, and (3) the earnest money paid to New Miami. Subsequently, in 1994, Mr. De La Pena   sold the station, as noted above, and requested the issuance of a tax certificate based upon his   equity investment, his loans to New Miami and his stated intent to reinvest in another broadcast  X-  property.:! X-#d6X@`7@##X\  P6G;pP#э#Xj\  P6G; XP# #X\  P6G;pP#Mr. De La Pena represents that the loan amount was in excess of $3.6 million.#Xj\  P6G; XP#: Upon consideration of his initial investment in the minorityowned entity, the staff   granted Mr. De La Pena's request in part and issued a tax certificate for the value of the initial   45% equity investment. The staff found the tax certificate policy to be inapplicable to any loans   advanced to New Miami by Mr. De La Pena or to any additional expenditures of funds by him   to purchase the shares of the other shareholders when he obtained 100% control of New Miami.   >The staff also found Mr. De La Pena's intent to reinvest in other broadcast properties to be   Linconsistent with the expressed intent of the tax certificate policy, which was to encourage the  X -sale of telecommunications properties to minority buyers.  X - 3.In his application for review Mr. De La Pena maintains that the partial tax certificate grant   was "unlawful, capricious and an arbitrary departure" from the Commission's minority ownership   policies. Mr. De La Pena contends that, in addition to the purchase of the initial New Miami   shares, the value of the loans must be a considered factor in the tax certificate award. Mr. De   lLa Pena claims that the loans, like the equity interest, constitute the "startup" financing  XM-  Kcontemplated in the Commission's policy statement, Minority Ownership in Broadcasting, 92 FCC   z2d 849 (1982), and that the staff's failure to make this finding warrants review of its decision.   Even if the Commission denies a tax certificate for the loans, Mr. De La Pena asserts, it cannot   lawfully deny him a tax certificate for his total capital investment in New Miami because "the   KPolicy Statement does not distinguish between levels of investment in a minority owned station."   Explaining that his initial 45% investment enabled New Miami to "obtain" the permit, Mr. De   La Pena characterizes the additional funds with which he purchased the rest of the company's stock as an investment to "stabilize" the company.  X~- 4.We have reviewed the action of the staff herein and find the decision to be entirely   .consistent with precedent and the objectives of our former tax certificate policy. With respect   ito the contention that the loans should be considered startup financing, we disagree with Mr. De   La Pena's assertions and we affirm the staff's analysis and conclusion. The Commission's   minority tax certificate policy was implemented in 1978 to encourage minority ownership of  X -  jbroadcast facilities. At that time, the Commission began to avail tax certificates to entities who   proposed transfer of control or assignment of a broadcast license to a minorityowned or  X-  controlled entity. Statement of Policy on Minority Ownership of Broadcasting Facilities, 68 FCC  X -  2d 979 (1978). A tax certificate "enables the seller of a broadcast station to defer the gain   realized upon a sale, either by: (1) treating it as an involuntary conversion, under 26 U.S.C.    1033, with the recognition of gain avoided by the acquisition of qualified replacement property;   >or (2) electing to reduce the basis of certain depreciable property, under 26 U.S.C. 1071, or  Xj$-  .both." Minority Ownership in Broadcasting, 92 FCC 2d at 851. The Commission believed this"j$y,-(-(ZZF#"   -policy would foster minority ownership by providing broadcast licensees an incentive to transfer   ytheir interests to minorityowned entities. In 1982, the Commission expanded the availability of   tax certificates to include initial investors who purchase shares of a minority owned or controlled   broadcasting entity, so as to enable minority entities to procure financing and thereby increase  X-  minority ownership of broadcast stations. Those initial investors providing startup financing,   <which allows for acquisition of the property, and those investors who purchase shares within the   first year after the license is issued, which allows for stabilization of the capital base, were  X_-  eligible for an investor tax certificate. Minority Ownership in Broadcasting, 92 FCC 2d at 857  58. Mr. De La Pena's 45% equity investment in New Miami qualified him as an initial investor   providing "startup" financing, but his loans did not. As stated in the staff's letter, the objective   of the former tax certificate policy was to provide an incentive to investors to risk capital in a   =minority entity acquiring a broadcast facility. Loans, however, are secured transactions rather  X -  than the risk equity contemplated by our policy. See Letter to Robert Lewis Thompson, Esq.  X -  from Barbara A. Kreisman, Chief, Video Services Division, Mass Media Bureau (April 14, 1995).   Mr. De La Pena's argument that his initial stock investment in New Miami was conditioned upon   his simultaneous loan does not negate the fact that the loan was a secured transaction, thus outside of our tax certificate policy.  Xb- A5.Contrary to the contention in the application for review, we find the situation and  XK-  circumstances here to be different from those in Martin J. Gaynes, 5 FCC Rcd 6781 (1990),   jwhere a tax certificate was granted to certain minority investors in a minoritycontrolled entity.   NLike the investors in that case, Mr. De La Pena was granted a tax certificate for his initial  X-  yinvestment; however, no loan was involved in Martin J. Gaynes. In addition, we explained that   our tax certificate policy was meant to "encourage initial investments by minorities, as well as   by others, in entities that are being formed to acquire broadcast media interests." Clearly the   -loans provided here were not an "initial investment," but instead the creation of a debtorcreditor   =relationship with an existing entity in which Mr. De La Pena had an interest. Again, this is not   the startup capital anticipated by our policy. A secured transaction is founded upon a property   interest which provides assurance of payment, while the uncertainty of risk capital provides no  Xe-  such assurance. Our interpretation here is consistent with prior tax certificate policy because, as explained above, our policy was meant to encourage investment.  X - {6.Further, we find unavailing De La Pena's argument that the loans should qualify as start  zup financing because the "Policy Statement does not limit the term 'financing' to. . . only the   investor's paid in 'capital.'" We believe it is apparent from the language of our policy statement   that loans were not intended to be included within the scope of "startup financing." For instance, we stated that:  X"- 1X. . . tax certificates will be available upon the actual divestiture of shares by investors  \who initially purchase shares in the broadcasting entity or purchase shares within one year  Xj$- |after the issuance of broadcast license, and who show that their capitalization either  enabled a minority owned or controlled entity to acquire a broadcast property or provided  X>&- necessary startup financing. Minority Ownership in Broadcasting, 92 FCC 2d at 858. (emphasis added) (#"'',-(-(ZZ%"Ԍ  X- !7.We find the original disposition of the tax certificate in this case to be compelled by the  X-  Commission's former tax certificate policy. With regard to startup capital, control was the   determining factor in our policy. Mr. De La Pena's exercise of his option allowed him to gain  X-  control of New Miami. In Letter to Daniel F. Van Horn, Esq. from Roy J. Stewart, Chief Mass  X-  Media Bureau, (April 3, 1992), the Mass Media Bureau stated that the investor tax certificate was   inot designed to encourage a minority entrepreneur to invest in its own business, for it is assumed   Zthat a minority entrepreneur, just as a nonminority owner, needs no incentive to invest in its own   business. We affirm that staff decision as an accurate interpretation of our former tax certificate  X1-  policy. Accordingl y, Mr. De La Pena's exercise of his option to purchase the remaining stock  X -  and assume control of New Miami, was an investment in his own business. Extension of the   .policy as suggested in the application for review would amount to overprotection of minority   [entrepreneurs against the realities of the marketplace which all licensees must face. Indeed, if   Lwe adopt the analysis set forth in the application for review, the logical extension of the policy   would be that a single minority owner with 100% control of a licensee would be entitled to a tax   certificate for providing the initial capitalization of his own business. Such a result is not   consistent with the goals of the Commission's former tax certificate policy. Mr. De La Pena's   exercise of his option allowed him to gain control of New Miami, the subject broadcast entity.  Xb-  In Daniel F. Van Horn, a minority with a controlling stock interest in a licensee benefitted from   the Commission's tax certificate policy, since the policy enabled him to obtain the funds that   were needed to acquire the station from startup capital investors. However, the Bureau did not   credit that controlling principal's initial and subsequent investments in his own station as   <constituting startup capital under the Commission's tax certificate policy. There, as here, the key to our decision was the controlling interest held in the licensee by the individual minority.  X-  X- 8.In view of the foregoing, we find that the staff's disposition of the request for a tax   0certificate filed by William C. De La Pena was correct and that no basis exists to warrant  X-  reversal. Accordingly, IT IS ORDERED THAT, pursuant to Section 1.115(g) of the  X|-Commission's Rules, the application for review IS DENIED . ` `  hh,VFEDERAL COMMUNICATIONS COMMISSION ` `  hh,VWilliam F. Caton ` `  hh,VActing Secretary "h$,-(-(ZZ(#"