Of course, this isn’t quite the way AT&T and Liberty, a media-investment company, describe the deal, which they unveiled last week. It calls for AT&T to convert Liberty, which it owns but doesn’t control, into a fully independent company. But to do this without paying a 13-digit tax bill, AT&T needs a favorable tax ruling from the Internal Revenue Service. The companies say the proposed spinoff makes sense in light of AT&T’s plan to break itself into three separate companies. That’s true–but it’s also true that the current owned-but-not-controlled situation makes no sense either, and the split would solve self-created problems at both companies.

Malone is a Wall Street legend. He’s a confirmed taxophobe who specializes in transactions so complicated they’re harder to understand than your phone bill. He’s had a few clunkers lately–Liberty put $500 million into ICG Communications, which has sunk like a stone; the value of his personal stake in AT&T is down $750 million for the year–but he almost always seems to win. As he will if he can sail off into the sunset with Liberty unscathed by taxes and with a nine-digit cash payment for AT&T for the $2 billion of tax losses it got from TCI.

To understand the story of Liberty, formerly TCI’s investment arm, you need a touch of history. No one involved in the deal would talk, so this account is based on documents, old background interviews and years of watching Malone. At TCI, Malone had two businesses: cable TV, which he tolerated, and dealmaking, his true love. Armstrong, installed at AT&T in 1997, decided to bet AT&T’s future on selling “broadband” services such as video, data and voice over cable-TV wires. Malone wanted to unload cable at a fat price, tax-free, but keep dealmaking. Armstrong wanted cable; he didn’t want dealmaking. So they carved up the pie.

To avoid a multibillion-dollar tax bill because the properties Liberty had bought cheap were now worth billions, Armstrong and Malone set up a complicated structure under which AT&T owned Liberty but had no control over it. Liberty agreed to limit its borrowing to 25 percent of its stock-market value, a level at which it couldn’t screw up AT&T’s credit rating. Liberty’s stock is down 40 percent (to about $40 billion) since spring, and its debt is up to $5 billion. So that limit is now starting to crimp Malone’s ambitions.

Meanwhile, Armstrong has a self-created problem, too, of the regulatory variety. After buying TCI, Armstrong bought a second big cable company, MediaOne, which owned a 25.5 percent stake in Time Warner Entertainment. TWE, known as Twee, is a Time Warner subsidiary that owns most of its cable systems. The Federal Communications Commission ruled that the combo of AT&T, Liberty (which owns a big Time Warner stake), MediaOne and Twee put too many cable assets under AT&T’s control. Even though AT&T doesn’t control Liberty or Twee. The FCC said AT&T had to sell cable systems or its Twee stake or Liberty. So here’s the deal. AT&T doesn’t want to unload cable systems, lest it diminish its reach. It couldn’t get what it considers a reasonable offer for Twee from Time Warner, the only logical buyer. So now, AT&T would like to solve its FCC problem by letting Liberty loose. That might also get Malone, who’s been carping about AT&T’s falling share price, to leave the AT&T board.

But unloading Liberty before March of 2001 would trigger the hitherto-avoided tax bill, because the IRS requires tax-free deals like AT&T-Liberty to be in effect for at least two years before they can be unwound tax-free. And the two years doesn’t date to when the transaction is actually unwound. It’s to when the unwinding is being considered. Which is now, because AT&T has only until Dec. 15 to tell the FCC how it will solve its MediaOne problem.

AT&T can plausibly argue that it didn’t plan to unload Liberty at the time it bought TCI, but the world has since changed. Who knows what Malone’s intentions were? So AT&T may well get its ruling and watch Malone, an avid yachtsman, sail off into the sunset. Which means that come Thanksgiving of 2001, he’ll have more than ever to be grateful for.