An exerpt from the 2010 Annual Report of Biglari Holdings (link):
“In the long run, all gains — realized and unrealized — are essential to the value of the company. But the timing of realizing gains or losses does not impact business value. Therefore, we do not realize gains or avoid realizing losses in order to report higher earnings. Consequently, we encourage you to analyze our business performance before interpreting the ramifications of realized gains.
Furthermore, because of our corporate structure, we would be better off if we delayed realizing gains, for the resultant tax costs are a significant drag. That’s why our preference would be to choose investments in which we were able to postpone the process of realizing gains. The unrealized gains would carry a reserve (using the prevailing corporate tax rate) recorded as a liability on our balance sheet for deferred taxes. To us, this liability or “loan” is valuable because it is interest-free and because we would be in control of the timing of the repayment. Notwithstanding the importance of taxes to us, our prime objective is to achieve the highest after-tax return and in doing so we may incur taxes because we aim to maintain an optimal collection of undervalued investments.”