It’s focusing on a dispute between the Pohlad family (owners of the Minnesota Twins) and the Internal Revenue Service over the estate of the late Carl Pohlad.
Pohlad’s heirs are suing the IRS because it valued the team for tax purposes at $293 million while the estate says it was only worth $24 million (again, for tax purposes). It’s a difference that cost the younger Pohlads about $190 million in taxes and penalties.
How can there be such a wide disparity? The article looks at the inner workings of how the rich transfer their wealth:
Don’t count the Pohlad heirs out. The suit provides a glimpse of how currently legal wealth transfer techniques can shield the well-advised uber-rich from the brunt of estate and gift taxes, provided they plan ahead. In September 2008, just months before his death, Pohlad appeared for the 25th year in a row on the Forbes list of the 400 richest Americans, ranking 102nd with an estimated value of $3.6 billion.
We based our estimate then in part on stock positions he and his family holding company, partnerships and trusts held in such public companies as Wells-Fargo (he sold a bank he’d built up to Wells Fargo for $1 billion in 2001, before building up yet another lending operation); US Bancorp (he sold it a bank in 1992); and PepsiCo (he merged his bottling operation with it in 1986). The self-made Pohlad also built large non-public holdings in everything from real estate to broadcasting and during the 1970s and 1980s did deals with billionaire Irwin Jacobs, known then as a corporate raider.
But by the end of 2008, it appears, Pohlad had transferred almost everything but his Twins stake to heirs and had done so at a comparatively small tax cost, considering that the gift tax rate while he was transferring wealth never got below 45%. During the estate tax audit, the IRS asserted Pohlad and his heirs had dramatically undervalued the gifts he made during his life. In 2008 alone, auditors concluded, Pohlad made $446 million in taxable gifts instead of the $129 million his estate reported.
In all, the IRS started out demanding another $163 million in gift taxes, on top of the $95 million Pohlad and his estate had paid. But the estate says in its suit that it has already settled all the IRS gift tax claims— for a mere $16 million, or 10 cents on the dollar.
Meanwhile, the estate paid a mere $26 million in estate taxes and the IRS started out demanding another $207 million. But no matter what value is ultimately placed on the Twins, with their favorable $16 million gift tax settlement, the Pohlads have already beaten a nice chunk of the IRS’ extra estate tax bill. That’s because gift taxes paid or owed for the three years before death are included as part of the taxable value of an estate.