In a ginormous estate tax battle denouement, the Internal Revenue Service just won $388 million in a settlement with the estate of Detroit Pistons owner Bill Davidson. The IRS had asserted a deficiency of over $2 billion in estate/gift/generation-skipping taxes. To put the dollar amounts in perspective, consider that the Treasury took in a total of $12.7 billion in estate tax revenue in 2013. Davidson, of Bloomfield Hills, Mich., died at age 86 in 2009. He made his fortune in glass and auto products with Guardian Industries, was a noted philanthropist, but best known as team owner of the Pistons, the W.N.B.A.'s Detroit Shock and the N.H.L.'s Tampa Bay Lightning.
Forbes'recent article, "IRS Grabs $388 Million From Billionaire Davidson Estate," explained that two years ago, Davidson's estate took the Internal Revenue Service to U.S. tax court to challenge the agency's assessment of additional taxes. The IRS says that the estate owes $187 million in gift taxes, $152 million in estate taxes, and $49 million in generation-skipping taxes, plus a $133,000 gift tax penalty bill.
Two problems factored into to these deficiencies, the article explains. The IRS claims that the Davidson estate undervalued some corporate stock and improperly valued the self-cancelling installment notes (SCINs). The IRS said that the estate also underestimated the value of privately held stock held in trust for Davidson's children and grandchildren.
SCINs are legitimate tax planning devices, but there is some gray area in the way they are structured. In this instance, the IRS questioned the calculations used and said the basketball team owner was, in effect, making taxable gifts he should have reported. The IRS requires a fair exchange of assets for the notes.
It's not just billionaire NBA owners who have these issues, but also those estates with hard-to-value assets and those wanting to take advantage of new legal estate planning techniques like these SCINs. Even smaller estates tax under the estate exclusion may need to file estate tax returns, and face unlimited audit times for hard-to-value assets.
Speak to a qualified estate planning attorney about SCINs and other techniques for your estate.
Reference: Forbes (July 8, 2015) "IRS Grabs $388 Million From Billionaire Davidson Estate."