Stephen Ross: Charity or tax deduction?

Submitted by Dudeski on

Here's an interesting (but super wonky) article on a recent court case involving the University of Michigan and Stephen Ross.

https://www.forbes.com/sites/peterjreilly/2017/07/17/billionaire-stephe…

The author's takeaway:

It is tough to characterize this particular transaction as philanthropic as the claimed tax savings dwarf the amount out of pocket or the amount netted by the University of Michigan.  You have to wonder to what extent University development officers knew what was going on. Was University of Michigan seeking charitable donations or renting its brand to a tax avoidance scheme?

This kind of charity tax deduction trick is apparently the new hotness for rich people trying to avoid taxes since the IRS reduced their discount rate.

 

Edit:

 

I'm not a lawyer, but people below are asking how Ross could claim a $30 million tax deduction on a $3 million gift. This link seems to suggest that the gift was not in cash, that Ross paid $3 million for it, did not disclose his costs to the IRS, and then over-estimated the fair market value of the gift when asking for the deduction.

There are lots of other details, but I'll let knowledgeable folks chyme in and correct me.

https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11286

Brhino

July 25th, 2017 at 4:20 PM ^

I'm trying to read this article but honestly my brain is just shutting down.  Probably 50% due to confusing tax scheme and 50% due to incomprehensible author.  Does Forbes have editors?

M-Dog

July 25th, 2017 at 4:41 PM ^

Having worked at the IRS, I can tell you that the tax code is not as complicated as it is for any rational economic reasons.

It's complicated because the government uses it as knobs and levers to reward / coerce behavior that it wants, and to punish people that it does not like / reward people it does like.

So, not surprisingly, you wind up with this kind of nonsense.

A simpler tax code based on politically-neutral sound economic underpinnings can not come fast enough.

So of course, it won't.

 

 

SanD

July 25th, 2017 at 4:53 PM ^

I think you're right in general, but this is a donation to an educational institution, what many consider charity, as opposed to the types of deductions and adjustments you are referring to. Here, the rules are complicated because the donation is an asset as opposed to cash.

Fitz

July 26th, 2017 at 7:25 AM ^

Actually this is exactly what he's referring to. The government wants to reward/coerce people to donate to charities and so there's a tax deduction available.

M-Dog

July 25th, 2017 at 5:45 PM ^

They are just a bill collector.  They are not the ones actually running up the charges.

It's all pretty boring and non-descript really.

I don't want to over-defend them.  It's a necessary function that has to be done by somebody.  But at the end of the day, it's still a massive government bureaucracy that is interested in its own survival and expansion more than anything else.

As with any Government agency, a healthy set of checks and balances is always a good idea.

  

 

UM Griff

July 25th, 2017 at 6:01 PM ^

As a bill collector! After all "revenue" is their middle name.

Years ago, my best friend was visiting me when I lived in Reston, VA. I took a photo of her next to the IRS building flipping the bird. Today, we would probably be in jail.

Blue_Bull_Run

July 25th, 2017 at 4:33 PM ^

I'm skimming at work but having an impossible time understanding this. How can the tax savings be MORE than the donated amount? 

In most cases, it's rich people giving away money in exchange for a one-to-one deduction, which means they'll get about 30% (depending on their tax bracket) back. While it's nice to get ~30% back, nobody actually comes out ahead from donating.

If this is a new trick where I can donate money and actually come out ahead, then I might start doing this too!!!

SanD

July 25th, 2017 at 4:44 PM ^

you're right -- this article is impossible to follow, but the crux is he donated an asset as opposed to cash and then played fast and loose with the rules for valuing that asset. Allegedly.

MI Expat NY

July 25th, 2017 at 5:10 PM ^

The answer is that it's both a charitable contribution and a tax deduction.  Michigan still benefited, even if Ross likely benefited the most.  

I am a little troubled by a donor dictating how and when a charitable organization sells a donated asset.  

KennyHiggins

July 25th, 2017 at 5:30 PM ^

Guy is one of the most philanthropic folks around and he's BLUE as the day is long.  Sop grateful for him and those like him - including those who helped me graduate from UM and help send others there.  To suggest that it's motivated by tax avoidance is complete and utter BS.  

Thank you Stephen.

jcgold

July 25th, 2017 at 6:39 PM ^

When you donate non-cash property to a charitable organization that has appreciated in value, you're entitled to a deduction at the property's fair market value. Basically the issue here is that Ross took a deduction of $30M on the donation the property, which ross acquired for $3M, and UM had appraised for $6M and sold for $2M. The extra $25M or so in value gave ross a $3M -$5M tax break, more than even what he paid for it per the tax court.

The entire tax planning industry is a game of finding open doors and putting as much stuff through them until Congress or treasury closes those doors. Then you find new doors. Stuff like this happens all the time in large organizations, including the penalty assessment.

M-Dog

July 26th, 2017 at 12:27 AM ^

Yup.

It's a game.  When you make the tax code as complicated as it is, there are constant opening and closing doors.  It's a game of cat and mouse.

And it's not illegal because there are so many nuances that are technically within the law without being in the spirit of the law.

I like the idea of low, flat taxes.  People say "but millionaires and billionaires will get a big unfair tax cut."  No, they'll actually pay some taxes that they are not paying now at all because they can find these loopholes.