Everyone Murders

August 28th, 2017 at 10:47 AM ^

I'm inclined to give the university a pass on this one. 

"As with all donors, the university plays no role in determining or verifying the fair market value claimed by Mr. Ross as a charitable contribution on his individual tax return," he wrote.

That's consistent with all manor of charitable donations of tangible and real property.  Nonprofits, schools, and charities are not appraisers and should not be charged as being appraisers.


August 28th, 2017 at 11:16 AM ^

Yeah.  It was surpising to see (the Freep, so huge grain of salt) mention IRS lawyers said the University should have done its own appraisal of the property and then recognize it sold for less than market value.  While it wouldn't surprise me if the University didn't do full due-dilligence is figuring out the buyer (who turned out to be a lawyer for Ross), expecting a school to appraise the market value of a data center in California seems a bit extreme.


August 28th, 2017 at 1:05 PM ^

Recipients of donations, especially in kind donations, are willing to accept same at whatever the value provided by the donor - the only party who needs to get a valuation to back up their claimed deduction.

Case in point, I bought my home in CA from a large, public university foundation.  The foundation was in receipt of the home as part of a donation from a wealthy alum.  The foundation wanted to turn the in kind donation into spendable cash ASAP, and I wanted to buy the house ASAP.  

The FMV was determined by what a willing buyer and a willing seller were able to agree.  It was far lower than the appraisal value of the donor, and the only person who had a problem was the foundation's broker, who tried to scuttle the deal to steer the value to another one of her clients.  The IRS might ultimately try to second guess the donor's appraisal for purposes of taking a deduction, but that doesn't involve the university or me.

The university wanted and needed the cash, and the foundation was well within its fiduciary duty in agreeing to sell it on my terms.




August 28th, 2017 at 1:24 PM ^

Requiring an appraisal prior to the sale of any asset is common sense and common practice in the government and non-profit sector. Without controls in place, it is far too easy for an employee to sell an asset below market value to an associate, have that associate flip it for a profit and kick-back a portion of the profit. People go to jail for this sort of thing.

I personally would not knowingly give a dime to a foundation or other non-profit that did not have controls in place to prevent this. I guess maybe I have a bit tighter definition of "fiduciary responsibility".




August 28th, 2017 at 1:28 PM ^

Fair market value isn't necessarily the same as the price paid. A seller who wants cash now may sell an item for less than it's FMV. If you attend a charitable event you may see items sell for far more than the FMV because the bidder is making a contribution to the charity. There may be collusion between a buyer and a seller for tax reasons. Short sles and tax lien purchases can result in a sale of real estate at below market value.

In your case it sounds as if you got the house at below the market value because the foundation wanted cash now. Did the County Assessor set your tax rate based on the purchase price or on what he considered to be the FMV?

Robbie Moore

August 28th, 2017 at 3:05 PM ^

But does anyone really believe that UM, with its billions in endowment, needs "cash now?" I see no pressing financial reason for the University to circumvent policy. And I see no reason for a University asset manager not to do simple appraisals to establish third party verification of an assets value. This is grade school level stuff.

Hail Harbo

August 28th, 2017 at 10:40 PM ^

Even with your charity contribution, the market might be small, but it still exists.  If you and I are bidding on a item being sold at a charity auction, that is a market.  It matters not what the intentions are, one of use will outbid the other and when we do, we have just set the FMV of that particular item at that particular time and location.  If you win the bid and then sell the item the next day that is a new market, and if you sell that item for 1% of what you orginally paid, that sir is the new FMV for that particular item at that particular time and place.

County Assessors set tax rates on voodoo.  The tax rate has no relationship with the original selling price nor a perceived FMV.  On the contrary, tax assessments are often, very often, well above the current selling price for similar properties.


August 29th, 2017 at 3:22 PM ^

No. In the charity example, you are setting the actual market value of that particular item at that particular time and location. FMV is a term of art used in determining tax rates. The succesful bidder at a charitable auction will be allowed a charitable deduction for the amount paid in excess of the FMV.

As to county assessors, they are required by law to set rates based on the actual purchase price or a fair appraisal of the property. If the rate is set in excess of that you can go to court to get it adjusted.


August 28th, 2017 at 10:53 AM ^

Agreed, not a good look for Mr. Ross, but I don't see why this makes UM look bad. The University shouldn't have any impact on the deductions claimed on his tax return.


August 28th, 2017 at 10:58 AM ^

"The Detroit Free Press explained, according to the IRS, the University failed to follow some of its own policies when it accepted and resold the property. Prior to accepting the gift from Ross, the University did not appraise the property value; it held onto the property for two years, as Ross asked it to do, when it is supposed to liquify non-cash gifts promptly; it sold the property to a buyer who turned out to be the same lawyer and accountant who represented Ross and partners in the original donation; it also resold the property for much less than the appraised value, despite University policy, which claims it should sell property around fair market value."


I find it very hard to believe that there wasn't anyone from the University who had an inkling of what was going on here.

Blue in Paradise

August 28th, 2017 at 11:12 AM ^

That was my point.  If they know he is writing off $30M+ then you are exactlly correct (which is my scenario #2).

If they only know that he asked them to wait 2 years to sell, it would seem like a reasonable request from someone giving you millions of dollars.  You can infer it is part of a tax scheme but not that it is an attempt at bald-faced evasion (which is scenario #1).

We don't know what they were told so I will give them the benefit of the doubt unless I here differently.



August 28th, 2017 at 11:20 AM ^

But there are lots of reasons why people provide non-cash gifts to institutions.  Maybe he (rightly) figured the property would appreciate in value, meaning his gift would be more valuable a couple years down the line, similar to stocks/interests in companies.

I am not naive; Ross is a shrewd businessman and it wouldn't surprise me if he tried to get around tax liabilities.  But that isn't unique to him or schools; it's basically a part of doing business.  The fact he tried to claim nearly 10X the value is the issue here, and he should rightfully be pillored for it.  But saying "the University has a higher duty to not minimize it's liability to the IRS" isn't realistic.


August 28th, 2017 at 11:28 AM ^

that's presumably the reason why the University (and other institutions) have policies for dealing with non-cash gifts. Policies which appear not to have been followed here.


I'm also not naive and presumably the University has done enough here to ensure plausible deniability. But it's also an observable fact that defenses/explanations of what has happened tend to include sentences like the following:


"But that isn't unique to him or schools; it's basically a part of doing business."


My personal opinion is that this is the wrong standard for U-M. But others are free to hold their own opinions.


August 28th, 2017 at 2:39 PM ^

Per the article, the courts did not find any wrong-doing by Michigan in this case.  The IRS's lawyer claiming otherwise is, admittedly, a biased opinion; they are the ones suing Ross for his tax avoidance.  It would be similar to reading the filing by the plaintiff in a lawsuit and assuming it is objective summation of the facts.

Sure, "it's how people do business" is a bad standard in a perfect world, but I've worked at enough universities in my life to know that you don't really want to know how the sausage is made.  I certainly don't want to know what happens when recruits visit the school, what Harbaugh says behind closed doors, what decisions are made by the UM Medical School regarding research, what is/is not encouraged behavior in the engineering school, etc.  I totally agree the University should do its best to follow its own procedures and not knowingly break state, local, or even school-sanctions rules and regulations.  But I've dialed back the level that triggers my moral outrage.


August 28th, 2017 at 12:24 PM ^

I and my partners have donated several properties to charitable entities over the years.  What we always did was to ensure that the valuations of the properties that were gifted were done by appraisers that did considerable work in the area of gifting and had a good history with the IRS. Although it would cost more, we would have two appraisals done and use the average.  

One problem I see is that an appraiser does not know the future value of the property.  Ross, barring some unusual circumstance, should have known that the value he could use was the value at the time of the gift. Ross rolled the dice and lost.

Just speculating a bit here but If Ross knew that his lawyer was going to buy the property at a certain price and deducted multiples more than that amount, that starts getting a bit dicey.  If the university had knowledge of some scheme and went ahead and accepted the gift and, in essence, became part of a scheme to defraud the IRS, that does raise some problems and not just on the civil side of the docket.

It is the FREEP so one does wonder.


August 28th, 2017 at 2:43 PM ^

I agree, but apparently the various courts that have heard this case all determined the University was not liable and did not play a knowing role in the tax issues.  Again, there's a space to argue about plausible deniability, but at some point enough people dispassionately looked at this and didn't see anything illegal in the school's behavior.  My guess is they didn't ask questions because, on its face, it doesn't seem particularly suspect.  Here's some property; sell it in a couple of years because it'll be wroth more was probably their reasoning.  Now, the fact they didn't figure out this lawyer worked for Ross is suspect, but I didn't read the facts of the case and don't know the background, so perhaps this was one big obfuscation.

Bando Calrissian

August 28th, 2017 at 1:10 PM ^

Meet Alfred Taubman. Who paid millions of dollars in restitution, and spent 10 months in jail for antitrust violations. UM never took his name off of anything--including the Medical Library he paid for.

Honk if Ufer M…

August 29th, 2017 at 1:13 AM ^

Business & economics schools are corrupt in and of themselves by their very nature. Why didn't they say look Steve, we just built a new biz school practically yesterday, and tore down the cage to do so, something actually useful to the community, so why don't you build schools & rebuild neighborhoods and fund needed programs in Detroit and Flint where they actually need you help? We're rich as fuck as it is and don't need this, or your money, but thanks anyway. ????

The university does all sorts of business with biggest criminal organizations in history in banking, finance, pharma, military, Chemicals, etc. etc. etc. The corporations endow chairs with strings attached. The U trains people to be hired by them according to the wants, needs and wishes of the corporations. The U runs itself like a corporation too.

How many years of protest did it take to get them to divest from Apartheid S.A and why did they invest in the first place and why did it take protests to make them stop and why did they resist so long?



August 28th, 2017 at 10:51 AM ^

But I don't see what the University did wrong.  This seems like the Freep is trying to paint UM in a bad light where there isn't really any solid justification.

Blue in Paradise

August 28th, 2017 at 11:13 AM ^

I get it, your main benefactor gives you a multi-million dollar gift and asks you not to sell for 2 years, seems reasoanble enough unless he told you it was part of a tax scheme (that would not be a good look if they were told why).

Anyway, not a huge deal in the grand scheme of things if they didn't have knowledge of the tax fraud.  UofM gets some slightly bad press and $5 million - most people / institutions would take that trade off.


August 28th, 2017 at 11:00 AM ^

The judge is alleging that the school skipped some of their own procedures because they knew the deal wasn't right and they wanted it to go through anyway.

From the article this is what they are saying Michigan did:

Agreed to accept Ross' gift of a stake in the California property without first obtaining an appraisal of its value, contrary to university practice. 

Acceded to Ross' request for an unusual two-year hold on reselling the gift, even though university policy calls for disposing of non-cash gifts promptly. 

Accepted an offer for reselling the property stake from a mysterious buyer — who it turned out was the same lawyer and accountantwho represented Ross and his partners in the original donation.

Resold the property stake for less than one-third the appraised value, contrary to university policy calling for sales of public property to be for fair market value.


August 28th, 2017 at 11:08 AM ^

That last point is the oddest. 

Ross donates $3M value property and claims ten time that as a tax deduction

Ross associates buy the property for cheap. 

Did the University get the max on the property they could?  Doesn't sound like it.

Does Ross actually get control of the property back?  At least indirectly.


August 28th, 2017 at 11:46 AM ^

When exactly was this property appraised and by who?  The article suggests that the university sold for much less than the value at which the property was appraised.  When did this happen and what was the appraised value? 

As far as Ross claiming a $30M+ deduction, I have no idea what he bases that on.

My concern is if the university agreed to structuring this deal so as to help Ross avoid taxes, i.e. hold off  on the resale of the heretofore unappraised property until after Ross has tried to float an inflated $30M+ deduction past the IRS, then the university may be conspiring or aiding in the commision of a crime.

Bando Calrissian

August 28th, 2017 at 11:06 AM ^

Or you're reading your own interpretation of the Free Press onto the facts of the case.

The University is not squeaky-clean here. They did everything Ross and his people asked them to do so Ross could commit tax evasion. They broke their own policies in doing so. This doesn't happen by pure accident.


August 28th, 2017 at 11:16 AM ^

you are correct on my own biasis are playing a role, and I am not looking at the University as blameless.  The University didn't follow its own regulation, but it had nothing to do with breaking the law.  So does the ends justify the means?  Maybe.

Did the University willfully help Ross commit tax evasion? I sure as heck hope not.  But in my mind, that is what would make this front page Freep news.  Not that the University held onto a property longer than normal.

Blue in Paradise

August 28th, 2017 at 10:55 AM ^

a billionaire got caught up in a scheme to avoid taxes, but more so that it was such a transparent, almost silly plan.  

Didn't they think the IRS would be able to compare the property sale records to the charitable deduction?  Hell, they could have gone on Zillow and figured that one out.

I would put this one up there with Wile E. Coyote trying to catch the Road Runner with an ACME rocket strapped to his back.



August 28th, 2017 at 11:04 AM ^

The freep argument seems to focus on UofM's "standard practices" or policies a lot.  These arent laws.  If your biggest donor asks you to do something with a half a percent of his pledge, you're going to do it.  Maybe that wasn't correct, but that's how the world works.


August 28th, 2017 at 11:04 AM ^

If this was a scam, it seems like it was poorly planned and executed. But this - poor execution and planning from leadership - explains a lot about the Dolphins! 


August 28th, 2017 at 11:06 AM ^

We're talking about property values in southern California, 10 years ago? I could see legitimate mistakes being made.

Fine the man and move on, but this is not the University's fault or problem.


August 28th, 2017 at 11:07 AM ^

"Tax law author Steven J. Willis, a professor at the University of Florida, spoke to the Freep on the situation. "I don’t understand why someone is not going to jail,” he said."

Glad he's not in charge.