The late Minnesota Twins owner Carl Pohlad’s three sons, executors of his estate, have chalked up a victory in a settlement with the Internal Revenue Service.
Forbes’ Janet Novack first wrote here about the lawsuit filed by Pohlad’s estate in U.S. Tax Court, contesting an assessment of $121 million in extra federal estate taxes for the team, plus a $48 million penalty for gross valuation misstatement. In the settlement, entered in June, the IRS and the Pohlad brothers agreed to an estate tax deficiency of $28 million and a penalty of $1.8 million.
With interest, the estate paid $36 million, according to a family spokesperson. “The family is happy that this process has been resolved amicably and is now concluded,” she wrote in an emailed statement. The estate earlier settled the IRS’s gift tax claims for $16 million (the IRS had demanded another $163 million in gift taxes, on top of the $95 million Pohlad and his estate had paid). The Pohlad family ranks #75 on Forbes 2015 America’s Richest Families list, with a net worth of $3.8 billion. Forbes’ current estimate of the value of the Minnesota Twins is $895 million.
The Pohlad brothers, pictured here with MLB commisioner Bud Selig, fought the IRS over the valuation... [+]
The main issue in the estate tax case was how to value Pohlad’s stake in the Minnesota Twins at the time of Pohlad's death in January 2009 (he was 93). The Pohlad estate valued it as just $24 million for tax purposes, while IRS auditors pegged it at $293 million. Pohlad used typical wealth transfer techniques to limit estate taxes: splitting ownership and control of assets to theoretically reduce what an unrelated buyer would pay for them. The family concluded that on the day of Pohlad’s death, his stake in MT Sports and Twin Sports (the legal owners of the Twins) were worth $11.8 million and $12.2 million respectively. At Pohlad’s death, his three sons, James, Robert and William controlled 90% of Twin Sports’ voting shares.
Estate planning with family entities (family limited partnerships and limited liability companies) and the accompanying availability of valuation discounts is in the spotlight. Advisors have been warning clients all summer that the Treasury Department may be coming out with proposed regulations curtailing discounts by next month, and that the new rules could be effective immediately. Brown Brothers Harriman’s latest recent Quarterly Investment Journal outlines the issues in Valuation Discounts At Risk.
The Pohlad settlement noted that the estate paid $22.5 million in state estate taxes to Minnesota. In 2009, the Minnesota state estate tax had an exemption of $1 million and a top rate of 16%. Today, Minnesota is still one of 19 states plus the District of Columbia that impose a state estate or inheritance tax. See Where Not To Die In 2015 for a run down. Efforts to increase Minnesota’s exemption to $5 million by House Republicans didn’t make it into the final state budget this year. (For 2015, the federal estate tax exemption is $5.43 million.)
Thanks to the StarTribune for calling the settlement to our attention.
