The University Insider is The Daily’s first faculty and staff-oriented newsletter. This weekly newsletter will give U-M faculty and staff the ability to see the most important issues on campus and in Ann Arbor — particularly those related to administrative decisions — from the perspective of an independent news organization. It will also provide a better understanding of student perspectives.
Stephen M. Ross — University of Michigan alum and benefactor for whom the Ross School of Business and Stephen M. Ross Academic Center are named — is currently being targeted for income tax evasion.
According to the Detroit Free Press, the billionaire and real estate developer, along with a group of business associates, donated property to the University to fulfill a gift; at the property, located in southern California, is a data center. The University then resold the property for almost $2 million in cash in order to satisfy the gift requirement; the $2 million eventually grew to $5 million dollars.
Though the property was recently appraised for $3.4 million, Ross and his affiliates claimed a charitable tax deduction of $33 million — saying the property was worth nearly $30 million more than its real value. The Internal Revenue Service uncovered this claim.
After almost 10 years, U.S. Tax Judge James S. Halpern sided with the IRS, according to the Freep. Halpern imposed maximum civil penalties on Ross.
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.
IRS lawyers said, in the article, Ross and his partners engaged in a “tax avoidance scheme lacking in economic substance … to the benefit of Mr. Ross and his associates at Related Companies.”
Ronald Katz, Ross’ former tax accountant and Harold Levine, a lawyer who helped with the donation, were charged with felony obstruction and tax evasion — two cases that are unrelated to the situation surrounding Ross.
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.
University spokesperson Rick Fitzgerald said to the Freep the acceptance and resale of the gift was reviewed by tax experts and the U.S. Court did not find fault in the transaction.
“The university does, on occasion, accept gifts of tangible property, real estate and, in this case, non-marketable financial interests,” Fitzgerald said in a statement. “When such gifts are accepted, the university works to liquidate those assets as soon as appropriate.”
Later, in an email to the Daily, Fitzgerald explained the case has been ongoing and the University has not been found at fault.
“During the course of this case, which dates back more than a decade, neither the Internal Revenue Service nor the U.S. Tax Court found any fault with the university’s receipt or handling of this donation from Stephen Ross,” he wrote. “University officials were called as potential witnesses, but in June 2015 were released prior to testifying, as the parties determined that university officials had nothing to add to the case.”
Fitzgerald explained the situation at hand is focused on the value Ross attributed to his financial interest donated to the University.
“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.
This article has been updated to include comments from University Spokesperson Rick Fitzgerald.
Check back for updates from the Michigan Daily.