University accepts $50 million donation from Stephen Ross amid fire from students

Wednesday, September 20, 2017 - 7:49pm

Scott DeRue gives the State of School Address Wednesday in Robertson Auditorium.

Scott DeRue gives the State of School Address Wednesday in Robertson Auditorium. Buy this photo
Katelyn Mulcahy/Daily

 

The University of Michigan announced a $50 million donation from notable alum Stephen Ross — the current largest donor to the University — to the Ross School of Business Wednesday afternoon at a State of School event. According to a University press release, the contribution will assist with student career development programs, recruiting qualified junior faculty and Business School campus maintenance.

The Business School’s dean, Scott DeRue, held the event for Business students, faculty and administration in which he briefly praised the donation and instead spoke about the future of the Business School for the majority of the speech.

“Steve Ross, his generosity is unparalleled,” DeRue said. “The majority of that (donation) is for students and faculty and investments in the educational experience.”

Business students, though, are worried accepting the donation will send a negative message to their fellow students and the country, as the U.S. Tax Court ruled against Ross in August for “grossly” overestimating the value of a tax-deductible gift to the University. 

The case between the IRS and Ross pertained to a Southern California property donated by Ross — a real estate mogul — to the University. Though the University sold the property for $2 million, and later valued it at $5 million, Ross and his business partners claimed a $33 million charitable tax deduction. The IRS took issue with the discrepancy in its own valuing of the property at $3.4 million, almost 10 times what Ross filed the tax deduction as.

After 10 years in court, U.S. Tax Judge James Halpern sided with the IRS and imposed maximum civil penalties on Ross and his associates.

James Hines, Richard A. Musgrave Collegiate Professor of Economics in the Law School, said taking cases to Tax Court is less common, but not unheard of. 

“These tax disputes are very common,” he said. “It’s not that common to go to Tax Court because people only go to Tax Court if they think they’re right and the government thinks it’s right and most of the time, these cases are resolved through some kind of negotiation without going to Tax Court … there are a lot of complicated situations.”

University spokesman Rick Fitzgerald wrote in an email that the University had no stake in Ross’s charitable tax deduction. The University’s reputation, he argued, was in no way damaged during the case between Ross and the IRS.

“The University plays no role in establishing or even agreeing to what may be the fair market value claimed by any donor as a charitable contribution on their individual tax return,” he wrote. “Rather, that is a decision made by the donor and his or her tax counsel and advisers. … During the course of this case, 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 Mr. Ross.”

Angela Dillard, LSA associate dean for undergraduate education, took to Twitter to point out the large amount of funding going toward the Business School instead of other schools. 

However, when the recent $50 million donation was announced, Business seniors Chelsea Racelis and Tala Taleb took issue with the University accepting the donation. Racelis said she wouldn’t have taken the donation because if a donor were recently in Tax Court for a prior engagement with the University, the new donation might cast a bad light on the University.

“I don’t think we should take the donation because even though it’s legal, that’s not really ethical,” Racelis said. “Do you want money that, in one form or another, directly or indirectly, isn’t clean? On top of that, regardless of where that donation is sourced from or where that’s coming from, the fact that the namesake of your school is evading taxes. What does that teach the students at your school in terms of role modeling?”

Taleb said the large donation deduction Ross attempted to claim goes against what students learn at the Business School.

“As a student, we learn a lot about ‘positive business’ and making sure that you’re making a social impact with your donations and even with just the money that you get, what are you going to be doing with it?” Taleb said. “Is it OK that he’s giving a donation to make a social impact on Ross but doing a bunch of shady business on the side? Does that make it OK for students to do that?”

Hines noted, however, Ross has neither been convicted of a crime nor is ethically unable to make future donations.

“The fact that somebody had a tax dispute with the IRS doesn’t make them ethically unworthy to contribute to the University,” Hines said. “That just means there was a difference of opinion about how much they owed and … look, sometimes the taxpayer loses those cases. Often they win but sometimes they lose and sometimes they get penalties but getting a penalty in Tax Court is not the same thing as getting convicted of a crime.”

Business sophomore Nathan Cole said he believes Ross can continue to donate to the University as long as there is a good amount of trust between the two parties.

“The hope is that the end all, be all is that you are taking the donations under a faithful trust that he has righted his wrongs and has learned the right way to go about doing donations and doing it for the right reasons as opposed to just doing it to cut back on taxes,” Cole said.

Ross, who could not attend the State of School address, appeared via video to comment on his donation. He said he was happy to donate to a building that is climbing national rankings among business schools.

“We’re making sure we get the best and have the best and attract the best and that’s what it’s all about,” Ross said over video.

During a Q&A session after DeRue’s address, Racelis and Taleb asked about the donation and if the University should have accepted the funds in light of the recent court ruling. DeRue said he doesn’t know enough about the case to go into specifics as of right now.

Taleb took issue with Ross’s connection to his name on University buildings. According to a University press release, Ross has donated a lifetime total of $378 million to the University. The Business seniors said such a large donor has a lot of weight in University decisions.

“I feel like donating a lot of money gives you a little bit of power in the University,” Taleb said. “I think you get consulted on a lot of decisions like wherever he wanted the money to go, it can go. It really impacts the students’ lives.”

Cole said the public should always put stress on the University when accepting donations like this considering the events from court last month. 

“In terms of reputation, the school’s reputation is not tarnished just because he’s not facing a criminal sentence and because this is so common for most people of that stature,” Cole said. “The school’s reputation is never actually in danger as long as they’re not accepting donations from someone who is actually a criminal. However, the school should definitely take it into consideration so public scrutinization is always a good thing just in terms of trying to force social change. Even though it is an internal decision, public opinions are just as valuable.”