Bill Davidson: the IRS’ billion-dollar target

Published On: Jun 21 2013 07:24:13 PM EDT
AUBURN HILLS, Mich. -

Bill Davidson became one of the wealthiest men in America as he steered Guardian Industries into automotive supply supremacy.

Later he bought sports teams and won in that arena with the Detroit Pistons and the Tampa Bay Lightning achieving world championships.

Yet, for all the winning he did in life, his heirs stand to lose a lot if Mr. Davidson’s attorneys don’t succeed in getting the Internal Revenue Service off of the family’s back.

The IRS is looking to charge Davidson’s estate a mind-blowing $2 billion back taxes.

Davidson Estate attorneys say the family owes nothing: end of conversation.

Mr. B did what wealthy people do.

They hire estate planning attorneys to engineer ways to give away much of their wealth before they die to avoid estate [more accurately called death] taxes. 

There is no better way to explain this than to say estate tax calculations are nasty.

This is money you have paid taxes on your entire life and simply because you die the federal government comes in and takes upwards of 55% as the undertaker puts your casket into the ground.

Some might say it’s only right.

Others will ask what right the federal government has to take half of a person’s wealth when the grim reaper comes a callin'.

Most want to pass their business, their money or even the family farm on to family or charity.

This tax bill, if not handled correctly, will force the sale of the business or farm to pay Uncle Sam or take money that would otherwise help the charity improve lives.

The reason this system exists is simple; the dead have no one to lobby for them in the halls of congress.

Washington, D.C. likes nothing more than scooping up scads of tax dollars and doling them out to buy votes!

Now you can understand why the Internal Revenue Service is taking an especially close look at Bill Davidson’s estate.

Now that was the simple explanation.

Here is the more technical story.

From 2005 to 2008, Bill Davidson did fairly usual gifting to his wife and kids that his attorneys say all fell below the gift and generation skipping tax thresholds.

But in January of 2009 as Mr. Davidson was being inducted into the NBA hall of fame he started giving away hundreds of millions of dollars in a number of ways.

He created a number of what are called grantor retained annuity trusts [GRATs for short] and self-cancelling installment notes [SCINs].

Both are fairly standard ways of handing over a lot of money with income streams on timelines coming back to the grantor [Davidson] until his death.

Then the person receiving the gift would keep the assets [money or stock] that are left. The GRAT is to avoid gift tax and the SCIN is to pass along company stock [preferred and common] and avoid gift tax.

Both of these provide income streams with timeframes back to the donor [Bill Davidson in this case].

But here is where the Davidson estate got into trouble.

Though it has evidence from Mr. D’s personal physician his life expectancy was normal for a man in his age group [86] which according to IRS tables should have been around two years; what caught the IRS’ eye is the fact that the estate planning transfers [slightly less than a billion dollars-worth] came just two months before Davidson died.

The IRS will claim the money was passed merely to avoid taxes and was done when it was clear Mr. D was on death’s door. That in the IRS’ view is an improper use of the techniques the attorneys employed.

The IRS will say it knows how to properly calculate an estate tax form and the attorneys got it wrong. Davidson’s attorneys will say the IRS hired an outside valuation firm to figure out the value of the Guardian Industries’ preferred and common stock at the time Mr. Davidson died and they muffed it. Davidson’s estate claims the evaluating company did its work in 2012 and ignored the 2009 automotive industry meltdown. Guardian Industries posted a loss that year.

If you’ve stayed with me this long congratulations! You’re an estate planning junkie like me. 

Now, often times the IRS negotiates settlements. Yet with this kind of money at stake those negotiations will be hard fought and more than likely protracted and bitter battles. Think about it, if they meet in the middle the Davidson family has to hand over one BILLION dollars!

This case is being heard in the Washington, D.C. tax court and will likely last years. It is also likely that the Davidson estate will not be able to walk away cleanly without some tax due.

On the other hand, the feds appear to be piling every stick of furniture and every possible dime they can see in the Davidson empire onto their burning claim hoping to burn the Davidsons for something near the middle. This is why we have judges and appeals.

With 17 trillion dollars in debt, a billion might actually make a difference. Even if it means the Davidson heirs lose a home or two or some jewelry or like that farmer, sell off that stake in the family business.