Minnesota Twins fans disappointed in the team's performance this season may be surprised to hear this, but the Major League Baseball team has been valued at $578 million. That's good news for the Pohlad family, who control the franchise they inherited from owner Carl Pohlad, who died in 2009. There's just one problem, Carl Pohlad's estate listed the value of the team at only $24 million for tax purposes. The IRS said that was far too low, and demanded $121 million in taxes, plus a $48 million fine from the estate for allegedly grossly misstating the value of the estate.
The tax dispute is currently tied up in a lawsuit, and public filings have been heavily redacted to keep much of the information private, but the case appears to revolve around techniques the Pohlad family used to transfer assets before Carl Pohlad's death without incurring gift or estate taxes.
Rather than leave his family with a large inheritance in a lump sum, which would be subject to estate tax, the elder Pohlad transferred much of his wealth before he died. Large transfers of assets can escape estate taxes, but they can incur gift taxes. Apparently in an effort to minimize gift taxes, Pohlad transferred the legal title to his ownership of the Twins to a partnership. While he still owned the team for income tax purposes, the arrangement conveyed many tax advantages when it came time to transfer control of the partnership to the next generation.
The Pohlads' arrangement is unusually complicated and concerns large amounts of money that is not typical for most Minnesota families. However, the story does illustrate techniques that families of more modest means may consider when planning their estates, or when trying to figure out what happened to an inheritance they expected.
There are many factors to consider when planning an estate in Minnesota, or when trying to collect an inheritance. It's important to get help understanding the complex practice of estate valuation.
Source: MinnPost, "Five More Questions: Law prof Donna Byrne explains Pohlad family's run-in with IRS," Brian Lambert, July 29, 2013