Related’s Stephen Ross hit with max civil penalty in tax deduction case

The Related Companies’ Stephen Ross overestimated the value of a piece of Southern California real estate he gifted to his alma mater the University of Michigan by nearly $30 million, a federal tax judge found.

The IRS had flagged the donation, which Ross and his partners valued at $33 million in tax filings, but U.S. Tax Judge James S. Halpern ruled was valued at $3.4 million, the Detroit Free Press reported.

The judge levied the maximum civil penalties against Ross and his partners for a “gross valuation misstatement.”

“I think this transaction was grossly abusive, and the court decided that in imposing the highest non-criminal penalty that can be imposed on a taxpayer,” Georgetown University Law Center law professor Brian Galle said.

A Related spokesperson said Ross, who started his career as a tax attorney, is likely to appeal the judge’s ruling.

The gift is just a fraction of $328 million pledged to the university by Ross, who also signed the Bill and Melinda gates Foundation’s “Giving Pledge,” promising to donate half of his $4.4 billion fortune to charity.

But tax law experts were shocked by the disparity between how much Ross and his partners paid for the real estate, which housed a data center, and value of the write-off they claimed.

“I don’t understand why someone is not going to jail,” said University of Florida professor Steven J. Willis, an author on charities and tax law.

In fact, two people who helped structure the gift and resale by the university have been convicted in unrelated fraud cases not involving Ross. Prosecutors in Michigan charged Ross’ former accountant Ronald Katz and a lawyer Harold Levine for their roles in a series of fraud deals. Both men pleaded guilty to felony obstruction and tax evasion charges. A spokesperson for Ross said he had “severed all dealings” with the two men.  [Detroit Free Press] – Rich Bockmann