A $255.8 million government claim on the estate of the late billionaire banker Carl Pohlad has been quietly settled for a fraction of the initial amount the Internal Revenue Service demanded.
The Pohlad family resolved the IRS case for $36 million, including a penalty of $1.8 million and interest of $5.3 million, according to documents filed in U.S. Tax Court earlier this summer.
The settlement appears to validate the family’s contention for the past two years that the IRS greatly overvalued Carl Pohlad’s interest in the Minnesota Twins. Before his death in 2009, he had transferred the bulk of ownership to his three sons.
“The family is happy that this process has been resolved amicably and is now concluded,” Pohlad attorney John Porter said in a statement to the Star Tribune.
Porter said the recent payment “fully extinguishes the estate’s obligation to the IRS.”
Citing taxpayer privacy laws, IRS spokeswoman Karen Connelly declined to comment on the Pohlad case.
The Tax Court document outlining terms of the agreement between the Pohlad estate and the IRS offers no details on how the final numbers were reached.
“This suggests to me that the two parties were able to come to a compromise position on the value of the team and Carl’s ownership interest at the time he died,” said Barry Gersick, an estate and tax attorney for the Minneapolis law firm Maslon, who had no role in the case.
“For me, the story is the government asking for $207 million [in taxes] and $48 million [in penalty] plus interest and the case was settled for $30 million,” Gersick added. “It tells me that people got real about what the issues were in the audit.”
The IRS filed what is called a “notice of deficiency” against the Pohlad estate in March 2013; the family petitioned the Tax Court for a hearing on the matter in June 2013.
A four-day trial was conducted in late September 2014 before a U.S. Tax Court judge in Houston. Testimony largely came from expert witnesses on both sides of the case who addressed estate valuation issues. Also testifying was Jim Pohlad, one of the three brothers, who are executors of the estate.
The IRS originally claimed that the value of Carl Pohlad’s interest in the Twins when he died was $293 million. Estate experts for Pohlad placed the value of his interest at $24 million, noting that most of the ownership of the ballclub had been transferred to brothers Jim, Robert and William.
Attorneys for the Pohlad estate also noted that recessionary pressures in and around 2009 tamped down the value of professional sports franchises.
Based on the $28.4 million in additional taxes agreed to by the Pohlad estate, Gersick estimated that Carl Pohlad’s ownership interest in the team was ultimately valued at $87 million.
Besides the Minnesota Twins, Pohlad and his family built a business empire that includes financial services, commercial real estate, media and automotive dealerships.
Estate attorneys contacted by the Star Tribune said an out-of-court settlement is not unusual after a case is set for trial before a judge in Tax Court, and both sides realize the hazards of litigation are unpredictable.
“The Tax Court is notorious for not always finding a middle ground in a valuation case. Both parties can go to trial, and the court could hit one with the other side’s numbers or write its own valuation opinion, which might not look like either side’s expert reports,” said Mavis Van Sambeek, a trust and estate attorney for the Minneapolis law firm Lindquist & Vennum. “This wasn’t some legal issue that the IRS wasn’t going to negotiate about. It was just a valuation question and a trial would be a roll of the dice for both sides.”