The agency claims that Pohlad’s heirs owe the IRS more than $207 million, largely on the basis of a purportedly low valuation the estate placed on the late patriarch’s most visible asset, the Minnesota Twins. The tax collector also wants $48 million as an “accuracy related penalty” for a total potential tax bill of $255.8 million.
The Pohlad family disputes the IRS position and asserts that the federal agency greatly overvalued Carl Pohlad’s interest in the Twins after he handed most of the control of the ballclub to his sons in the years leading up to his death in 2009.
“We believe strongly in our position and are working with the IRS to resolve the differences following their normal procedures,” said Jim Pohlad, oldest of the three Pohlad sons.
“We are respectful of the IRS and its position,” he said in an interview. “Clearly, we expected this but we just wish the process didn’t take so long. Our position is to resume negotiations as soon as both parties can.”
IRS officials declined to comment on the dispute last week.
But according to tax attorneys not connected with the case, the Pohlads will be on the defensive in this dispute.
“The burden is on the taxpayer to prove the IRS wrong,” said Barry Gersick, an estate-planning attorney with the Minneapolis firm of Maslon Edelman Borman & Brand.
According to the experts hired by the estate, Carl Pohlad’s interest in the Twins was just $24 million at the time of his death in early 2009. The IRS places the value of those assets at $293 million.
The Pohlad estate asserts that Carl Pohlad’s minority ownership of the Twins at the time of his death — with his three sons controlling 90 percent of the voting shares of the club — is not adequately reflected in the IRS valuation, nor is the Great Recession, which confronted the U.S. economy at the time.
The dispute surfaced last month in U.S. Tax Court, a division of the federal judicial system where tax cases can sometimes linger in near-obscurity for years.
The Pohlad estate has requested a Tax Court trial in Houston, home of the law firm handling its tax case, Baker Botts. However, further negotiations toward a settlement are expected well before any trial date is set, said Baker Botts attorney John Porter.
An IRS spokeswoman, Karen Connelly, said last week that the agency “does not comment about ongoing litigation” when asked about the assertions in the Pohlad petition. But in its “notice of deficiency” to the Pohlad estate, the IRS asserts that the extra tax it is seeking is the result of “a substantial estate tax valuation understatement.”
Estate and family financial planning experts said the Pohlad case is notable for the dollar amount involved and the sophistication of the advisers retained by the family to handle the inheritance and gift tax matters.
“I don’t think the Pohlads are doing anything shady,” said Tom Hubler, the head of Hubler for Business Families, a Minneapolis-based family business consulting firm. “It’s one of those disputes where the Pohlads and their advisers devised a plan for looking at the estate and the IRS is saying ‘no, no, no.’ ”
At $255.8 million, the dispute would be among the richest pending before the Tax Court, said Gersick.
“Just the size of the estate would generate an audit,” he said in an interview.
According to tax experts, the IRS notice of deficiency and the Pohlad estate’s Tax Court petition can be viewed as preliminary salvos in a high-stakes negotiating process.