Billionaire Redstone Challenges IRS on Tax for 1972 Gift

In 1972, President Richard Nixon cruised to re-election. “The Waltons” premiered on CBS. And Sumner Redstone, who wasn’t yet a global media mogul, made a taxable gift to his children and failed to file a return.

At least that’s what the Internal Revenue Service is maintaining 41 years later.

The IRS told Redstone earlier this year that he owes $1.1 million in taxes and penalties, plus interest, because of the gift. The case involves stock in the family’s National Amusements Inc. received by Redstone’s son, Brent, and his daughter, Shari, after the settlement of an intrafamily lawsuit.

“This is unheard of,” said Richard Behrendt, a former IRS estate and gift tax auditor who is now director of estate planning at Robert W. Baird & Co. Inc. in Milwaukee. “I can’t remember ever hearing of anybody going back 41 years to raise an issue. It’s really unprecedented in my experience.”

Redstone, the billionaire chairman of Viacom Inc. (VIAB) and CBS Corp. (CBS), argues in his April 10 petition to the U.S. Tax Court that what the IRS called a taxable gift was instead the result of an intrafamily lawsuit and an “ordinary business transaction.”

The 89-year-old Redstone is worth $4.9 billion, according to the Bloomberg Billionaires Index. He started his career on the other side of tax disputes as a lawyer for the U.S. Department of Justice.

Photographer: Jonathan Alcorn/Bloomberg

Sumner Redstone, chairman and founder of Viacom Inc. Close

Sumner Redstone, chairman and founder of Viacom Inc.

Close
Open
Photographer: Jonathan Alcorn/Bloomberg

Sumner Redstone, chairman and founder of Viacom Inc.

‘Bitter’ Dispute

Redstone then joined his family’s movie theater company before taking over Viacom and CBS. As chairman of both companies, he controls the CBS television network, Showtime, Paramount Pictures and MTV.

Slideshow: Taxes on the Silver Screen

According to the petition, the “bitter family dispute” in the early 1970s involved Sumner Redstone’s late brother, Edward, who had left the business and “threatened” to sell his shares outside the family. The settlement ended up directing some of the shares in National Amusements to Edward’s and Sumner’s children.

“Despite many opportunities during 41 years,” Redstone’s petition says, the IRS “has never before claimed” that he made taxable gifts in 1972.

The statute of limitations doesn’t apply in cases where no tax return was filed, Behrendt said.

“At some point, it becomes impractical to go back this far,” he said. “It sends a really troublesome message to the public.”

‘Riled Up’

The interest probably would more than double the amount Redstone owes the IRS. Ronald Aucutt, an estate tax lawyer at McGuireWoods LLP in Tysons Corner, Virginia, has a spreadsheet that calculates IRS interest dating to 1996, and even that would result in more than $1.4 million in interest.

Aucutt, who has been practicing estate tax law since 1976, said he found the case’s reach to 1972 so “astonishing” that he wouldn’t have believed it was real if one of his partners had told him.

“They have to have a reason for being so riled up,” he said of the IRS. “My guess is that they would not pursue something that they did not think was really serious.”

Edward Redstone died in 2011. His estate, which received a similar notice of deficiency, filed a separate Tax Court case April 15.

Howard Castleman, the attorney for Edward Redstone’s estate, said the 1972 transaction wasn’t a gift. He said litigation over the past few years regarding the family’s trusts may have caught the IRS’s attention.

Family’s Trusts

Anthony Burke, a spokesman for the IRS, said the agency generally doesn’t comment on pending litigation.

David Andelman, Sumner Redstone’s attorney at Lourie & Cutler P.C. in Boston, didn’t immediately return a call for comment. Andelman is a director of CBS and National Amusements.

Redstone, who turns 90 in May, made plans for a trust to manage his controlling shares in CBS and Viacom upon his death. Under the current terms, the trust will be managed by a board including Viacom CEO Philippe Dauman and Shari Redstone, according to people familiar with the matter, Bloomberg reported April 21.

The case is Redstone v. Commissioner, T.C., No. 008097-13.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.