California’s entertainment industry is no stranger to Sumner Redstone, who owns majority stakes in multiple TV production companies. Although Redstone recently made headlines, it’s not for anything related to his involvement in the entertainment industry. In fact, the businessman is in the news because the Internal Revenue Service issued a tax claim against him from a 1972 transaction, which is before he even entered the media industry.
According to tax officials, Redstone owes the IRS over $1 million in unpaid gift taxes, penalties and interest as the result of money he gave to his children over 40 years ago. Observers are taken aback by this, largely because going after a tax claim this old is almost unprecedented.
Gift taxes are similar in nature to estate taxes in that they are associated with a movement of assets from one party to another. Of course, estate taxes are different in the sense they are assessed on a person’s assets posthumously. At the same time, however, the IRS will pursue claims when they believe someone failed to meet either type of tax burden.
In fact, a similar incident arose when Redstone’s brother passed away. The brother’s estate was given a “notice of deficiency: for a monetary transfer that also occurred in the 1970s, but a representative for the estate indicated that the transaction in question wasn’t a gift.
Handling this kind of dispute is especially tricky. There is no statute of limitations for back taxes, so the IRS can lay claim to alleged unpaid taxes many, many years after they were assessed. In this case, it’s unusual that the IRS failed to make a claim for such a long time. At this point, the penalties and interest add up to be more than the initial tax bill. The hope is that this unique case will be resolved in a positive way.
Source: Bloomberg, “Billionaire Redstone Challenges IRS on Tax for 1972 Gift,” Richard Rubin, May 1, 2013