Estate of Edward Redstone v. Commissioner, 145 T.C. No. 11, October 26, 2015
Oct 26, 2015OUTCOME: Judgment for Petitioner, no gift tax liability
The Tax Court held that the Estate of Edward Redstone, the brother of media mogul Sumner Redstone, owed no gift tax arising out of the 1972 settlement between Edward, Sumner, and their father Mickey Re ... dstone. The IRS had sought over $1.1 million in tax deficiencies and penalties -- and over 40 years of interest -- from the Estate of Edward Redstone, who died in 2011. The 1972 settlement ended bitter family litigation among the Redstones concerning Edward’s 40% ownership of National Amusements, now a multi-billion media company with controlling interests in CBS Corp. and Viacom. As a result of the settlement, Edward separated all ties with National Amusements and 1/3 of his shares were transferred – at the insistence of his father -- to trusts for Edward’s children. The IRS claimed that Edward’s transfer of shares to his children was a gift, for which Edward should have paid gift tax. The IRS also alleged fraud, claiming that Edward, Sumner and Mickey conspired to avoid paying gift tax by adopting the fiction of an “oral trust” in favor of Edward’s children. In addition to the $1.1 million in tax deficiency and penalties, the IRS asserted the right to recover over four decades of interest, which could have added an estimated $20 million to the tax bill. The IRS’s attempt to impose a gift tax after more than 40 years following a transfer of property is believed to be unprecedented. At trial, Attorney Castleman presented evidence that Edward’s agreement to transfer shares of the family business to trusts for his children was a precondition to settling the bitter and protracted litigation, which was tearing the Redstone family apart. He argued that the transfer of stock was not a gift, but rather a compromise of a disputed claim and an “ordinary business transaction” within the meaning of the gift tax regulations. The Tax Court agreed, holding that the transfers did not give rise to gift tax liability for Edward’s Estate.
