19 Feb 2016
Who is Martin Shkreli? If you google “most hated man in America”, he is the top hit -in fact, the entire first page of results is devoted to him. So why the animosity? Most of it stems from his controversial decision as former CEO of Turing Pharmaceuticals to increase the price of a medication produced by the company by 5,000 percent. His actions have drawn the ire of many already, but now you can add the IRS to that list as well.
The Internal Revenue Service has filed a tax lien for $4,628,928.55 against Martin Shkreli, the former CEO of Turing Pharmaceuticals. The tax lien against Shkreli comes from unpaid 2014 taxes of $4,625,496.70 and unpaid 2013 taxes of $3,431.85, according to Gawker.com which broke the news first.
Shkreli became infamous last year when he and his company Turing Pharmaceuticals increased the price of Daraprim, a lifesaving HIV medication produced by the company by 5,000 percent, from $13.50 to $750 for each pill. A decision he said he regretted, not because of what he did, but because he didn’t raise the price higher. Democratic presidential candidate Hillary Clinton denounced him: “Price gouging like this in the specialty drug market is outrageous.” Republican opponent Donald Trump also attacked Shkreli. “He looks like a spoiled brat to me,” Trump said.
Heat coming from the IRS may be the least of Shkreli’s worries at the moment though: In an unrelated securities fraud case, Shkreli is accused of using money from a pharmaceutical company that he founded, Retrophin, to pay off investors in his hedge fund. Retrophin filed suit against him last August for $65 million. His other drug company, Turing, replaced him as CEO last December following his arrest.
This may be one of the rare occasions where most individuals will be rooting for the IRS.
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In a landmark estate tax settlement the IRS netted $388 million in a record settlement with the estate of Bill Davidson, a noted philanthropist and owner of the Detroit Pistons, the WNBA’s Detroit Shock and the NHL’s Tampa Bay Lightning. The IRS claimed an astounding $2 billion deficiency of estate/gift/generation-skipping taxes with the former Pistons owner’s estate. To put it perspective, the Treasury took in a total of $12.7 billion in estate tax revenue in 2013. Where did Davidson go wrong?
Here’s the quick breakdown in dollars: $187 million in gift taxes, $152 million in estate taxes, $49 million in generation-skipping taxes, and a $133,000 gift tax penalty.
The IRS took note of two main issues that led to the deficiencies:
The estate undervalued corporate stock. The IRS claimed the estate reduced the value of privately held Guardian stock held in trust for children and grandchildren. Estates with hard-to-value assets such as privately-held stock, real estate or art need to pay close attention to the valuations for gift and estate tax purposes.
The estate also improperly valued self-cancelling installment notes (SCIN’s). Although they are a well-recognized means of tax mitigation, the IRS questioned the computations Davidson employed and claimed Davidson was making taxable gifts he should have reported. The IRS takes a tough stance on how you value the notes and what you need to do to establish that it’s a fair exchange of assets for the notes.
You don’t have to a part of the “Billionaires Club” to face estate planning challenges. Any individual or family with a business, real estate holdings, household property, liquid savings, or stock investments will want to establish a thorough estate plan before unforeseen circumstances intervene. The only way to make sure more of your money is transferred to the people and causes you care about (over the IRS) is to plan for it with your advisors. Talley & Company is here to help.