Honestly, what's a billionaire gotta do to get some decent advice vis-a-vis what's "legal" and what's "not" around here?
Cooperman filed a U.S. Tax Court lawsuit last month after the Internal Revenue Service disallowed his deductions for $43 million in charitable contributions he made to his own family's private foundation. In interviews with Forbes, Cooperman and his lawyer for the lawsuit said Cooperman was given bum advice by advisers before making the gifts. The contributions were of a nonmarketable security, in this case rights to a portion of ongoing fees earned by a hedge fund to which Cooperman had provided startup money but didn't run. He said experienced tax practitioners he hired declared he could take a deduction on the personal tax returns he and his wife filed for 2005 and 2006, so long as professional appraisals set the values.
Cooperman now concedes ruefully that, appraisal or not, federal law specifically prohibits such deductions of non-publicly traded securities to a private foundation. Properly appraised gifts of nonmarketable securities to public charities such as, say, the American National Red Cross present no deduction problem. The long-standing restriction--Forbes mentioned it in 2004--was enacted to prevent well-heeled taxpayers from inflating the value of gifts to their own charities.
Cooperman, 67, of Short Hills, N.J., said he found out about that distinction only after the IRS disallowed the gift deductions and sent him a bill for $14 million in back taxes and $5 million in accuracy-related penalties. "I got that letter and I was mortified," the plain-speaking Cooperman told Forbes during earthy and engaging conversations. "I lead a simple life." His chagrin quickly turned to anger when he learned about the crucial private foundation/public charity distinction on gifts of nonpublic securities. "I could have given this to a public charity and gotten the deduction," Cooperman lamented.