Millionaires' tax dodge attempt ended up costing them $3.5 million
Republicans have complained that hiring more IRS agents means that more middle-class Americans will end up being audited. The IRS has instead said that they're struggling to go after the wealthiest taxpayers because it means a protracted legal battle and court fees.
The Wall Street Journal reported JR and Loren Ridinger really wanted a new yacht, but they needed to get rid of their old one. So they decided to "donate" the 116-foot Utopia II and score a mega tax deduction. The problem is that it's difficult to find a good charity to hand over a yacht. Goodwill will take gently used items like clothes and home goods but not yachts.
The Ridingers made their fortune with their business as Tupperware of antiaging cream and vitamin supplements.
"Wealthy taxpayers rely on a bevy of accountants, lawyers and financial advisers to navigate them," the Journal explained. So, the couple thought if they donated it in 2016, they could get a $2 million tax return to buy a new one. Instead, they were audited. Ultimately it cost them $3.5 million in taxes and penalties. It has all now been left to Mrs. Ridinger, as Mr. Ridinger died suddenly last year.
She claims that they were misled by their attorneys, and it turns out the lawyers were the ones who scored the case. The lawyers claim that the Ridingers lied about the value of the yacht.
"All that advice is no guarantee of a flawless return that passes muster with the Internal Revenue Service, especially with the agency poised to hire more auditors to patrol the tax filings of the top 1 percent," said the Journal.
Mr. Ridinger was known for giving motivational speeches. Prior to his death, he denied that their company was a pyramid scheme. He called it a “dimaryp," which is actually just pyramid spelled backward.
Over the years, they bought a whole fleet of Utopia yachts with III and IV by 2019.
But Utopia II was sent to AMIkids Inc. a charity that takes such donations. The problem is that the chair checks the boats to make sure they're not getting a lemon. The plan changed when the Ridingers started using a new legal firm, where they were told to donate it to Veterans Inc. The new lawyer was on the charity's advisory council.
While they were trying to sell the yacht for $2 million, they claimed $4.9 million in tax deductions, which they said in court was an outside estimate of the value. The lawyers then crafted an LLC to buy the yacht from the charity for $4.9 million right after it was donated. The court filings said that they gave a promissory note instead of cash.
"The charity then assigned the note to a company called Killer Impact, which Ms. Gould co-founded to make socially responsible films and other projects," the report continued. "Veterans Inc. reached an agreement in which it said that Killer Impact’s projects would fulfill its own charitable purpose and that the charity would get a 10 percent administrative fee, according to court documents.
Then, when the lawyers sold the boat a year later for $1.3 million, the charity got $130,000.
That's when the IRS stepped in, saying that the Ridingers knew that Utopia II wasn't worth that. The IRS assessed the boat to be worth just $1.5 million. The couple was ultimately assigned $6.2 million in taxes and penalties after the scheme. The Ridingers protested in court. In July 2022 they settled with the IRS for $3 million and $450,000 in penalties. Meanwhile, they'd donated Utopia III to another charity called the National Save the Sea Turtle Foundation Inc. They moved to Utopia IV.
That boat ended up causing more problems that led it to rock, leading to panic among the crew and injuries. When it was rented by Ron Conway for $600,000, he sued the yacht for leading to a knee injury as he was trying to get off the boat in Martha's Vineyard. Instead of suing the couple, however, he sued the yacht. The US Marshals arrested the yacht on Conway's behalf. The Ridingers freed it by using their company, paying $3 million. When it was rented again around Christmas 2021, it crashed into a tanker. Those on the boat sued for injuries.
It's now for sale for $48 million. While it's up for sale it can still be chartered for $550,000. There's a website where you can see it here.
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