Steelcase Pioneers IRS In Gift Tax Tiff

April 25, 2003
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WASHINGTON — For James C. and Jane N. Welch, giving away Steelcase Inc. stock could cost almost $620,000 more than expected.

That’s how much the Internal Revenue Service demanded that the Grand Rapids couple pay in additional gift taxes on 16 shares of Steelcase stock they each gave their four children in 1997, and 132 shares they each gave their children’s generation-skipping trusts.

The couple filed a petition asking the U.S. Tax Court here to overturn the IRS ruling. The petition claimed the IRS erred when it ruled the 296 shares given their children and the trusts were worth $6.66 million rather than $3.6 million.

“I’m not able to comment on the case,” Norbert F. Kugele, a Grand Rapids tax attorney, said Tuesday. Kugele and J.A. Cragwell Jr., both of Warner Norcross and Judd, are representing the couple.

An IRS spokesman said the agency is barred by law from commenting on pending tax cases.

The petition for Welch, a member of one of Steelcase’s pioneering families, and his wife maintained that the IRS failed to properly discount the stock because Steelcase at the time was a closely held company of the founding families.

The IRS had ordered Welch and his wife to pay $309,889 each in additional gift taxes for 1997.

Steelcase spokeswoman Jeanine Hill said Tuesday that stock of the company, which was founded in 1912 in Grand Rapids, was not publicly traded until 1998.

“His (Welch) family was one of the early pioneers of the company,” she said.

The company started by making steel wastebaskets and grew into the world’s largest manufacturer and designer of office furniture and office workstations with 19,300 employees worldwide. Last year, the company reported $3.09 billion in gross revenues.

The company has 49 manufacturing plants in 15 countries. It was granted its first patent in 1914 for steel wastebaskets. The company now owns 1,400 designs and patents.

According to Steelcase’s latest 10-K report filed with the Securities and Exchange Commission, Welch owns 4.61 million shares of company stock, 12.4 percent of the outstanding shares of Steelcase.

In addition, the report said, Welch is co-trustee of a trust that owns 3.76 million shares of Steelcase Class B, non-voting common stock and his wife is trustee of a trust that owns 274,350 shares of Class B stock.

The shares the couple gave their children and their children’s trusts six years ago were not the first gifts the couple gave their offspring.

“Petitioners on many occasions in years prior to 1997 gifted shares of Steelcase Inc. stock to their children,” the couple’s petition said.

The petition noted that the couple gave the stock to their children and the trusts on Oct. 24, 1997, nearly seven weeks before a special meeting when shareholders voted to publicly trade company stock. Steelcase is listed on the New York Stock Exchange as SCS.

The petition said that at the time the couple made their gifts, Steelcase shareholders had not yet approved “the initial public offering” of company stock.

The couple said they based the per share values they used for the stock they contributed based on appraisals they had done by BDO Seidman, a nationally known accounting firm, and Management Planning Inc.

“BDO Seidman’s valuation of Steelcase Inc. stock was and is correct under all applicable provisions of the Internal Revenue Code and regulations,” the petition added.

The IRS notice of deficiency was issued Dec. 3, and the agency has 60 days to file an answer to the couple’s March 5 petition. If the IRS and the Welches fail to negotiate a settlement, the case could go to trial before a tax court judge.  

Jerry Moskal is retired from the Washington bureau of Gannett News Service and is a freelance reporter at U.S. Tax Court in Washington D.C.

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