A Senate committee is currently investigating whether the $158 million paid by billionaire investor Leon Black to disgraced financier Jeffrey Epstein for tax and estate planning services should be classified as a gift. This investigation is part of a broader inquiry into tax-avoidance schemes utilized by ultra-wealthy individuals. The committee, led by Senator Ron Wyden, is also looking into several trusts used by Mr. Black to reduce taxes, as well as the advice provided by Mr. Epstein on art purchases.
Senator Wyden expressed dissatisfaction with the information provided by Mr. Black thus far and requested his cooperation in the investigation. The Senate committee is particularly interested in determining whether the substantial amounts paid to Epstein should have been considered gifts for federal tax purposes. Gifts exceeding a certain threshold in value are subject to federal taxes ranging from 18 to 40 percent.
In response to the investigation, a spokesman for Mr. Black stated that he has fully cooperated with the committee. The spokesman, Whit Clay, emphasized that the transactions mentioned in the committee’s letter were lawful and implemented with the guidance of reputable law firms and tax advisors. Mr. Black has fulfilled all tax obligations to the government.
In 2020, a law firm called Dechert conducted a review of Mr. Black’s dealings with Mr. Epstein on behalf of Apollo Global Management, the private equity firm he co-founded. The review found that Mr. Epstein’s work saved Mr. Black and his children $2 billion in estate and gift taxes. The firm concluded that Mr. Black had not engaged in any wrongdoing. However, Mr. Black stepped down as chairman and CEO of Apollo Global Management in 2021.
The Senate Finance Committee’s investigation is part of a larger examination into tax shelters used by the super-rich to avoid or evade federal taxes, including gift and estate taxes. In April, the committee requested information from billionaire real estate developer Harlan Crow regarding his tax treatment of gifts to Supreme Court Justice Clarence Thomas.
Senator Wyden sent the letter to Mr. Black shortly after The New York Times reported that he had reached a $62.5 million settlement with the U.S. Virgin Islands to evade a potential lawsuit. The settlement stemmed from claims developed by the Virgin Islands during its investigation into Mr. Epstein’s sex-trafficking operation, which operated partly from his private island off St. Thomas. The settlement confirmed that the money paid by Mr. Black to Mr. Epstein had been used to finance his operations in the Virgin Islands.
It is worth noting that Mr. Black and Mr. Epstein had a longstanding social and business relationship. Mr. Epstein, who was arrested on federal sex-trafficking charges and later died by suicide in 2019, sexually abused numerous young women. Lawyers representing his victims estimated that he had abused around 200 young women, many of whom were teenagers.
The Senate committee initiated its investigation into Mr. Black in June 2022, first reaching out to Apollo and then seeking information from two prominent law firms that had worked with him. The lawyers informed the committee that Mr. Black was unwilling to answer questions regarding the payments made to Mr. Epstein. While Mr. Black’s lawyers provided some information about grantor retained annuity trusts (GRATs) that were set up to pass on shares in Apollo to his children in a tax-advantaged manner, Senator Wyden asserted that Mr. Black had not provided enough information to determine if the work done by Mr. Epstein was a legitimate tax strategy.
According to the Dechert report, Mr. Epstein assisted in restructuring the trusts after 2014 to help Mr. Black and his family avoid a substantial gift and estate tax burden, estimated at $1 billion. GRATs are advanced investment vehicles that allow individuals to continue earning income from various assets, such as stocks, real estate, and art, while transferring them to family members without incurring significant gift or estate taxes.
Mr. Epstein often touted his expertise in such trusts and charged considerable fees for assisting a select group of wealthy individuals in tax savings.
Overall, the Senate committee’s investigation aims to shed light on questionable tax-avoidance practices employed by the ultra-rich and ensure compliance with federal tax laws.
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