Linda Macklowe’s financial expert provided a $1,099-an-hour lesson in tax dodging during her divorce trial from billionaire developer Harry Macklowe Thursday.
“People in real estate don’t pay taxes,” Richard M. Lipton, a partner at the Chicago tax law firm Baker McKenzie, stated bluntly in Manhattan Supreme Court.
Linda Macklowe’s trying to prove that her estranged husband’s negative $400 million net worth is a fiction because the number is based on deferred capital gains taxes that will never come due.
Lipton described how industry experts “utilize favorable rules” to perform a legal Shell Game with debt to avoid paying Uncle Sam.
“The only loser to be very blunt is the IRS,” Lipton said.
Justice Laura Drager disagreed.
“The taxpayers, those who pay taxes in the United States, are hurt,” she said.
Lipton took the court through a dizzying, three-hour explanation of how real estate titans avoid paying the IRS for decades — while making hundreds of millions from the sale of iconic buildings.
For instance when Macklowe sold the General Motors Building to Boston Properties in 2008 for $2.9 billion, he ducked a $300 million tax bill by taking on $650 million in guaranteed debt related to the deal.
Even though Macklowe unloaded the skyscraper, he remains a contributor to a new operating partnership under an umbrella entity called an REIT or Real Estate Investment Trust, Lipton explained.
“That is a key competitive point — every REIT allocates debt favorable to their contributors. From a competitive standpoint it has to protect its contributors,” Lipton said.
Macklowe may have to fork over the $300 million if Boston Properties eventually sells the midtown Manhattan building.
But Lipton said that’s “unlikely to very unlikely.”
Under cross examination by Macklowe’s attorney, Dan Rottenstreich, Lipton admitted that Boston Properties has not “committed” to protecting the real estate titan from future liabilities.
Macklowe is arguing that he should get a share of the approximate $1.3 billion in marital assets the former couple have amassed — largely a $600 million-plus art collection that includes pieces by Franz Kline and Mark Rothko, a $41 million yacht and a $100 million Plaza Hotel apartment.
Many of those assets are in the wife’s name.
The Macklowes married in January 1959 when he was a 21-year-old in a magazine advertising department and she was a 20-year-old editorial assistant at Doubleday.
She filed for divorce in 2016 after learning that her spouse of 57 years was hiding a French mistress in one of his Manhattan apartment buildings.