Wilbur Ross Could Face Hefty Tax Bill After Pledge to Sell Stock
(Bloomberg) -- U.S. Commerce Secretary Wilbur Ross’s decision to sell his remaining equity holdings could save him from future run-ins with the government’s top ethics watchdog. But it could also set him up with a sizable tax bill.
Ross said last week he would get rid of his stocks after the Office of Government Ethics admonished him for failing to meet the deadline to sell some assets that posed potential conflicts of interest. The New York businessman’s pledge means he’ll divest stakes in nine private-equity funds he still owns, which includes underlying stock holdings.
Since Ross’s actions are voluntary, those sales won’t be eligible for a capital gains tax break that executive branch appointees can apply for if they’re required to sell assets to avoid a potential conflict, said Rebecca Glover, a spokeswoman for the Commerce Department.
Instead, Ross could have an immediate tax liability, though the exact amount is hard to calculate. It’ll be based on how much those investments have appreciated on top of the initial purchase price he paid, known as basis.
“There will likely be major tax consequences,” said Edward McCaffery, a tax law professor at the University of Southern California.
The commerce secretary was allowed to keep those nine assets because ethics officials had previously determined they didn’t pose conflicts of interest, according to the agreement he signed to divest holdings after his nomination in November 2016. Including their underlying assets -- there were 122 of them -- Ross valued them in a range of $9.7 million to $46.5 million.
Officials only have to disclose the value of holdings in broad ranges, including a high range of $50 million or more. Executive branch appointees can delay paying capital gains taxes when they sell holdings to avoid conflicts -- provided that they reinvest in an approved list of new assets, such as Treasuries or mutual funds.
Some of the funds Ross has pledged to sell have invested in real estate loans, while others are pooled investment funds with no assets specified. At least $1 million of the value of his retained funds was in the form of carried interest, though for four assets the amount was "not readily ascertainable."
According to Ross’s filings with the Office of Government Ethics, he’s already disposed of between $2.1 million and $10.3 million of the holdings he wasn’t required to sell off, including his stake in shipping firm Navigator Holdings Ltd., which did business with a Russian petrochemical firm with ties to the Kremlin, and a pair of investment funds.
Ross, who started his private equity company WL Ross & Co. LLC in 2000, is likely to pay a 23.8 percent tax rate when he sells his remaining equities -- the long-term capital gains rate of 20 percent plus an additional 3.8 percent for an investment tax funding the Affordable Care Act.
“The longer you hold the property the more likely the basis is going to be low,” said Robert Willens, a tax and accounting adviser in New York. “It’s a good supposition that the gain he’s going to realize is quite substantial.”
Ross could defer some of the taxes if he were to give away some of the assets, according to Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.
The 2017 tax law doubled the tax exemption on estate and gift taxes, allowing a married couple to give away $22.4 million before incurring taxes. However, if Ross were to give the investments to his children -- who would then ultimately pay the tax if they were to sell the assets -- it wouldn’t help Ross’s stated goal of ridding himself of the perception of conflicts of interest, Rosenthal said.
A review by the top ethics official in the Commerce Department of Ross’s calendars, briefing books and correspondence found no evidence that Ross violated conflict of interest laws. Still, the OGE’s acting director, David Apol said “your failure to divest created the potential for a serious criminal violation on your part and undermined public confidence.”
Ross said that to restore public trust, he would sell equities he was allowed to retain under his ethics agreement and place the proceeds in U.S. Treasury securities.
He has come under fire from lawmakers who have criticized him for having business interests that conflict with his involvement in levying tariffs on imports. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, called Monday for the Justice Department to investigate whether Ross’s financial dealings have interfered with his government work.
“Wilbur Ross’s stock trades seriously compromised his ability to act in America’s best interests, and may have broken the law,” Wyden said.
Ross disclosed assets worth at least $336 million before his Senate confirmation hearing. The Bloomberg Billionaire’s Index lowered its net worth calculation for Ross to $860 million in November after being unable to independently verify the $3 billion figure it had previously assigned to him.
He told Forbes that month that he included in his assessment of his holdings assets worth more than $2 billion that he’d transferred to trusts benefiting family members, but declined to provide documentation.
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