Billionaire’s Largesse to Justice Thomas Hits Gift-Tax Loopholes

Billionaire GOP mega-donor Harlan Crow reportedly paid for luxury travel for Supreme Court Justice Clarence Thomas and private school tuition for the justice’s relative, but there are enough gray areas and exemptions in the law that none of it may be subject to gift taxes.

Even though the 2023 tax-free limit for the gift tax is $17,000 for individuals and $34,000 for married couples, Crow might not have had to report the vacation, private jet, and superyacht use by Thomas as taxable income, said Mitchell Gans, a law professor at Hofstra University who specializes in gift and estate taxes. Neither would Thomas if the two were friends, as Thomas said they were in defending the trips.

“The Supreme Court left the issue open indicating it would respond if and when the IRS sought to impose the gift tax on people who allowed friends and family to use property,” Gans said, referring to a 1984 case. The Internal Revenue Service has never issued a ruling or regulation on the issue, he said.

Tuition payments made directly to the institution as a gift aren’t subject to the tax, either. “Mr. Crow could have paid anyone’s tuition, as much tuition as he would have liked for as many people to as many schools he liked, without incurring a gift tax,” Gans said. And Thomas would not have any taxes on the gift if he claimed to be a friend of Crow.

Senate Finance Chairman Ron Wyden (D-Ore.) is investigating if a policy change or clarification of the law is necessary. Wyden wrote a letter to Crow, asking for a complete account of the gifts, after ProPublica published a series of articles detailing them.

“Senator Wyden’s view is that the law is clear and gifts of luxury travel on private jets and mega-yachts are taxable, but the main question is whether that law is being enforced adequately,” Ryan Carey, a spokesperson for Wyden, said in an email. “Like many areas of tax law pertaining to wealthy individuals and businesses with highly complex structures, the IRS has historically struggled with enforcement and has lacked the manpower and visibility it needs to ensure compliance.”

All Eyes on IRS

Crow has pushed back on Wyden’s request and the idea that the gifts are taxable.

“The underlying justification for the federal gift tax is to serve as a backstop to the estate and income tax,” said Michael Bopp, an attorney representing Crow, in a reply to Wyden. “That justification does not come into play in the context of personal hospitality provided to friends and family.”

“As has been widely reported, Justice Thomas and his wife, Ginni Thomas, are long-time friends of Mr. Crow and his wife, Kathy Crow,” Bopp said.

In addition to the stated annual limits on tax-free gifts, there is a lifetime gift and estate tax exemption of $12.92 million for individuals in 2023 and double of that for married couples.

“The IRS should provide clear guidance and they should either say none of this is taxable, which I think is not the correct result, or all of it is taxable and provide a narrow exception,” said Bridget Crawford, a law professor at Pace University.

The IRS didn’t respond to a request for comment.

Jonathan Blattmachr, an estates and trusts lawyer, said “right now the facts are sufficiently muddy, and I just don’t know how this would come out.” He said the Senate Finance panel should certainly revisit the issue. “It’s just not certain whether or not providing the use of something to someone is a gift,” Blattmachr added.