Nearly $147 million loaned by Richard Mellon Scaife to his Tribune-Review newspaper chain was worthless by the time of his death last year, according to a state inheritance tax return filed late Monday.
The return lists a series of notes advanced by the billionaire publisher to entities associated with the newspaper, from 2003 through 2007, and indicates that each had a “value at date of death” of zero. The loans are in addition to hundreds of millions of dollars drained from a trust fund to subsidize the newspapers over two decades.
“The executors are taking the position that those notes are simply uncollectable,” said Michael J. Hussey, an associate professor of law at Widener University's Harrisburg campus, who reviewed the return. By valuing them at zero, the accountants from the estate seek to avoid paying the 15 percent estate tax on the principles.
The state Department of Revenue doesn’t have to accept that characterization, Mr. Hussey said. The estate “must have hired somebody to give them the opinion that those promissory notes are worthless,” he said, perhaps arguing that the newspapers are worth far less than the debt they carry, or that these particular notes are subordinate to other debts. If the state disagrees, the matter could end up in Commonwealth Court.
David L. Pollack, the attorney with the Downtown law firm Strassburger McKenna Gutnick & Gefsky who submitted the return, did not respond to a phone message or an email. Attorney E.J. Strassburger declined comment.
The return, filed with the Westmoreland County Recorder of Wills, details the distribution of $829.6 million in Mr. Scaife’s assets. That does not include trust funds worth more than $700 million, control of which was assigned to the Allegheny Foundation and the Sarah Scaife Foundation.
The return lists the 10 vehicles, worth a combined $240,902, controlled by Mr. Scaife at his death, including a Mercedes Benz 280SE, a Porsche Carrera 4s Cabriolet and a Pierce Arrow sedan. It values his DC-9 airplane at $900,000 and the hangar with an office at Arnold Palmer Regional Airport at $1.4 million. He had a gold and coin collection were worth more than $1 million, but his porcelain collection could be had for just $2,600.
The return lists bequests to 30 individuals, just one of whom — cousin James M. Walton — was a relative.
The biggest gift to an individual recorded in the return was $2 million to Tammy Sue Vasco, a Penn Hills woman who could not be reached for comment. Her home and the Porsche were held in a trust fund which is part of the estate.
Christopher Ruddy, founder of NewsMax, got $250,000.
Matthew A. Groll, executive director of the Allegheny Foundation, also received $250,000 from Mr. Scaife, according to the return. The estate has subsequently paid Mr. Groll $21,645 for security services. Mr. Groll last month confirmed in a court filing that he "steadied" Mr. Scaife's hand as he scrawled his three initials on his 2013 will.
The estate also paid $2,279,302 to the Strassburger firm since Mr. Scaife's death.
The law firm is defending one of its partners, H. Yale Gutnick, against allegations by Mr. Scaife's daughter and son. Both Jennie Scaife, 52, of Florida, and, David Scaife, 49, of Shadyside allege that Mr. Gutnick and two other trustees improperly facilitated the draining of $450 million from a trust fund that they would have otherwise inherited. Ms. Scaife also alleges that Mr. Gutnick exercised undue influence over her father’s 2013 will, and that Mr. Groll guided the medicated billionaire’s hand as he initialed that document.
“I think that Jennie and her attorney are going to jump on this and argue that these fees and these payments are just evidence that these folks are just in it for the money,” Mr. Hussey said.
"This inheritance tax return confirms that the substantial majority of the estate was left to benefit the Tribune Review and its chairman Yale Gutnick," said Peter St. Tienne Wolff, one of Jennie Scaife's attorneys, in a written response to questions. "The fact that over $145 million in 'loans' Dick Scaife made to the Tribune Review were worthless on the date of his death confirms in our mind that the newspaper was always a losing enterprise and that the distribution by Gutnick of hundreds of millions of dollars from the 1935 Trust to fund its losses was a wasteful breach of his fiduciary duties."
The state Department of Revenue doesn’t have to accept that characterization, Mr. Hussey said. The estate “must have hired somebody to give them the opinion that those promissory notes are worthless,” he said, perhaps arguing that the newspapers are worth far less than the debt they carry, or that these particular notes are subordinate to other debts. If the state disagrees, the matter could end up in Commonwealth Court.
The return contends that $630.2 million of the estate’s value is taxable, and most of that went into a trust fund, the purpose of which was not disclosed. That translates into a tax bill of $94.5 million.
Funds placed years ago in a trust fund controlled by people associated with the Tribune-Review are not detailed in the return.
Mr. Scaife also left $66.2 million each to the Allegheny Foundation and the Sarah Scaife Foundation; $15 million in cash and a similar amount of property and art to the Brandywine Conservancy and Museum of Art; $11 million total in cash and art to the Westmoreland Museum of American Art; $10 million to the Heritage Foundation and smaller gifts to other charitable entities.
Rich Lord: rlord@post-gazette.com or 412-263-1542. Twitter: @richelord.
First Published: October 6, 2015, 4:30 p.m.
Updated: October 6, 2015, 9:56 p.m.
