ANN ARBOR, Mich. — IRS attorneys have flagged a high-profile real estate developer and his business partners for allegedly engaging in a tax avoidance scheme after they donated a collective gift to the University of Michigan.

A federal tax judge disallowed a $33 million tax deduction last month that Stephen M. Ross and partners at his real estate business, Related Companies, received after giving a large donation to Ross’ alma mater. The judge valued the write-off at $3.4 million.

Ross’ gave the university a piece of southern California real estate he bought in 2002 for nearly $3 million. The property was resold for nearly $2 million for cash to help Ross complete his pledge of paying for half of the university’s Stephen M. Ross Academic Center, which eventually grew to $5 million.

The IRS and the judge found that Ross and his partners didn’t back up their claimed deduction based on the gift with credible information about its fair market value.

The judge also imposed maximum civil penalties for a “gross valuation mistreatment” that could cost Ross and his partners millions more, the Detroit Free Press reported .

“I think this transaction was grossly abusive, and the court decided that in imposing the highest non-criminal penalty that can be imposed on a taxpayer,” said Brian Galle, law professor at Georgetown University Law Center.

A review of court filings from Ross’ case highlights how high-profile donors try to turn charitable contributions into large write-offs.

Ross’ total of $328 million pledged to the university makes him the second largest donor to any college or university in the U.S. He remains the largest alumni benefactor in the school’s history.

Ross will likely to appeal the ruling, said Joanna Rose, his spokeswoman.


Information from: Detroit Free Press, http://www.freep.com