Tax Fight Reveals Murphy's Philosophy on Wealth

by Mark Friedman  on Monday, Sep. 27, 2010 12:00 am  

Charles Murphy Jr. didn't want to stop traveling so he opted instead for quintuple bypass surgery. After the surgery, he developed a staph infection and died on March 20, 2002. He was 82.

His estate calculated its tax bills at $29.8 million to the IRS and $16.3 million to the state of Arkansas. After those were paid, the IRS sent another bill in 2006 in an attempt to collect an additional $41.8 million on the theory that Charles Murphy Jr.'s assets allegedly had been undervalued.

The IRS later argued that the creation of the partnership was not for "a legitimate non-tax purpose because Mr. Murphy knew of the tax advantages associated with the partnership's creation," Judge Barnes said in his findings of fact document.

Porter, the estate's attorney, said the creation of the partnership was valid and the estate did nothing wrong establishing it. Madison Murphy still is the managing member of the LLC that controls the partnership.

"The IRS does not generally like family limited partnerships," he said. "And the bottom line is they're sanctioned by Congress in the tax code."

Barnes agreed with the Murphy estate's position. On June 14, Barnes ordered that the IRS pay the estate $58.4 million plus interest starting from June 30.

Porter said last week that the IRS still could decide not to go through with the appeal.

Madison Murphy said during the trial that he thought the dispute could have been settled without going to court but the IRS wouldn't listen to him or representatives of his family.

"We've operated this [partnership] successfully for 10 years and it satisfied the goals of my family and my father," he said. "And to be very frank with you, I take deep and abiding umbrage in it. They are impugning my integrity. They are impugning the character of my father and our intent, and they've distorted it. And I'll stop there."


Murphy Family Relationships

Charles Murphy Jr.'s extended family still is involved the businesses he helped create:



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