EFTA01071396.pdf

PAUL, WEISS, RIFKIND. WHARTON 6? GARRISON LLP MATTHEW W ABBOTT EDWARD T C ERM AN MEREDITH)NGHOROANI KANE JACOB A IN A KAPLAN ALLAN) ARFFA BRADS KARP I21115 AVENUE OF THE AMERICAS UNIT 3501. OFFICE TOWER A. OILISNO FORTUNE PLAZA ROBERT A ATKINS PATRICK N KARSHIT7 NEW YORK. NEW YORK 10019-6064 NO 7 OCIIIIIMIANHUAN ZINONOLU CHAOYANG DISTRICT WAVATALOUHAY Juigh • • UOMMAN J OHN C KENNEDY BRIAN KIM LAN W LYNN L. SAYARD SELL DANIEL ) KLLLLL TELEPHONE BEIJING 100020 DANIEL J DAVID K LAKHOHIR CRAIG A UNION • L PEOPLE'S R LLOYD K GARRISON RANDOLPH E. PAUL TELEPHONE MITCHELL MARK S • R NAN CRO DAVID M. •11.ANICK JOHN GREGORY DANIEL Lauren LANGEAM•• BRUCE IIIRENDOIM MACY.) GREG LIU SI/40N N RWKIND N cHAISTOPHER BONVINOBOINNIN0 JEFFREY D 13TH FLOOR HON* HON* CLUB BYROM. LOUIS • WM* JOHN I WHARTON SA CRATER ROAD. CENTRAL ANGELO itZURS BR 82:41.1.1,HAY MARCO V 14•60T71 IARD DAVID BROWN ELIZABETH RW NCCOLM SUSANNA W/4 •U LLLLL MARK I MENDEL•OHN TELEPHONE.... PATRICK Zihrkp ILL • CLAUDINE NEREOITH-GOUJON WIFAM • MICHAEL K CH AN TO S MYERSON CASTLE GEOFFREY R. CHEPIGA JU 1E NO SHOLLLLL• N CHINO LLLLL INC HVARADV WRITER'S DIRECT DIAL NUMBER 10 NOBLE STREET LONDON ECM. >JO U •. JAY LL LL EL WISPt'C.L5Atr"" COHEN i.1211 YOYNOr014 BRAD R OK_UN TELEPHONE KELLEY A CORNISH NEWLY C. BARKER CHRISTOPHER J CUMMINGS MA CL LLLLL WIER DAVIDOW VALERIE RADwANER THOMAS V DE LA IIASTIDE 111 CARL L REISHER FUKOKU SEIMEI BUILDING ARIEk J DEC KELSAUM LORIN L NEWER WRITER'S DIRECT FACSIMILE ^Lc •ELISLE EATON ucHisAiwAicHo 2.cHomE Alto CW .3 EHRLICH WALTERI 21t14 1 521AAIN CHIVOIDAlm. TOKYO GREGORY A carom) RICHARD A ROSEN TELEPHONE hilitYS2ecnoW ROSS A FIELDSTON FAGEN tret k reatt RAPHAEL &I RUS liPIR° ANDREW C PINCH ELIZABETH 'FACKSTEDER WRITERS DIRECT EMAIL ADDRESS GRAD) IN IN TORONTO-DOMINION BRIAN P FINNCOAN • SAMUELS. 77 KING STREET WEST. WRY 3100 ROBERTO mai DALE II *ARMS PETER E FISCH TERRY E SCHIMEK P.O. BOX 210 1,ARIL I•1 SCHNEIDER TORONTO. NOME FREIDUS ralcI PZ ANDREW J. FOLEY reimpft%Vag HARRIS • ROGER) JOHN SCHUMER SCOTT STEPHEN ) SHIPASHAK PIOSTSRSIMIIVAIN KENN TH A GALL STEVEN SIMKIN 1001 K STREET, NW MICHAEL GERTIMAN JOSEPH ) 111/40N• WASHINOTCa ADAM &I OIVERTZ ACCRA J soLowAY sonywo HON SAV ROBERT0 RECIOLDBAUMLLLL 000L10/4 L NEIL GOLDMAN T con s AR m STEWART ERIC ALAN STONE BOO DELAWARE AVENUE. SURE 200 RODERTO 00112•LEZ• CATHERINE L O000ALL ERIC 0000100/4 te&V.V14=.... THULLLLL POST OFFICE SOX 22 H 0000E, JR DANIEL J TOAL WILMINGTON, ItIV0 I MAV RD" il atalgttai t al NICHOLAS OROOMORIDOE R V. WELLS. J. May 13, 2016 NONE BRUCE • GUTENPLAN GAINES OWATIIMEE STEVEN) WILLIANB LAWRENCE I vnyDoacHic AL•N JUSTIN 0 HAM 14• 01114 4•11LL IA HAMLLL AN MARK B W...LAIL._ JULIA MASON W JENNIFVA ER M WU CLAUDTI •RIAN HERMANN •ETTY P• MI HIASHMAN JORDAN C YARETT MICHAEL S HONG TOKATE N VOSHINO DAVID • HUNTINGTON ♦ NG YU MUM ' i SMAILITO BRIAN M. JANSON T20W N. i[•1617 T ROBERT ZOCHOWSKI. JR. •NOT AMMITTO TO TIM 111.WVOIIK BAR PERSONAL & CONFIDENTIAL By FEDEx Mr. Lawrence Falk Estate & Gift Tax Attorney Internal Revenue Service 290 Broadway New York, NY 10007-1867 Dear Mr. Falk: On behalf of Leon D. Black, I am responding to your letter dated March 31, 2016. For ease of reference, I enclose a copy of your letter. I further enclose a copy of the Power of Attorney by which Mr. Black consents to my representation of him in connection with this audit, as well as a binder with a detailed index that contains the supporting documentation in response to your questions. Please allow me to respond to your questions in the order presented. 1. The 2013 gift amount related to the economic benefit of Mr. Black's split dollar life insurance held in the Leon D. Black 1999 Life Insurance Trust #1 was calculated based on each insurance carrier's published one-year term Doc,: US1:10623708v6 EFTA01071396 PAUL. WEISS. RIFKIND. WHARTON & GARRISON LLP rates. Exhibit A in the enclosed binder contains a schedule from Bryant Group indicating the 2013 gift amount for each policy held in this trust. 2. As is the case with the insurance held in the Leon D. Black 1999 Life Insurance Trust #1, the 2013 gift amount related to the economic benefit of Mr. Black's split dollar life insurance held in the Leon D. Black 1999 Life Insurance Trust #2 was calculated based on each insurance carrier's published one-year term rates. Please see Exhibit A in the enclosed binder, described in the preceding paragraph, for a schedule from Bryant Group indicating the 2013 gift amount for each policy held in this trust. 3. Exhibit B in the enclosed binder is a letter from Scott Nammacher of Empire Valuation Consultants, LLC, which explains how Empire Valuation Consultants arrived at a total discount of 15% (representing a combined minority/marketability discount) for the transfer of a 37.75% Limited Partnership interest in Black Family Partners, L.P. 4. Please see Exhibit B in the enclosed binder, described in the preceding paragraph, for an explanation of how Empire Valuation Consultants arrived at a total discount of 15% (representing a combined minority/marketability discount) for the transfer of a 34.53% Limited Partnership interest in Black Family Partners, L.P. 5. The APOI GRAT and APO1 GRAT No. 2 each called for annuity payments to be made quarter-annually and each GRAT had a two-year tent Each annuity payment was made in a timely manner and in a combination of a cash payment and a distribution of interests in Black Family Partners, L.P. Each distribution of Black Family Partners interests in connection with an annuity payment, in turn, was supported by an appraisal (and each such appraisal used the same 15% discount as was used in connection with the initial funding of the GRATs). For the final annuity payment for each GRAT, because the value of the assets held in the GRAT had declined during the GRAT term, the trustee returned all remaining assets to the grantor, and no property passed under the GRAT to the remainder beneficiary. Does: US1:10623708v6 EFTA01071397 PAUL. WEISS. RIFKIND. WHARTON & GARRISON LLP 3 The following is a summary of the annuity payments for the APO1 GRAT. Date Cash Amount Value of Black Family Total Value of Partners Interest (and Annuity Payment Percentage of Outstanding Ownership Interests) January 24, 2014 $47,000,000.00 $62,808,497.00 $109,808,497.00 (2.5808%) April 24, 2014 $56,000,000.00 $53,808,497.00 $109,808,497.00 (2.4038%) July 24, 2014 $35,900,000.00 $73,908,497.00 $109,808,497.00 (3.5009%) October 24, 2014 $11,700,000.00 $98,108,497.00 $109,808,497.00 (5.2864%) January 24, 2015 $20,200,000.00 $111,556,087.00 $131,756,087.00 (5.6222%) April 24, 2015 $15,000,000.00 $116,756,087.00 $131,756,087.00 (6.2891%) July 24, 2015 $3,680,000.00 $128,076,087.00 $131,756,087.00 (7.1266%) October 24, 2015 All remaining cash All remaining BFP All remaining $2,525,730.25 interests property $81,167,486.00 (4.9402%) Exhibit C in the enclosed binder includes copies of the banks atements demonstrating the payment of the cash portion of each annuity for the APOI GRAT. Exhibit D in the enclosed binder includes copies of the assignment documents for each distribution of Black Family Partners interests made in connection with the annuity payments for the APOI GRAT. Exhibit E in the enclosed binder includes copies of the supporting appraisals for the distributions of Black Family Partners interests that were made in connection with the annuity payments for the APO1 GRAT. nod,: US1:10623708v6 EFTA01071398 PAUL. WEISS. RIFKIND. WHARTON & GARRISON LLP 4 The following is a summary of the annuity payments for the APOI GRAT No. 2. Date Cash Amount Value of Black Family Total Value of Partners Interest (and Annuity Payment Percentage of Outstanding Ownership Interests) March 3, 2014 $27,500,000.00 $63,205,946.50 $90,705,946.50 (2.6640%) June 3, 2014 $47,700,000.00 $43,005,946.50 $90,705,946.50 (2.1525%) September 3, $23,900,000.00 $66,805,946.50 $90,705,946.50 2014 (3.5281%) December 3, 2014 $15,000,000.00 $75,705,946.50 $90,705,946.50 (3.9477%) March 3, 2015 $17,770,000.00 $91,072,916.00 $108,842,916.00 (4.7350%) June 3, 2015 $10,062,000.00 $98,780,916.00 $108,842,916.00 (5.0143%) September 3, $6,482,000.00 $102,360,916.00 $108,842,916.00 2015 (6.0212%) December 3, 2015 All remaining cash All remaining BFP All remaining $2,075,249.00 interests property $97,654,720 (6.4672%) Exhibit F in the enclosed binder includes copies of the bank s atements demonstrating the payment of the cash portion of the annuities for the APOI GRAT No. 2. Exhibit G in the enclosed binder includes copies of the assignment documents for each distribution of Black Family Partners interests made in connection with the annuity payments for the APO1 GRAT No. 2. Exhibit H in the enclosed binder includes copies of the supporting appraisals for the distributions of Black Family Partners interests that were made in connection with the annuity payments for the APO1 GRAT No. 2. Docti: US1:10623708v6 EFTA01071399 PAUL. WEISS. RIFKIND. WHARTON & GARRISON LLP Again, due to the decline in values, nothing passed to the remainder beneficiaries from either GRAT. In the end, all trust assets were returned to the grantor. Sincerely, Alan Halperin Enclosures Does: US1:10623708v6 EFTA01071400