WASHINGTON — Attorneys for the wealthy Hunt family of Dallas told the U.S. Tax Court on Monday that millions of dollars transferred from Nelson Bunker Hunt to his children in 1980 were loans to cover losses in the silver market and not taxable gifts.
In a trial consolidating eight cases against the prominent oil family, the Internal Revenue Service is seeking resolution of more than $358 million in tax claims related to the Hunts' ill-fated silver buyout in 1979 and 1980.
"We intend to show that the lender had a deep and abiding faith in silver and gold during that period of high inflation and turbulent world events," the family's lead attorney, Ewing Werlein Jr., said in opening arguments.
"We expect further to show that the lender, Nelson Bunker Hunt, expected full repayment of the loans with interest."
The elder Hunts said in court filings that they transferred $165.4 million to their children, all in the form of business loans that "became worthless" and were uncollectable after the bottom fell out of the silver market in March, 1980.
$1.3 Billion Loss
The silver crash resulted in at least a $1.3 billion loss for Bunker Hunt and his brother, Herbert Hunt. The two had bought a total of 59 million ounces of silver, estimated at one-third of the existing world supply.
IRS attorneys told the court that Bunker Hunt and his wife Caroline gave rather than lent the money to their children and their spouses and should be required to pay $150 million in gift taxes.
If the court decides Bunker Hunt's transfers were loans and not gifts, the IRS is prepared to seek $106 million in income taxes from the Hunt children and an additional $102 million from the Hunts for forgiving portions of the loans.
The Hunt children and spouses involved are Albert and Mary Huddleston, Thomas and Elizabeth Curnes and Caroline Hunt. All were in court along with the elder Hunts.
The trial, expected to last up to four weeks, opened with some sparring between IRS attorney Deborah Butler and the Hunts' lawyers over records subpoenaed in the last two weeks regarding the family's silver purchases.
The case has been under investigation for more than three years, and many of the recent subpoenas were quashed because they came too late in the trial proceedings.
The central proceeding is before the Commodity Futures Trading Commission, which alleges Bunker and Herbert Hunt tried to corner the silver market through their massive buyout of silver.
Werlein portrayed the Hunts as more of a business operation than a family that worked through a 4,500-employee company, Hunt Energy Corp., which carried out various business tasks for individual family members, including transfers of funds to cover silver debts.
"These debts, like a great, low-lying, hovering cloud, remained over these children," Werlein said. "Faced with the alternative of bankruptcy, . . . they delivered to him all of their assets down to the point of insolvency."
The transfers took place on Dec. 31, 1980, a day Werlein described as "a New Year's Eve that had no party associated with it."
The Hunt children began investing heavily in silver futures beginning in February, 1979, when the precious metal was trading at $5 an ounce. As is customary in margin purchases, they were required to deposit only a portion of the total value of the futures as good faith security deposits.
If the price of the commodity drops a certain amount, brokers issue "margin calls" to investors for more money.