If we had such a thing as an “ordinary billionaire,” Peter Buck would certainly qualify.

As billionaires go, the relatively unknown Buck rates as somewhat ordinary. A nuclear physicist by training, Buck co-founded the Subway eatery back in the 1960s. His current net worth? Around $1.7 billion, not nearly enough to meet the $2.9-billion 2021 threshold for entry into the annual Forbes list of America’s 400 richest.

Still, Buck’s $1.7 billion does place him comfortably within the top 0.0005 percent of Americans by wealth. Which means he’s not all that ordinary.

Also not the least bit ordinary: Buck’s recent contribution to the lore of billionaire tax avoidance, as outlined last month in a United States District Court decision, Peter Buck vs. United States of America.

Our story starts in 2009, the year many of our super-rich compatriots became keenly interested in federal estate tax avoidance planning. At the time, the estate tax stood on the brink of total elimination, but just for one year. Under the terms of the tax act Congress passed in 2001, the estate tax would disappear in 2010, then revert back to 2001 levels the following year. That meant that the estates of America’s richest would once again face a 50 percent tax starting in 2011.

In the years right after the 2001 Tax Act’s passage, many wealthy taxpayers took a wait-and-see approach to their tax avoidance planning, figuring that the repeal scheduled for 2010 would be made permanent, as lawmakers supporting estate tax repeal intended all along. But Barack Obama’s 2008 election, combined with the onset of the Great Recession, dashed any prospect of permanent estate tax repeal — and focused Buck and many of his billionaire brethren on the devilishly hard work of tax avoidance.

Buck, already in his late 70s by that time, started purchasing timberland in upstate Maine and Vermont. By 2013, he had shelled out over $82 million for various parcels.

But Buck didn’t hold any of this land for long. Between 2010 and 2013, he gave away 96 percent of his interest in each parcel to his sons, with each son getting a 48 percent interest in each parcel. In effect, Buck’s transfers shoveled nearly $80 million out of his taxable estate. But, for gift tax purposes, Buck valued the parcels he gave to his sons at only $37 million, over 53 percent less than the price Buck paid for them.

That depressed valuation left Buck with a gift tax liability of somewhere between nearly $13 million and $14.8 million, depending on the particular value gifted in 2013, when the gift tax rate increased from 35 percent to 40 percent.

How did nearly $80 million of value become only $37 million of value for tax purposes? Simple. Buck seized on a generous, rich people-friendly valuation discount loophole in the tax law. To trigger this loophole, a billionaire merely needs to alter the ownership of an asset in a way that makes the asset less attractive to potential buyers. In Buck’s case, splitting each land parcel into interests of less than 50 percent each did the trick. After all, why would any rational investors buy a 48 percent interest in a 100-acre parcel co-owned by other folks they had never met when they could buy full ownership and control over a 48-acre parcel?

Buck’s sons, of course, could easily restore the full value of the parcels their daddy gifted to them by joining together to sell their shares. Or by trading their interests to give each a 96 percent interest in half the parcels.

The IRS would challenge Buck’s valuation of his gifts and assess him an additional gift tax based on what would happen if those parcels had remained in Buck’s estate and only gone to his sons after his death. Buck took the IRS to court — and won! Each gift, the U.S. District Court ruled, must be valued separately for gift tax purposes, just as Buck valued them.

The upshot of the court’s ruling: Wealthy taxpayers may now carve up their assets into smaller pieces and gift those pieces separately to escape millions in gift tax.

So how much future estate tax has Buck avoided here? Through his gifting strategy, Buck reduced that tax by 60 percent, nearly $23 million, bringing his effective estate tax rate down under 16 percent.

To reach that awesome estate tax savings, Buck took advantage of still another tax code loophole, a neat trick that goes by the label of the exclusive gift tax computation.

Federal gift and estate taxes operate differently on how they compute tax bills. The estate tax includes the tax to be paid in the estate tax base. So, for example, a wealthy person facing an estate tax rate of 40 percent would pay $40 million in tax on a $100-million estate, leaving $60 million to that wealthy person’s heirs. But that wealthy person, by making a gift of $71.4 million, could use the remaining $28.6 million to satisfy the resulting gift tax liability.

One catch: To secure the benefit of this neat trick, Buck had to survive the payment of gift tax by three years, which he easily did. As a practical matter, that three-year survival requirement doesn’t pose much of a problem. Even at his current age of 90 years, Buck has a better than 50/50 chance of making it another three years.

But wait. There’s more. Let’s say Buck and his sons now get together and decide to sell all those parcels for the same price Buck originally paid, with Buck’s sons getting 96 percent of the proceeds, or almost $80 million. That would be over $40 million more than the supposed value of the gifts they received.

You might think that Buck’s sons would face millions in income tax on their gains. But if you did, you’d be very, very wrong. Buck’s sons would pay zero in income tax. For purposes of computing their taxable gain on the sale of the parcels, Buck’s sons would be treated as if they paid what Buck himself paid, rather than on the value of the parcels when they received them as gifts. The Buck family wins coming and going!

With his court victory, Buck becomes perhaps a little less ordinary. Decades from now, many will remember him for his mega-million tax avoidance victory. Others will remember him for the fortune he made selling yucky sandwiches. In a society with different values, he might be remembered even more for earning a PhD in nuclear physics. But not in America today, not in our new Gilded Age.

Bob Lord, a veteran tax attorney and Institute for Policy Studies associate fellow, currently serves as tax counsel to Americans for Tax Fairness.

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