Prior to February 28, 2023, the largest estate tax payment that had ever been paid to the IRS was a $1 billion payment made in January 2017. Considering the fact that most millionaires and billionaires utilize fairly basic estate planning instruments (trusts, donations, donor-advised funds) to avoid being subject to the estate tax, a $1 billion estate tax payment was astonishing. Then, February 28, 2023, arrived. On February 28, 2023, the United States Treasury received a $7 billion estate tax payment. If $1 billion was astonishing, $7 billion was beyond flabbergasting.
Why did someone end up paying Uncle Sam $7 billion that could have been avoided? Were they dumb? Lazy? Maybe just really patriotic?
And wait a minute. Who died in the US in either late 2022 or sometime in 2023 that was rich enough to necessitate a $7 billion payment??? We were not aware of any such person. The mystery was just solved by the outlet Sherwood News. And by solving the mystery, it turns out a Texas billionaire was way, way, way richer than anyone ever knew…
Here's a real quick primer on the estate tax. The estate tax applies to anyone who dies with an estate valued over $13.6 million. In other words, the first $13.61 million of a person's estate is tax-exempt, but every dollar above that amount is subject to a federal tax rate that ranges from 18% to 40%. For a married person, the tax-exempt amount doubles to $27.22 million. The first $1 million is taxed at 18% ($180,000). It gradually steps up a little bit. The next $1 million is taxed at 20%. Etc. Every dollar above $12 million is taxed at 40%. So, if you were a single person worth $100 million, you'd pay the IRS $32 million, of which $29.3 million came from that last 40% level.
As I mentioned a moment ago, most people don't pay a dime to the IRS in estate taxes. By putting their money into trusts, making donations, setting up foundations, etc… pretty much every super-rich person in the country actually dies close to broke.
Solving A Mystery
For someone to have made a $7 billion payment, their estate had to have been worth roughly $20 billion. As far as CelebrityNetWorth and other outlets like Forbes and Bloomberg were aware, no one worth that much died in 2022. The closest person would have been Fidelity investment honcho Edward Johnson. He was worth $9 billion by our count when he died in March 2022.
Here's another clue: Estate tax payments must be paid within nine months of a person's death. Therefore, the mystery billionaire would have died sometime between May 28, 2023, and February 28, 2023 (the date the payment was received by the IRS). Even if he was worth $20 billion, this would exclude Edward Johnson.
Here's another clue: According to IRS audit data, the payment came from a resident of Texas.
Once again, as far as CNW, Forbes and Bloomberg were aware, there was no person worth $20 billion who died in Texas in all of 2022 and 2023. This person would have been the fourth richest person in Texas and roughly the 80th richest person in the world. If either the fourth richest person in Texas or one of the 100 richest people in the world died, I'd like to say it would be on our radar.
So, who could it have been?
Thanks to a little more detective work and a lucky anonymous tip, Sherwood News figured out the answer. The mysterious billionaire who paid the IRS $7 billion was:
Fayez Sarofim
Here is Fayez with his third wife, Susan:
(Photo by Bob Levey/Getty Images for UNICEF)
Fun fact about Fayez Sarofim's third wife Susan: Her daughter Lori was at one time married to Fayez's son Phillip. So Fayez married his son's ex-wife's mother. AKA, his son's former mother-in-law.
Who Was Fayez Sarofim?
Fayez Sarofim was born in Cairo, Egypt, in 1929. He moved to the United States for college, UC Berkeley for undergrad followed by Harvard Business School. He founded his investment firm, Fayez Sarofim & Co, in Houston in 1958 using $100,000 worth of startup capital he received from his father.
In 1962, he married the wealthy daughter of a Texas oil tycoon. They had two children before divorcing in 1990. Fayez also had three children with a former employee of his investment firm. Those children were born in 1984, 1986, and 1989. As you may have just put together, those children were born while he was married to his first wife. Their divorce was finalized in 1990 with a reported divorce settlement of $250 million. He married the former employee in 1990. They divorced in 1996. He married his third and final wife, Susan (pictured above), in 2014.
Fayez Sarofim & Co. specialized in blue-chip stocks and a buy-and-hold strategy, which proved highly successful over the decades. Sarofim became renowned for his patient, long-term approach to investing, often holding stocks for 20-30 years or more.
Sarofim's investment philosophy was centered on identifying high-quality companies with strong fundamentals and sticking with them through market fluctuations. This approach earned him comparisons to Warren Buffett and the nickname "The Sphinx," a nod to both his Egyptian heritage and his penchant for sitting on stocks for a long time. Fayez was also a minority owner in the NFL's Houston Texans.
At the time of his death, Fayez Sarofim & Co. managed over $30 billion in assets. However, the vast majority of those assets were other people's money. At the time of his death, CelebrityNetWorth estimated Fayez's net worth at $2.2 billion. Forbes estimated his net worth at $1.5 billion. An outlet called Texas Monthly pegged the number at $2-3 billion. He was not rich enough, according to Bloomberg, to make the cut of their Billionaires Index.
If you recall from our few paragraphs above, by our calculations, whoever paid the IRS $7 billion on February 28, 2023, would have presumably died at some point between May 28, 2022, and February 28, 2023. When did Fayez Sarofim die?
May 27, 2022
Maybe the payment was sent via direct deposit on February 27, 2023, but it didn't register until the following day. Or maybe there's just a one-day reporting delay in the IRS payment data. Either way, it lines up perfectly. He lived in Texas. He was known to be at least a billionaire. The payment lines up perfectly. And finally, an anonymous tipster confirmed Fayez as the taxpayer to Sherman News.
As it turned out, all of our assessments of Fayez's net worth were off… by a factor of TEN.
Even after paying his ex-wives $262 million, donating hundreds of millions of dollars to charity during his lifetime, and around $400 million at his death, a source confirmed to Sherman News that Fayez Sarofim was secretly worth "north of $20 billion."
But Why Allow This To Happen?
Fayez was clearly not dumb and very likely not lazy, so why would he allow himself to die with a $7 billion estate tax liability? None of Fayez's heirs would speak to Sherman News, so there's really no way of knowing, but according to one expert they spoke to, it was a result of a combination of Fayez being so rich he didn't care AND appreciation for the country where he made his fortune. A nice position to be in during your ninth decade on the planet 🙂
