Gap Founders Transfer Assets

Donald and Doris Fisher, the founders of San Francisco-based Gap Inc., transferred control of half their 19% stake in the nation’s largest clothing retailer to their three sons.

The transfer is part of a partnership arrangement that the Fisher family described in a Securities and Exchange Commission filing. The siblings, Gap Chairman Robert Fisher and his two brothers, also will contribute stock to the partnership, raising its holdings to 101 million shares, an 11% stake.

Parents often use such partnerships to pass assets to heirs in a way that lowers estate taxes, said Laura Peebles, a director in the estate gift and trust group at Deloitte & Touche. The Internal Revenue Service has opposed the practice, she added.

“It’s not without controversy,” Peebles said. “The IRS litigates frequently and loses frequently.”

Donald Fisher, 75, stepped down as Gap’s chairman in May, ceding the position to his son Robert, 49, and continues to serve on the board with Doris, 72. Together, the couple holds 171 million Gap common shares, valued at $3.4 billion.

According to the SEC filing, the couple will transfer 86 million of these shares to the partnership, Fisher Core Holdings. Their sons -- Robert, William and John -- will each contribute an additional 5 million shares.

The sons will each be general partners, and will get to vote the Gap shares held by the partnership and decide when the shares are sold. The parents, as limited partners, will have only a financial interest in the partnership.

Donald and Doris Fisher “joined in the partnership in order that the next generation of the family may have effective voting control over a core holding of stock sufficient to give the family an ongoing voice in the management and direction of the Gap Inc.,” the filing said.

The couple opened their first store on San Francisco’s Ocean Avenue in 1969. They went on to build a retail empire of almost 3,000 stores, including the Banana Republic, Old Navy and Gap chains, with almost $16 billion in sales for the year that ended Jan. 31.

The Fisher children already hold some stock in the company, according to the SEC filing. John Fisher, president of San Francisco-based Pisces Inc., a family investment company, holds 32 million Gap shares in his own name; William Fisher, managing director of Manzanita Capital Ltd., and Robert Fisher each have sole ownership of about 25 million Gap shares.

Because Donald and Doris Fisher no longer control the Gap shares they contributed to the partnership, the family can claim at the time of their death that the stock is worth less than its market price. That would lower the overall estate taxes on the inheritance.

The IRS has argued in court that families shouldn’t be able to claim a lower valuation on the estate for tax purposes because they never transferred the assets to an outsider.

Gap shares fell 15 cents to $19.64 on the New York Stock Exchange on Friday.