Thursday, May 1, 2014
Forbes, How Clipper's Sterling Could (Maybe) Avoid a Tax Bill Today:
Could Sterling look to treating the sale as an involuntary conversion under Section 1033 of the tax code? Basically the code section allows in cases where property is compulsorily or involuntarily converted – the owner can have nonrecognition of gain if he/she purchases replacement property (assuming of equal value). The owner has basically two years after the close of the tax year in which the gain was made to buy replacement property.
Translation – Sterling could seek to claim that his property (ownership of the Clippers) was compulsorily or involuntarily converted (being forced to sell it by the NBA) under Section 1033. NOTE: the argument that Sterling had to sell because of his own actions – not the NBA’s – is a fair one and could be a possible IRS line of attack.
Sterling could then seek over the next two years to purchase like property – another sports team(s) of equal value. While Sterling is banned from the NBA there are many other sports teams out there (think European soccer teams) that he might look to purchase. Sterling’s argument would be that the Clippers are a professional sports team and he has bought another sports team – that he is not limited to just purchasing an NBA team.
The tax benefit for Sterling – transferred basis to the new sports team and deferral of capital gains taxes (ie will have to pay tax when he sells the soccer team down the road (or at death) – assuming no sharp pencils on estate tax planning). Bottom line – no tax bill today.