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Thursday, May 1, 2014

Forced Sale of the L.A. Clippers Could Cost Donald Sterling $100-$200 Million in Taxes

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.

http://taxprof.typepad.com/taxprof_blog/2014/05/a-forced-sale.html

Celebrity Tax Lore, Tax | Permalink

Comments

I just don't get this story. This fellow hates African-Americans and he buys a basketball team? And by some reports, dates a multiracial woman? There's something very odd going on here. I think it's less racism than someone with, well, something now quite right upstairs.

Posted by: michael livingston | May 1, 2014 4:51:57 AM

In these "forced sale"-type situations, is Section 1033 available? The requirement would be to buy property "similar or related in service or use" to the property converted. Maybe he could by another sports franchise(s) in a different league or country. It's worth exploring the issue.

Posted by: HTA | May 1, 2014 6:59:03 AM

How many plantation owners had relations with their slaves? Hypocrisy does not negate racism.

Posted by: Daniel | May 1, 2014 8:16:47 AM

I opine that he will be willing to spent a great deal of money litigating at least some of these actions and while I think his recorded comments show an ignorant man of out of his time, I'm more concerned that his private comments are the catalyst for his crucifixion. I would be willing to bet that a good percentage of us ( me included) have said some despicable things in our lives in " private". I'm not yet willing to give up my felling that Mr. Sterling has been wronged here in a very personal way and that weight of that wrong must be set against comments made in private to one individual.

Posted by: York | May 1, 2014 1:26:49 PM

@michael livingston: As Daniel pointed out, slave owners routinely had sex with their slaves, but that doesn't imply that they cared about them. If he is simply making use of them for whatever purpose he cares to, there is no contradiction by not wanting to associate with them outside of the master-slave role.

By the same token, Sterling is the owner and views himself as their better. The team is there for his benefit, not because he like them. He apparently doesn't want anyone to get the impression that he associates with them as equals in any way.

Posted by: Jason | May 1, 2014 1:41:28 PM

Could Sterling buy another entertainment property, as the NBA considers itself entertainment?

Posted by: slam1263 | May 1, 2014 2:00:53 PM

That will teach Sterling to say stupid, mean-spirited, rude things in private.

Posted by: Tuco_bad | May 1, 2014 2:33:25 PM

He's apparently not too concerned with gift taxes.

Posted by: Bob Kamman | May 1, 2014 2:44:02 PM

@Daniel and Jason These are points well-taken Mike Livingston

Posted by: michael livingston | May 1, 2014 4:57:07 PM

I wonder if the real tax story here is why the IRS is not pursuing NAACP branches that do not file Form 990 information returns.

Posted by: Bob Kamman | May 2, 2014 12:52:51 AM

Bob K, shouldn't they be subject to automatic revocation? I wish the discussion here centered around the tax issues, and not Sterling's plantation-owner mentality.

Posted by: HTA | May 2, 2014 11:48:22 AM

An incredible thought that Sterling may be able to pull off a Section 1033 exchange...

Posted by: AHM | May 3, 2014 2:53:12 PM