Paul L. Caron

Saturday, May 4, 2024

ProPublica: Sports Team Owners Face New Tax Scrutiny From The IRS

ProPublica, Sports Team Owners Face New Scrutiny From IRS Over Tax Avoidance:

ProPublica (2024)The IRS has launched a campaign to examine whether wealthy taxpayers are violating the law when using their ownership of sports teams to save large amounts in taxes.

The effort will focus on sports industry entities that are reporting “significant tax losses” to “determine if the income and deductions driving the losses” are lawful, according to the IRS announcement earlier this year. That announcement, which consisted of one sentence on a webpage devoted to compliance campaigns by the IRS division that focuses on large businesses, did not specify what kinds of abuses the agency will be looking for.

The initiative comes after ProPublica, drawing on leaked IRS data, revealed how billionaire team owners frequently report incomes for their teams that are vastly lower than their real-world earnings.

When someone buys a business, they’re often able to deduct almost the entire sale price against their income during the ensuing years. That allows them to pay less in taxes. The underlying logic is that the purchase price was composed of assets — buildings, equipment, patents and more — that degrade over time and should be counted as expenses. Owners of sports franchises routinely avail themselves of such deductions, which can be worth hundreds of millions of dollars.

But in few industries is that tax treatment more detached from economic reality than in professional sports. Teams’ most valuable assets, such as TV deals and player contracts, are virtually guaranteed to regenerate because sports franchises are essentially monopolies. There’s little risk that players will stop playing for their teams or that TV stations will stop airing their games. But the team owners still get to deduct the value of those assets over time, sometimes billions of dollars’ worth, from their taxable income.

It helps billionaire sports team owners pay far lower income tax rates than the athletes they employ or even the low-wage workers who sell food or clean their stadiums.

Prior TaxProf Blog coverage:

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