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Forced Sale of the L.A. Clippers Could Cost Donald Sterling $100-$200 Million in Taxes
Tax Prof Blog ^ | 05/01/2014 | Paul Caron

Posted on 05/01/2014 2:25:40 PM PDT by Responsibility2nd

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.


TOPICS: Business/Economy; Government; Sports
KEYWORDS: capitalgainstax; donaldsterling
National Post, Why Donald Sterling’s Punishment Could Cost Him More than $100M

Slate, Why the NBA’s Punishment Could Cost Donald Sterling More Than $100 Million

Sports Illustrated, Important Tax Law Considerations: Avoiding Capital Gain Taxes

Vox, The $200 Million Reason Donald Sterling Doesn't Want to Sell the Clippers — Capital Gains Taxes

Washington Post, What Donald Sterling Could Make If He’s Forced to Sell the Clippers

Forbes, How Clipper's Sterling Could (Maybe) Avoid a Tax Bill Today:

1 posted on 05/01/2014 2:25:40 PM PDT by Responsibility2nd
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To: Responsibility2nd

100 Million? 200 Million?

The SI article suggests a much higher amount...

For instance, if he sold the Clippers today for $1 billion, Sterling would pay capital gain taxes of 33 percent on a gain of $987.5 million. As a result, Sterling would owe Federal & state capital gain taxes of approximately $329 million.

Read More: http://sportsillustrated.cnn.com/nba/news/20140429/donald-sterling-nba-adam-silver-clippers-lawsuit-lifetime-ban/#ixzz30VAV4ilQ


2 posted on 05/01/2014 2:27:28 PM PDT by Responsibility2nd (NO LIBS. This Means Liberals and (L)libertarians! Same Thing. NO LIBS!!)
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To: Responsibility2nd

I hope he sues the NBA.


3 posted on 05/01/2014 2:31:05 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
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To: AEMILIUS PAULUS

The NBA recently owned the Saint/Pelicans down there in Loozy-Anna.

If they are so intent on forcing Sterling out - then hey. Make him an offer. I’d sell for 1.5 billion. That’d pay the Capital Gains tax and I’d make a little profit off of my initial 12.5 million dollar purchase.

Heh heh heh....


4 posted on 05/01/2014 2:34:49 PM PDT by Responsibility2nd (NO LIBS. This Means Liberals and (L)libertarians! Same Thing. NO LIBS!!)
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To: Responsibility2nd

I’ve heard that the team is actually owned by the Sterling Trust, which in turn is run by him, his estranged wife, and children.

His wife was suing the girl over gifts given her by Sterling. I wonder if the wife and children as part of the trust, would have to be involved in the sale.


5 posted on 05/01/2014 2:38:02 PM PDT by Dilbert San Diego
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To: Responsibility2nd

So its a win-win-win for political correctness, lefty-buyers of the team, and Government!


6 posted on 05/01/2014 2:41:22 PM PDT by PGR88
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To: Responsibility2nd

Well, if he get’s some bleeding heart liberal buyers who pay double what they should, so what? He’ll still come out ahead.

The buyer’s will pay the taxes not him.


7 posted on 05/01/2014 2:42:29 PM PDT by ImJustAnotherOkie (zerogottago)
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To: AEMILIUS PAULUS
Do what Al Davis would've done.

Sue baby sue.

8 posted on 05/01/2014 2:54:11 PM PDT by MUDDOG
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To: MUDDOG

For once we would have some interesting litigation.


9 posted on 05/01/2014 2:55:48 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
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To: Dilbert San Diego

Or if he can solve the supposed problem by transferring the team to his family. Then he no longer owns it, but his kids and (possibly estranged) wife do.


10 posted on 05/01/2014 3:28:42 PM PDT by tbw2
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To: Responsibility2nd

Be kinda funny if Clippers won the title...


11 posted on 05/01/2014 3:34:10 PM PDT by karnage
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To: ImJustAnotherOkie

For what he said he should have all he owns taken from him and be sent to prison for life. He is worse than Hitler.


12 posted on 05/01/2014 3:40:01 PM PDT by Forward the Light Brigade (Into the Jaws of H*ll)
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To: Responsibility2nd

On FOX they were saying that any forced sale would be difficult since in California the wife owns 50%. On HLN they were screaming about banning the entire family from basketball and calling him a monster. It was kind of funny for a while to watch the hysterical talking heads rave on HLN but soon it became boring.


13 posted on 05/01/2014 3:45:20 PM PDT by apocalypto
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To: AEMILIUS PAULUS
I hope he sues the NBA.

The same section of the NBA Constitution which gives the Commissioner the power to sanction owners provides that the Commissioner's decision is final and cannot be reviewed in court. That would probably (but not definitely) be upheld if Sterling challenged it.

14 posted on 05/01/2014 3:47:46 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: ImJustAnotherOkie
The buyer’s will pay the taxes not him.

How do you figure that?

15 posted on 05/01/2014 3:49:02 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: tbw2
Or if he can solve the supposed problem by transferring the team to his family. Then he no longer owns it, but his kids and (possibly estranged) wife do.

Then he'd pay gift tax on the transfer.

16 posted on 05/01/2014 3:50:04 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: AEMILIUS PAULUS

I may be all wet here, but I think that the courts are all going to have a tough time with this issue.

One of the legal tenants of our nation has always been that no man may be deprived of, ‘Life, Liberty or their property’ without due process.

While I agree that what Sterling said was wrong, stupid and idiotic, it was not illegal. Not even close.

It would probably be a good thing that Donald is no longer involved with the Clippers. Having said that, I believe that forcing him to sell the Clippers would set a very dangerous precedent(not so much a slippery slope, but more like skydiving without a parachute).

With one leg of our jurisprudence kicked out from under us, the other two would also eventually fall.


17 posted on 05/01/2014 3:59:33 PM PDT by Delta Dawn (Fluent in two languages: English and cursive.)
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To: tbw2

If the guy didn’t already have the team in a trust (and it could be that NBA rule prohibit such), he’s a dumba** and deserves any losses he incurs


18 posted on 05/01/2014 4:05:57 PM PDT by tanknetter
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To: tanknetter

There is a POLL on this page and it shows 75% think that the owner was dealt an raw handed over punishment

FREEP THIS POLL

http://losangeles.cbslocal.com/2014/04/29/sources-banned-clippers-owner-sterling-has-no-intention-to-sell-team/


19 posted on 05/01/2014 4:10:01 PM PDT by Zenjitsuman (New Boss Nancy Pelosi)
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To: Lurking Libertarian

The bleeding hearts may not follow their brains but their hearts and pay 2-3 times what he could normally get. He could walk away with more than a normal sale.


20 posted on 05/01/2014 4:15:06 PM PDT by ImJustAnotherOkie (zerogottago)
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To: Responsibility2nd
No taxes if he transfers his interest in the team to his wife.

Spouses can make unlimited gifts to each other.

How could the NBA prohibit her from owning the team? It'd be war on women.

21 posted on 05/01/2014 4:39:07 PM PDT by MUDDOG
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To: Lurking Libertarian

If I remember contract clauses seeking to oust courts of jurisdiction are illegal. There could be an agreement to arbitrate before any filing in court or in lieu of judicial action. To put it another way arbitration clauses are legal. An arbitration would probably not do him any good. Secondly, not withstanding any contract provision to the contrary one can always raise constitutional issues. There have been lots of penalty clauses in contracts voided as unconscionable even under ordinary case law.


22 posted on 05/01/2014 4:39:11 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
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To: AEMILIUS PAULUS

The way the NBA Constitution is written, the sanctions proceeding is an “arbitration,” with the Commissioner as the “arbitrator.” That wording is copied, I believe, from the Major League Baseball Agreement, where it has been upheld (but the only challenges to it were many years ago).


23 posted on 05/01/2014 4:52:33 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: MUDDOG
No taxes if he transfers his interest in the team to his wife. Spouses can make unlimited gifts to each other. How could the NBA prohibit her from owning the team? It'd be war on women.

Given the current relationship between the two, that won't happen.

24 posted on 05/01/2014 4:55:02 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: apocalypto
On FOX they were saying that any forced sale would be difficult since in California the wife owns 50%.

They're estranged, not divorced. He's the legal owner.

On HLN they were screaming about banning the entire family from basketball and calling him a monster.

Since the NBA gets to approve owners I guarantee that there will never be a Sterling involved with the Clippers again.

25 posted on 05/01/2014 5:00:23 PM PDT by DoodleDawg
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To: MUDDOG
How could the NBA prohibit her from owning the team? It'd be war on women.

The NBA approves owners. They'll turn her down in an instant.

26 posted on 05/01/2014 5:02:12 PM PDT by DoodleDawg
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To: Delta Dawn
I may be all wet here, but I think that the courts are all going to have a tough time with this issue. One of the legal tenants of our nation has always been that no man may be deprived of, ‘Life, Liberty or their property’ without due process.

It's not the Government which is depriving him, it's the NBA, a private club whose rules he agreed to follow. Courts have almost invariably upheld the rights of Sports Commissioners to punish players, owners and coaches.

While I agree that what Sterling said was wrong, stupid and idiotic, it was not illegal. Not even close.

Who said it has to be illegal? The standard under the NBA Constitution is "conduct not in the best interest of professional basketball." Given the immediate loss by the Clippers of most of their sponsors when the Sterling tape was released, followed by a threatened players' boycott, Sterling's remarks were clearly not in the best interests of the NBA.

It would probably be a good thing that Donald is no longer involved with the Clippers. Having said that, I believe that forcing him to sell the Clippers would set a very dangerous precedent(not so much a slippery slope, but more like skydiving without a parachute).

What precedent would be set that wasn't previously set in the Marge Schott and George Steinbrenner cases?

27 posted on 05/01/2014 5:02:33 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Lurking Libertarian

Even under arbitration clauses a person is entitled to a hearing. I would consult a top lawyer on the theory that the penalty is out of proportion to the wrong. There was a 1993 case involving punitive damages or a penalty that the court, If I remember correctly said was wrong.


28 posted on 05/01/2014 5:11:13 PM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
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To: AEMILIUS PAULUS
Even under arbitration clauses a person is entitled to a hearing.

Agreed. That is Sterling's best argument.

I would consult a top lawyer

I'm sure he's already consulting several.

on the theory that the penalty is out of proportion to the wrong. There was a 1993 case involving punitive damages or a penalty that the court, If I remember correctly said was wrong.

The punitive damages cases are probably not going to help him here; the $2.5 million penalty is an amount specifically authorized by the NBA Constitution, and the ban on owning the team is arguably not a financial penalty at all, because he can sell it for a hefty profit. Sterling may well litigate this, but I doubt he will do any better than George Steinbrenner did when he sued to overturn the Commissioner of Baseball.

29 posted on 05/01/2014 5:21:54 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Responsibility2nd

I think the NBA will have trouble with the wife. The wife should have Donald declared incompetent and take control of the team.


30 posted on 05/01/2014 6:26:27 PM PDT by Mike Darancette (Do The Math)
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To: Lurking Libertarian
Courts have struck down penalties deemed "unconscionable" even if the amount is specified in a contract clause. The general principle, if remembered correctly, being forfeitures and/or excessive penalties are not favored.
31 posted on 05/03/2014 7:59:28 AM PDT by AEMILIUS PAULUS (It is a shame that when these people give a riot)
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