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Donald Sterling's Last Laugh: Tax-Free $2 Billion Clippers Sale
Forbes ^ | Robert W. Wood

Posted on 06/06/2014 10:27:53 AM PDT by nickcarraway

L.A. Clippers owner Donald Sterling seems to be sitting pretty. Sure, he endured bad press and probably would not have sold the team were it not for the NBA action. He may not even get to do his own negotiating, since the NBA stepped in. But a $2 billion sale to Microsoft’s Steve Ballmer isn’t half bad.

Still, taxes could eat a big piece of his outsize profit. With these high numbers and Sterling’s advanced age, income and estate taxes look bleak, but are they? First, let’s take income tax.

Mr. Sterling only paid $12.5 million for the Clippers in 1981. The Clippers are apparently a corporation, but is it a C or an S corporation? C corporations pay corporate taxes, S corporations don’t. The legal owner is the Sterling Family Trust, though that trust could just be a living trust that avoids probate but is not taxable.

Since Mr. Sterling is probably well advised, the corporation is likely an S corporation. That means whether Mr. Ballmer buys stock or assets, there should be no corporate tax. If the corporation had to pay tax on the $2 billion sale, corporate taxes alone could be $700 million! Then Mr. Sterling would have to pay tax himself when the remaining $1.4 billion was distributed! The two taxes combined could be over 50%.

Assuming the S corporation structure, though, Mr. Sterling and his wife Rochelle would just pay taxes on the deal personally. With a federal long-term capital gain rate of 20%, that’s approximately $397.5 million. It seems unlikely that Mr. Sterling will pay the Obamacare 3.8% net investment income tax. If the Sterlings spent over 500 hours per year on team-related management activities, it should mean the 3.8% tax wouldn’t apply.

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy; Culture/Society; Extended News; News/Current Events
KEYWORDS: basketball; clippers; sterling

1 posted on 06/06/2014 10:27:53 AM PDT by nickcarraway
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To: nickcarraway

LOL - nice to see Forbes catching up with FR. This topic was already discussed here on FR.


2 posted on 06/06/2014 10:31:50 AM PDT by taxcontrol
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To: nickcarraway

Maybe they set this up intentionally from the beginning.


3 posted on 06/06/2014 10:33:18 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: nickcarraway

The sensitive little PC thugs in the NBA and their media sycophants got their scalp. Sterling got $2B. I think I can pick the winner....


4 posted on 06/06/2014 10:33:26 AM PDT by clintonh8r (Can Juan Williams possibly be that stupid?)
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To: nickcarraway

Crazy like a fox.

All we need now is some music from “The Sting.”


5 posted on 06/06/2014 10:33:54 AM PDT by hadaclueonce (Because Brawndo's got electrolytes. Because Ethanol has Big Corn Lobby)
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To: taxcontrol

LOL - nice to see Forbes catching up with FR. This topic was already discussed here on FR.

____________________________________

LOL indeed. I don’t think Forbes is even half correct. How do they assume the $$$ is tax free?

Remember the NBA owners never voted to strip Sterling of ownership. So this is NOT a forced sale.


6 posted on 06/06/2014 10:34:51 AM PDT by Responsibility2nd (NO LIBS. This Means Liberals and (L)libertarians! Same Thing. NO LIBS!!)
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To: driftdiver

Very likely.


7 posted on 06/06/2014 10:36:35 AM PDT by nickcarraway
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To: clintonh8r

Everybody wins. The NBA gets rid of one of the worst owners in sport. And Ballmer finally gets an NBA team. And Sterling gets fat cash. People that rich very rarely lose.


8 posted on 06/06/2014 10:36:52 AM PDT by discostu (Seriously, do we no longer do "phrasing"?!)
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To: Responsibility2nd

Read the article.


9 posted on 06/06/2014 10:36:58 AM PDT by nickcarraway
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To: Responsibility2nd

True, however agreeing to a sale, is not the same as executing a sale. His lawyers may be signalling to the other NBA owners that it is ok to vote to force the sale. In essence, I will drop my suit and agree to the sale so that you have “cover” and can vote to force the sale. That way the owners look good to the sheeple and the NBA looks like it actually had power to do something.

It in effect, creates a Win/Win situation.


10 posted on 06/06/2014 10:38:00 AM PDT by taxcontrol
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To: taxcontrol

There was no vote, when they negotiated a sale the NBA canceled the vote.


11 posted on 06/06/2014 10:40:03 AM PDT by discostu (Seriously, do we no longer do "phrasing"?!)
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To: nickcarraway

Read the article.

_____________________

Why? Does it contradict the headline?


12 posted on 06/06/2014 10:41:20 AM PDT by Responsibility2nd (NO LIBS. This Means Liberals and (L)libertarians! Same Thing. NO LIBS!!)
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To: nickcarraway

I can’t believe this is in Forbes. First, the corporation never has to pay taxes on profit made by the sale of it’s stock. The corporation didn’t make the profit, the owner of the stock did. Second, “ trust could just be a living trust that avoids probate but is not taxable” just wrong. A living trust avoids probate, but it’s just as liable for income and inheritance taxes as an individual. The only trust that isn’t would be a Charitable Remainder Trust, where the leftover money goes to charity, and is irrevocable. That’s why ultra rich people often have multimillion dollar life insurance policies in their trusts so their heirs can pay the taxes without having to sell the businesses it took them a lifetime to build at firesale prices.


13 posted on 06/06/2014 10:43:09 AM PDT by Hugin
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To: nickcarraway

Well the old cliche is ‘he’s laughing all the way to the bank’. Just Sterling of him...


14 posted on 06/06/2014 10:59:34 AM PDT by tflabo (Truth or Tyranny)
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To: Hugin
First, the corporation never has to pay taxes on profit made by the sale of it’s stock.

Correct.

Second, “ trust could just be a living trust that avoids probate but is not taxable” just wrong. A living trust avoids probate, but it’s just as liable for income and inheritance taxes as an individual.

Not correct. This would be deemed a grantor trust, which is a disregarded entity for income tax purposes. He would be responsible personally for the tax on any trust income. Also, trusts don't pay inheritance taxes. Since it's a grantor trust the value of the trust assets would be deemed to be owned by him for estate tax purposes and would be added to the value of his estate subject to estate tax.

15 posted on 06/06/2014 11:09:52 AM PDT by KevinB ("If it weren't for double standards Democrats would have no standards at all" - Chris Plante)
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To: nickcarraway

“Don’t throw me into the briar patch, B’rer Fox.”


16 posted on 06/06/2014 11:15:56 AM PDT by dfwgator
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To: KevinB

It’s been about 25 years since I worked in estate planning, but I believe I am correct.

charitable remainder trust

An arrangement in which property or money is donated to a charity, but the donor (called the grantor) continues to use the property and/or receive income from it while living. The beneficiaries receive the income and the charity receives the principal after a specified period of time. The grantor avoids any capital gains tax on the donated assets, and also gets an income tax deduction for the fair market value of the remainder interest that the trust earned. In addition, the asset is removed from the estate, reducing subsequent estate taxes. While the contribution is irrevocable, the grantor may have some control over the way the assets are invested, and may even switch from one charity to another (as long as it’s still a qualified charitable organization). CRTs come in three types: charitable remainder annuity trust (which pays a fixed dollar amount annually), a charitable remainder unitrust (which pays a fixed percentage of the trust’s value annually), and a charitable pooled income fund (which is set up by the charity, enabling many donors to contribute).

http://www.investorwords.com/830/charitable_remainder_trust.html#ixzz33stQEVX6


17 posted on 06/06/2014 11:19:49 AM PDT by Hugin
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To: nickcarraway
"The legal owner is the Sterling Family Trust, though that trust could just be a living trust that avoids probate but is not taxable."

Huh? Yes, a living trust avoids probate, but does not escape capital gains or estate taxes when the owner dies. Am I wrong?

18 posted on 06/06/2014 11:21:33 AM PDT by A Navy Vet (An Oath is Forever)
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To: nickcarraway

It bothers me that he was essentially robbed of his property. He got good compensation for it, true enough, but he didn’t willingly offer his team up for sale.

The media has consistently misrepresented this case. He didn’t tell his mistress to not bring those guys to his games simply because they were black, but because they were her boyfriends! She was humiliating him as well as cheating on him. He more or less told her...look, do what you want with them, but just don’t rub it in my face.

The media has twisted it into some kind of racist thing.


19 posted on 06/06/2014 11:23:18 AM PDT by Gunpowder green
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To: A Navy Vet

“Huh? Yes, a living trust avoids probate, but does not escape capital gains or estate taxes when the owner dies.”


Isn’t the trust the owner——so whose death do you mean?

.

.


20 posted on 06/06/2014 11:26:15 AM PDT by Mears
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To: driftdiver
Maybe they set this up intentionally from the beginning.

Maybe they did. Sterling is nobody's fool, plus he lives in LA, home of Hollywood writers who could not have concocted a better story--and maybe they did. He has friends in creative places.

21 posted on 06/06/2014 11:28:18 AM PDT by Veto! (OpInions freely dispensed as advice)
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To: driftdiver
Maybe they set this up intentionally from the beginning.

If Forbes is correct on the C or S corporation then Sterling could have sold at any time and had the same tax situation. He didn't need all the hoopla with the NBA.

22 posted on 06/06/2014 11:32:50 AM PDT by DoodleDawg
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To: Gunpowder green

You can force me to sell something I own for $2 billion.


23 posted on 06/06/2014 11:34:05 AM PDT by nickcarraway
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To: Gunpowder green
He didn’t tell his mistress to not bring those guys to his games simply because they were black, but because they were her boyfriends! She was humiliating him as well as cheating on him. He more or less told her...look, do what you want with them, but just don’t rub it in my face.

You got it backwards. He didn't care if she was having an affair with them, he just didn't want her to be in public with black men. I really cannot explains his beliefs, because they don't make sense to me.

24 posted on 06/06/2014 11:35:59 AM PDT by nickcarraway
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To: nickcarraway
That could mean Mr. Sterling will try to roll over his gain into other investments. How is that possible? Section 1033 of the tax code allows you to defer taxes when your property is taken involuntarily, like eminent domain. Mr. Sterling can argue the Clippers sale was forced on him by the NBA.

He would have had a better chance of making that case if he had waited for the NBA owners to vote on expelling him. But the didn't vote, so his claim that the NBA forced him to sell falls apart.

What’s more, Mr. Sterling wouldn’t have to buy another team, as long as within 2 years, he invests the money in similar or related investments. Those standards are pretty loose, allowing him to diversify his investments.

So what kind of investment is similar to or related to a sports franchise if not another sports francise? And I don't see the owners of any league letting him buy in.

25 posted on 06/06/2014 11:36:35 AM PDT by DoodleDawg
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To: nickcarraway

http://en.wikipedia.org/wiki/S_corporation


26 posted on 06/06/2014 12:08:27 PM PDT by Jack Hydrazine (Pubbies = national collectivists; Dems = international collectivists; We need a second party!)
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To: discostu

The winner is the guy who was “punished” with 2 billion of Ballmer’s dollars in his pocket....


27 posted on 06/06/2014 12:19:16 PM PDT by clintonh8r (Can Juan Williams possibly be that stupid?)
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To: clintonh8r

And the league that got rid of him. And Steve’s whose 5th attempt at buying an NBA team succeeded. Like I said, people this rich don’t lose. The only person that didn’t get what they wanted got 2 billion dollars instead.


28 posted on 06/06/2014 12:25:41 PM PDT by discostu (Seriously, do we no longer do "phrasing"?!)
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To: nickcarraway

funny.

how dare you say that!

now just take this 2 billion and go away in shame!

lol


29 posted on 06/06/2014 12:36:08 PM PDT by TexasFreeper2009 (Obama lied .. the economy died.)
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To: Hugin

Hugin,

I was not talking about a charitable trust because I do not believe that’s what is being discussed here. It’s called the Sterling Family Trust, which strongly suggests that it’s a typical lifetime revocable trust set up to avoid probate and prying eyes, but unable to avoid taxes. He does have living children, so it’s probably set up with them as beneficiaries. Typically, charitable trusts are called charitable trusts in the title. So if my assumption that it’s not a charitable trust is correct my analysis of the tax implications is also correct.


30 posted on 06/06/2014 12:39:20 PM PDT by KevinB ("If it weren't for double standards Democrats would have no standards at all" - Chris Plante)
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To: KevinB

The LA Crimes ran an article this week that he would clear $1.5 after capital gains.


31 posted on 06/06/2014 12:41:06 PM PDT by morphing libertarian ( On to impeachment and removal (IRS, Taliban, Fast and furious, VA, Benghazi)!!!)
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To: discostu

I don’t see where the league “wins” by forcing a sick old man to sell his team under duress. They look like bullies. And the players look like whiners. Winner: Sterling.


32 posted on 06/06/2014 1:26:06 PM PDT by clintonh8r (Can Juan Williams possibly be that stupid?)
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To: clintonh8r

Sterling has been loathed for ages around the league. He constantly, and seemingly deliberately, put a bad team on the court. Would sit in the front row and heckle his own players. Plus his multitude of off the court race issues he was lucky enough to not have become national news until recently. Sterling is a jerk people have wanted out of the league for a long time, getting rid of him is a big win for the NBA.


33 posted on 06/06/2014 1:38:58 PM PDT by discostu (Seriously, do we no longer do "phrasing"?!)
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To: discostu

I wonder how many owners are no better than he is.


34 posted on 06/06/2014 2:01:41 PM PDT by clintonh8r (Can Juan Williams possibly be that stupid?)
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To: KevinB

As I said originally, it is taxable UNLESS it were a CRT, which I also suspect it’s not. So we seem to agree, a regular revocable trust does not protect his heirs from estate taxes as the author claimed.


35 posted on 06/06/2014 2:06:08 PM PDT by Hugin
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