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 ...
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.
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.
You can force me to sell something I own for $2 billion.
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.
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.
The winner is the guy who was “punished” with 2 billion of Ballmer’s dollars in his pocket....
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.
funny.
how dare you say that!
now just take this 2 billion and go away in shame!
lol
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.
The LA Crimes ran an article this week that he would clear $1.5 after capital gains.
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.
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.
I wonder how many owners are no better than he is.
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.
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