[Anonymous]

Hi All,

I’m studying for REG and couldn’t help but to notice a real world scenario of involuntary conversion.

For those of you who don’t know, Donald Sterling, current owner of the Los Angeles Clippers, was caught on tape making racist remarks and the NBA has decided to take punitive measures by fining him $2.5 Million and forcing him to sell the team. The forced sale will likely be at a gain and ultimately my question boils down to ‘is it taxable?’

I’ve read arguments both for and against and I’m interested in your thoughts.

[greg422]

Depends on what his replacement property is. Surely he is not going to purchase another franchise and surely the IRS will audit him. Also depends on how loosely the IRS is willing to go on similar or “like-kind” property.

REG - 82
AUD - 97
BEC - 81
FAR - 84
DONE!

[greg422]

Depends on what his replacement property is. Surely he is not going to purchase another franchise and surely the IRS will audit him. Also depends on how loosely the IRS is willing to go on similar or “like-kind” property.

REG - 82
AUD - 97
BEC - 81
FAR - 84
DONE!

[Anonymous]

Could one argue that because they are penalties, the fine is not deductible and the sale is fully taxable? Or is that only true for government imposed fines/penalties?

[Anonymous]

Could one argue that because they are penalties, the fine is not deductible and the sale is fully taxable? Or is that only true for government imposed fines/penalties?

[Anonymous]

I'm pretty sure all fines to athletes/owners are tax deductable since all of it goes to charities. There's a reason Marc Cuban automatically matches any fine the nba gives him.

[Anonymous]

I'm pretty sure all fines to athletes/owners are tax deductable since all of it goes to charities. There's a reason Marc Cuban automatically matches any fine the nba gives him.

[mjp44]

Yes. Assuming hes profitable in the sale i dont see a reason why it wouldnt be a taxable capital gain.

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[mjp44]

Yes. Assuming hes profitable in the sale i dont see a reason why it wouldnt be a taxable capital gain.

FAR- PASSED (11/13)
REG- PASSED (2/14)
BEC- PASSED (5/14)
AUD- PASSED (8/14)

If it's important to you, you will find a way. If it isn't, you will find an excuse.

[taxgeek83]

If 1033 applies, and, as greg422 said, depending on what he buys with the proceeds from the sale, he may very well be in a position to defer the gain. He could buy another sports franchise – outside of the NBA of course. That would make for some interesting headlines/talking points….

It would be interesting to see how the IRS looks at it. His being fined/banned/forced to sell (if it comes to that) is really of his own doing. From a purely regulatory standpoint, Sterling broke the rules/rules of etiquette/acceptable behavior/pick one. Would be curious to see if the IRS would make the argument that the facts and circumstances don't support a true involuntary conversion.

He's definitely going to make money on this though….

https://www.reuters.com/article/2014/05/07/us-nba-clippers-value-idUSBREA4614720140507

[taxgeek83]

If 1033 applies, and, as greg422 said, depending on what he buys with the proceeds from the sale, he may very well be in a position to defer the gain. He could buy another sports franchise – outside of the NBA of course. That would make for some interesting headlines/talking points….

It would be interesting to see how the IRS looks at it. His being fined/banned/forced to sell (if it comes to that) is really of his own doing. From a purely regulatory standpoint, Sterling broke the rules/rules of etiquette/acceptable behavior/pick one. Would be curious to see if the IRS would make the argument that the facts and circumstances don't support a true involuntary conversion.

He's definitely going to make money on this though….

https://www.reuters.com/article/2014/05/07/us-nba-clippers-value-idUSBREA4614720140507

[mla1169]

There will be no sale, I almost guarantee it. Wife wants it, last I heard. They'll stall until he dies, will be an estate tax and she'll sell.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

There will be no sale, I almost guarantee it. Wife wants it, last I heard. They'll stall until he dies, will be an estate tax and she'll sell.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[taxgeek83]

@mla1169 – I heard that today too. The last headline I saw about it said that she felt she had a right to keep her half – and made it sound like she was ready to duke it out. I don't know much about community property states (I'm not in one), but assuming they're both California residents, would that actually come into play if somehow the NBA could force a sell (there's been some debate on that issue too)? Or are community property laws only applicable in the case of divorce?

[taxgeek83]

@mla1169 – I heard that today too. The last headline I saw about it said that she felt she had a right to keep her half – and made it sound like she was ready to duke it out. I don't know much about community property states (I'm not in one), but assuming they're both California residents, would that actually come into play if somehow the NBA could force a sell (there's been some debate on that issue too)? Or are community property laws only applicable in the case of divorce?

[lleon]

Doubt NBA eventually forces him to sell, but I imagine the market will force him to eventually. Pulled sponsorships, maybe some hit to ticket sales and also players & coaches not wanting to go there.

He's definitely bagging a gigantic gain though, bought in at about 12 million, Clippers could sell for 1bn if not more. Milwaukee Bucks just sold for 550mn I think, and they're atrocious, both on the court and in terms of where the franchise is located (not a big city like LA, NY, etc.) No offense to Milwaukee, I'm sure it's a great place 🙂

Licensed in Arizona

[Author]

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