Tax loopholes beloved by sports teams under IRS ‘scrutiny’

Maybe the first step toward closing a tax loophole that sports owners abuse every year.

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Let’s rewind to the summer of 2021 for a moment. A trio of ProPublica reporters published an extensive look at the legal tax loopholes that sports team owners used to, essentially, lie about their finances. The idea being that they could make a profit, but, by utilizing some tax loopholes, report the opposite, allowing them to not have to pay their share of taxes. And that kind of money adds up, whether you’re talking about what owners are allowed to pocket, or the money that should have gone into the federal government’s coffers. Maybe there would be more money around for repairing the country’s failing infrastructure if the wealthiest actually paid their portion each year!

(Yes, I know America would probably just build even more and bigger bombs that they then sell off or give as “aid” to perpetuate violence and genocide around the world, but at least let me pretend for a second that they might fix some potholes, too.)

The origin of all of these loopholes can be found in MLB, courtesy former owner Bill Veeck, who, as I wrote a few years back, had “figured out a way to get a second tax deduction on player contracts, through depreciation, by setting up a system where the contracts were treated as a separate asset from the club itself, which in turn allowed owners to assign a huge percentage of a team’s value to the player contracts themselves.” ProPublica discussed the escalation of that loophole, which came under President George W. Bush, who, among his many crimes, was also once an MLB owner himself:

Following lobbying by Major League Baseball, in 2004, sports teams were granted the right to use this deduction as part of a tax bill signed by President George W. Bush, himself a former part owner of the Texas Rangers. Now, team owners could write off the price they paid not just for player contracts, but also a range of other items such as TV and radio contracts and even goodwill, an amorphous accounting concept that represents the value of a business’ reputation. Altogether, those assets typically amount to 90% or more of the price paid for a team.

That means when billionaires buy teams, the law allows them to treat almost all of what they bought, including assets that don’t lose value, as deteriorating over time. A team’s franchise rights, which never expire, automatically get treated like a pharmaceutical company’s patent on a blockbuster drug, which has a finite life span. In reality, the right to operate a franchise in one of the major leagues has in the last few decades been a license to print money: In the past two decades, the average value of basketball, football, baseball and hockey teams has grown by more than 500%.

The IRS, which has had a resurgence of late as an entity that seems to want to be paid the taxes it’s supposed to be, is now investigating whether or not some of these deductions are “lawful” or abusing the law themselves. I’m not exactly optimistic that the IRS will find evidence that sports teams owners are acting unlawfully, because again: loophole. However, the IRS could come out of this having decided that the loophole is being abused, that the spirit of the law is not being kept by those in a position to commit said abuses, and now it needs to be closed, with the law rewritten in such a way as to keep sports team owners from amassing additional wealth from what’s supposed to be a protection. That would still be a significant win, at least in this one area.

Now, I don’t know if the IRS is reacting to ProPublica’s reporting — ProPublica certainly seems to think that’s what’s happening — but whether the IRS’ additional $80 billion in funding simply gave them an opportunity to add this to the extensive list of wealthy tax cheats they’re investigating, or if ProPublica’s work from three years ago tipped them off, isn’t really my concern here. My interest is in whether or not the IRS figures out a way to keep this loophole from being used by sports teams owners like those in Major League Baseball, or if we’ll see nothing change at all. As they self-reported in January that they had collected $462 million “from 1,600 millionaires who have not paid tax debts” …well, I’m not going to say I’m optimistic. But I’m definitely watching with great interest, and am at least hopeful. Which is a rare thing these days when it comes to people like MLB owners getting treated the way they deserve by anyone else in power.

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