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Steve Ballmer Gets Billion-Dollar Tax Write-Off For Being Basketball Baron

Posted by samzenpus on from the write-it-off dept.

McGruber (1417641) writes "According to a report published by The Financial Times (paywalled), ex-Microsoft CEO Billionaire Steve Ballmer will be able to write off about a billion dollars of his basketball team's purchase price from the taxable income he makes over the next 15 years. "Under an exception in US law, buyers of sports franchises can use an accounting treatment known as goodwill against their other taxable income. This feature is commonly used by tax specialists to structure deals for sports teams. Goodwill is the difference between the purchase price of an asset and the actual cash and other fixed assets belonging to the team."

15 of 255 comments (clear)

  1. If you tax the rich, they'll leave by CRCulver · · Score: 5, Funny

    This is a wise policy. If you tax the rich too much, then they won't buy local basketball teams and instead will look elsewhere. Eventually there wouldn't be any professional sports at all in our great and beautiful nation. Instead of sitting down to watch the NBA on their televisions, Americans would instead see only short-statured, low-wage Chinese tossing a ball around instead. Kudos to the government for allowing an entrepreneur like Ballmer to keep his local business going.

    1. Re:If you tax the rich, they'll leave by nucrash · · Score: 5, Funny

      I thought he would most likely send the Basket Ball team, the Clippy's to India.

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    2. Re:If you tax the rich, they'll leave by NotDrWho · · Score: 5, Interesting

      I'm just glad that we poor people can do our part in giving more money to rich guys so they can create more jobs and such. It's like Jesus said "Given unto the rich so they may beget to the poor."

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    3. Re:If you tax the rich, they'll leave by king+neckbeard · · Score: 5, Insightful

      If it's not that much to Ballmer, I'll gladly take just a month of that. 5 million is plenty to me.

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    4. Re:If you tax the rich, they'll leave by Culture20 · · Score: 5, Interesting

      You don't get taxed based on your net worth; it's "income tax" for a reason. How much taxable income does he receive a year (not counting this tax break)?

    5. Re:If you tax the rich, they'll leave by luis_a_espinal · · Score: 5, Insightful

      *sighs*

      A billion over FIFTEEN YEARS. Amounts to about $70 million a year.

      Considering that Ballmer is worth north of twenty Billion, we're not actually talking about a huge tax break here.

      What we are talking about is an article that combines fifteen years of tax deductions in order to put that magic "B" in the title to get people excited....

      We shouldn't need a 'B' to get excited. A billion is a billion whether it gets paid in a year or 15. And $70 million in taxes is $70 million no matter how you cut it. Under what type of cynic logic can this be justified?

      This is not $70 millions in non-taxable charities, but an investment on a money machine in the sports/entertainment industry.

    6. Re:If you tax the rich, they'll leave by Rob+Y. · · Score: 5, Insightful

      And as passive income that billion a year is taxed at a 15% rate after all of his other deductions and loopholes. Whether or not you think a $70 mil writeoff is insignificant to a hundred billionaire, it's just this kind of insult to injury loophole (available only to the hyper rich) that makes a travesty of the notion that we're all in this together. But, of course, we're not - and apparently CrimsonAvenger is fine with that...

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  2. So the taxpayer pays for overage, got it by RichMan · · Score: 5, Interesting

    So when someone buys a team at overvalue, the regular tax payer is on the hook for that overvalue.

    Nice deal the rich have going, getting someone else to pay their bills.

    1. Re:So the taxpayer pays for overage, got it by Overzeetop · · Score: 5, Interesting

      Yeah, we wish...

      http://www.forbes.com/sites/ro...

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    2. Re:So the taxpayer pays for overage, got it by Anonymous Coward · · Score: 5, Insightful

      he would pay more in tax in a single year than 99% of the population pay in there entire lives.

      Except he won't, he'll exploit exceptions and loopholes until he's paying less tax than a top-level middle manager. You don't seem to understand how taxation works.

    3. Re:So the taxpayer pays for overage, got it by Shoten · · Score: 5, Insightful

      he would pay more in tax in a single year than 99% of the population pay in there entire lives.

      Except he won't, he'll exploit exceptions and loopholes until he's paying less tax than a top-level middle manager. You don't seem to understand how taxation works.

      Actually, this is only sort of true. On a percentage-of-annual-income basis, it's correct. But in terms of dollars and cents paid in taxes annually, it is incorrect.

      The fact that Ballmer is involved in this is the only reason it's on Slashdot...let's face it. This situation relates to capital investment, and it happens several times a day with regard to transactions of varying sizes. We could argue about whether or not it's about the taxpayer that gets stuck with this or that, or whether capital will flee if we tax the rich more, but one thing is true: Ballmer is no more to fault for leveraging available, documented, and legal tax write-offs than we are when we all claim a write-off for our mortgages, business expenses, or even just the standard deduction (if we don't even itemize).

      None of us seek to maximize the amount of taxes we pay. But we demonize the ultra-wealthy, by name, when they do the same thing as us but on a larger scale. Don't fault them, fault the system...and then change it.

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    4. Re:So the taxpayer pays for overage, got it by swillden · · Score: 5, Interesting

      So when someone buys a team at overvalue, the regular tax payer is on the hook for that overvalue.

      I don't think you understand what "deduction" means. It doesn't mean that Ballmer gets to recover his billion dollars from taxpayers, it just means that he doesn't have to pay taxes on that much of his capital gains income. Essentially, they're treating this as a bad investment on which Ballmer has taken a billion-dollar loss. In any investments you pay taxes on gains, but you get to deduct any losses against those gains.

      In this case, it's actually an asset depreciation, not an actual loss... but those details don't really matter.

      Note that the other side of this is that if Ballmer turns around in a few years and sells the team for exactly what he bought it for, any portion of the original value which he has claimed as a loss (depreciated away), but which he then recovers in the sale becomes a new capital gain. Basically, if the buys for $2B, argues that $1B of that was a loss and offsets it against other gains (using all of the $1B) then sells for $2B, the IRS will say "You bought for $1B and sold for $2B, so you have to pay capital gains on $1B".

      There are lots of actual loopholes out there, but this isn't really one of them.

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  3. Misleading- Good will is common accounting by cbelt3 · · Score: 5, Interesting

    The implied assumption in the article and in the commentary indicates a deliberate misdirection or a simple understanding of the accounting principles involved in how a business accounts for a BAD DECISION. Every business has the ability to use this 'loophole'. But it's not a 'loophole'. It's a simple recognition that a capital purchase that turns out to not be a good deal should have the loss (cost of the purchase price minus the fair market value of the asset) amortized over the book life of the asset against the income produced by the asset.

    Kids, this is basic accounting 301 (Intermediate management accounting). Most accountants will tell you that having good will on your books means you made a dumb decision at some point, and paid more than something was worth. The title SHOULD read:

    "Ballmer pays twice what Basketball team is worse, can't write it off immediately, has to wait 15 years."

    1. Re:Misleading- Good will is common accounting by nealric · · Score: 5, Informative

      Thank you. I am a tax attorney. People who rant about "tax loopholes" rarely understand what they are talking about. When people talk about loopholes, they can describe any of the following:

      1) A logical flaw in the wording of the code allowing very low tax for a transaction or allowing a transaction to "shelter" other income. This would be something like the way Subchapter K was worded (portion of the tax code governing partnerships) allowing the Son of BOSS tax shelter. I would consider these this a "true" loophole. However, when this happens, the IRS will (usually successfully) challenge the transaction under various anti abuse rules in the tax law.

      2) Tax preferences. These are things that can be as common as the home mortgage interest deduction or as esoteric as the special dispensation for non-profits that host bingo games. The government is trying to encourage home ownership or VFW halls and writes something into the tax code. Tax preferences can also be the result of lazy budgeting by Congress, describing what is really a spending measure as a tax cut.

      3) Provisions of the tax code that apply to certain complex business transactions. Things like the tax deferral for controlled foreign corporations, or as we have here, the amortization of goodwill. Business transactions can be really complex, which means the tax code tends to have to follow suit with complexity. Sometimes these provisions can produce really good results for the business. Often, they can produce very bad results if you aren't careful as a tax planner. When they produce favorable results (or what seems like favorable results) we call them "loopholes". But really, it's just an attempt to accurately measure and tax "income", which can be a very difficult thing to do.

      4) Tax evasion. People talk about things like undeclared offshore accounts as a "loophole". It's not really a loophole. It's just tax evasion that is rather hard to catch.

    2. Re:Misleading- Good will is common accounting by nealric · · Score: 5, Insightful

      It's actually a lot more simple than that. As currently written, the tax code preferences capital over labor because capital gains are taxed at a lower rate than ordinary income. All of the complexity is mostly a red herring. Increase the capital gains rate to match ordinary income, and the effective rate on the wealthy will increase substantially.