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 ...
LOL - nice to see Forbes catching up with FR. This topic was already discussed here on FR.
Maybe they set this up intentionally from the beginning.
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....
Crazy like a fox.
All we need now is some music from “The Sting.”
LOL - nice to see Forbes catching up with FR. This topic was already discussed here on FR.
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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.
Very likely.
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.
Read the article.
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.
There was no vote, when they negotiated a sale the NBA canceled the vote.
Read the article.
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Why? Does it contradict the headline?
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.
Well the old cliche is ‘he’s laughing all the way to the bank’. Just Sterling of him...
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.
“Don’t throw me into the briar patch, B’rer Fox.”
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
Huh? Yes, a living trust avoids probate, but does not escape capital gains or estate taxes when the owner dies. Am I wrong?
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.
“Huh? Yes, a living trust avoids probate, but does not escape capital gains or estate taxes when the owner dies.”
.
.
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