A perverse loophole allows owners of profitable teams — and their heirs — to lower their tax bills by claiming huge paper losses. Shutterstock graphic.
The “everlasting tax shelter” for billionaires
by Bob Lord & Sarah Anderson – OtherWords
Remember the Everlasting Gobstopper from Willie Wonka’s chocolate factory? Designed for children “with very little pocket money,” it lasted forever, never got smaller, and was perpetually flavorful.
There’s a non-fiction equivalent, except it’s only for billionaires. We call it the Everlasting Tax Shelter, but it’s more commonly known as a sports team.
ProPublica recently reported how it works: A billionaire buys a sports team (or an interest in one) and is allowed to claim income tax deductions for about 90 percent of the cost over the subsequent 15 years.
Using what’s called an “amortization deduction,” these owners get tax breaks for intangible assets like “goodwill” — such as a loyal fan base, good employee relations, and strong brand recognition.
Our tax code assumes these intangible assets decline in value in the same way that factory equipment depreciates, so owners can claim deductions for them for years.
But this isn’t how sports teams work at all. In almost all cases, assets like the goodwill of fans get more valuable over time, not less, which drives the values of sports teams ever higher.
So, as teams are generating profits and growing more valuable, billionaire owners are claiming losses on their tax returns. This tax-dodging game works as long as they hold on to the investment, which most billionaire sports team owners do until death.
So it was with the late Save Mart Supermarkets mogul Robert Piccinini.
He was a member of a group that purchased the Golden State Warriors in 2010 for a reported $450 million. Over the following four years, ProPublica reports, he claimed losses of $16 million — despite the fact that the team’s total value ballooned to $1.3 billion during that period.
In 2015, Piccinini died, leaving his ownership interest to his children. Because he never sold his share in the team, Piccinini never had to pay income taxes on those paper losses.
His heirs didn’t have to either. Under a tax rule known as “stepped-up basis,” the heirs are treated as if they bought Piccinini’s interest in the limited liability company that owns the Warriors for its 2015 value, which had nearly tripled since Piccini bought his stake in 2010.
It’s highly likely these heirs have also been enjoying huge tax breaks by claiming paper losses on their Warriors investment, even though the team is now reported to be worth $4.7 billion — over 10 times the 2010 purchase price.
No wonder Robert Piccinini’s son Dominic was in a jubilant mood when ESPN cameras caught him sipping from a golden chalice at a Warriors game in 2019.
Contacted by ProPublica, Dominic Piccinini acknowledged that he and his siblings had inherited equal shares of his father’s stake in the team, but he said he’s left the tax details to the family’s lawyers .
“It’s just the darndest thing,” the younger Piccinini said in a phone call from a vacation in Mexico. “I’m a lucky son of a b—-, there’s no way around it.”
Hard to disagree there.
President Biden’s tax plan would close the “stepped-up basis” loophole that allows the wealthy and their children to escape taxes on their investment gains. Congress should pass the Biden plan — and also the amortization deduction loophole.
Demolish the Everlasting Tax Shelter.
Bob Lord, an Institute for Policy Studies associate fellow, is tax counsel to Americans for Tax Fairness. Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies and co-edits Inequality.org.
Contact us by email at firstname.lastname@example.org
To fend off hackers, organized trolls and other online vandalism, our website comments feature is switched off. Instead, come to our Facebook page to join in the discussion.
These links are interactive — click on the boxes