Sports owner deductions and depreciation


In recent weeks, media have reported how wealthy taxpayers who own sports teams are reducing their tax liability by deducting the cost of purchasing a sports team over 15 years. Contrary to claims that deducting the cost of a sports team from taxable income is a “loophole”, such deductions are a normal and proper part of the income tax system.

Under current law, owners of sports teams can deduct the cost of purchasing a team over 15 years from their taxable income. Deductions are known as depreciation, and they are like taking depreciation deductions for the cost of physical assets but for intangible assets. Deductions for depreciation and depreciation ensure that businesses are taxed on net income.

For example, imagine a sports team bought by an investor for $ 10 million. From an accounting standpoint, deducting the cost of $ 10 million from taxable income over the next 15 years matches the deductions against income generated in the future to calculate a uniform measure of net income. If the $ 10 million deduction was not allowed, the sports team investor would effectively be taxed on the team’s purchase (as an excise tax) and on future income generated, rather than on the net income produced by the team.

The history of amortization of expenses for sports teams can also be instructive. Prior to 2004, many intangible costs associated with sports teams could not be amortized, but other deductions were allowed and were often the subject of tax disputes between sports team owners and the IRS. Properly valuing teams, allocating costs, and matching depreciation deductions to actual changes in the value of the sports team have proven difficult to administer.

In 2004, the tax law changed to allow owners of sports teams to write off intangible expenses. The Joint Committee on Taxation (JCT) actually called the change an increase in federal revenues – roughly $ 382 million over 10 years – because it ended disputes between sports team owners and the IRS in the past. subject of authorized deductions which tended to reduce revenue.

One of the concerns with the tax treatment of sports teams is that their purchase may be in part an expense of entertainment for the owners of the team, which would be a form of consumption and properly subject to tax under taxes. state sales. Skeptics of granting capital cost allowances to sports teams may argue that this is a good reason to deny deductions for federal income tax purposes, but the implications of doing so – essentially turning federal income tax into excise tax, but only under certain circumstances – would be a mess. And that would penalize the owners of sports teams who run them entirely for business purposes.

A more constructive alternative to concerns about tax-free consumption by the rich would be to levy consumption taxes in a direct and progressive manner. It would be less complicated and lead to less economic distortions than trying to create a refined system of amortization and depreciation deductions based on consumption within companies – which history tells us is full of complexities of business. ‘evaluation and litigation.

Providing deductions for business expenses is an integral part of our income tax system, even when the business is a sports team.

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