Tax ramifications for a new owner

[Tank]

On 8/23/2022 at 8:53 PM, gotbeer said:

So if I'm reading it right.  Say the team sells for $2.2 billion.  Which is current valuation.  (since Cot's only lists the next 5 years easily, as an example only using this figure)  $588 million in contracts owed.  But they can say the players are instead worth $1.5 billion.  And instead of depreciating/expensing the $118 million a year in actual contracts.  Depreciate/expense $300 million a year.  And if say they were breaking even at $118 million a year in actual contracts, they would take a loss of $182 million on the books.

So in the Trump world of finance.  This would be ideal to someone still making money.  But then sheltering/protecting their money so the taxman don't commeth.  And really only paying the taxes on the backend when they sell the team.  

not gonna lie, i read this in the voice of charlie brown's teacher.

[gotbeer]

4 minutes ago, Tank said:

not gonna lie, i read this in the voice of charlie brown's teacher.

Remember, you are the teacher.

 

[Lazorko Saves]

5 hours ago, Jeff Fletcher said:

But in practice it wouldn’t matter much because they already adjust the numbers to pay very little tax on their revenue. 

LOL.

Wait 'til ya'll hear the crazy things the IRS allows these businesses to do to "adjust" their revenue!  Like deduct salaries paid out!  And not just for the players, they even get a write-off for the wages paid to the people who clean out the bathrooms!  Outrageous that they get tax write-offs off the backs of the little people, huh?

Also they get to write off things like the cost of equipment, uniforms, balls.  And travel.  And hotels!  Even the sunflower seeds and buckets of Dubble Bubble generate tax write-offs.  I can't even list them all, there's so many.  There's no end to the loopholes that let them adjust the numbers!

And the dirtiest trick of all these billionaires have - they can finagle their way into having the team spend more money than it takes in, and the IRS let's them pay nothing in taxes!  Unbelievable!

[/s]

If the writer actually said "pay very little tax on their revenue" then he's even more economically illiterate than I thought.

[Tank]

5 hours ago, gotbeer said:

Remember, you are the teacher.

 

It’s code for “none of this make sense to me.”

[Lou]

8 hours ago, Lazorko Saves said:

Also they get to write off things like the cost of equipment, uniforms, balls.  And travel.  And hotels!  Even the sunflower seeds and buckets of Dubble Bubble generate tax write-offs.  I can't even list them all, there's so many.  There's no end to the loopholes that let them adjust the numbers!

Sounds like standard business deductions.

[Dtwncbad]

1 hour ago, Lou said:

Sounds like standard business deductions.

That was his point.

[Jeff Fletcher]

@Lazorko Saves

Heres what he actually wrote:

“The real-world applications are almost impossible to discern because baseball teams never open their books and they always claim to be losing money, just like big corporations that end up paying $0 in federal income taxes.  According to Forbes, the Angels had negative operating income last year before taxes and amortization.  If the team is already losing money on paper, then the value of saving on taxes is lower because you weren't going to pay taxes anyway.”

I guess what I should have written is that the companies manage to pay very little tax “on their profit.” Can we agree that big companies manipulate the numbers to show the IRS that they had net losses when they really didn’t? 

Edited August 26, 2022 by Jeff Fletcher

[Dtwncbad]

10 minutes ago, Jeff Fletcher said:

Can we agree that big companies manipulate the numbers to show the IRS that they had net losses when they really didn’t? 

Jeff SOME big companies cheat on their taxes or and some don’t.

But when a “big company” doesn’t pay taxes, even for many years of losses when the business is clearly healthy, that by itself absolutely is not any indication of any “manipulation” (suggesting illegal or even just improper practices).

We hear many times in the “news” stuff like “Big corporation ABC company, a $12 billion dollar company, did not pay a single dime in taxes last year!”

The truth is literally nothing can be concluded from that statement in terms of “manipulation” (in the context of something improper going on) and yet people DO conclude that a big company not paying taxes is improper.

 

[Jeff Fletcher]

21 minutes ago, Dtwncbad said:

Jeff SOME big companies cheat on their taxes or and some don’t.

But when a “big company” doesn’t pay taxes, even for many years of losses when the business is clearly healthy, that by itself absolutely is not any indication of any “manipulation” (suggesting illegal or even just improper practices).

We hear many times in the “news” stuff like “Big corporation ABC company, a $12 billion dollar company, did not pay a single dime in taxes last year!”

The truth is literally nothing can be concluded from that statement in terms of “manipulation” (in the context of something improper going on) and yet people DO conclude that a big company not paying taxes is improper.

 

I don’t think it’s improper or illegal. 
 

I retract the word manipulation. 
 

I think that big companies do their accounting in the most efficient way possible to minimize their tax bill. 

[angelsnationtalk]

11 minutes ago, Jeff Fletcher said:

I don’t think it’s improper or illegal. 
 

I retract the word manipulation. 
 

I think that big companies do their accounting in the most efficient way possible to minimize their tax bill. 

Yep, It's not illegal if they find the legal loopholes (as bad as it might sound).

Sure, it pisses everyone else off who can't do the same thing but you can't really blame them

[Lazorko Saves]

1 hour ago, Jeff Fletcher said:

Can we agree that big companies manipulate the numbers to show the IRS that they had net losses when they really didn’t? 

Wherein you reveal your bias.  You start with a conclusion you want to be true, and you will only seek out information that confirms it, and rationalize away that which counters it. 

By modern journalism standards, you're doing just great!  Keep it up.

[Lazorko Saves]

I'm sure I'm wasting my time, but I'll try anyway.

Let's start with a basic one, this happens to even big S&P 500 sized companies.

Year 2022, company ABC posts a $1 billion loss.  Various reasons, leave aside your bias toward "they manipulated revenues!" and accept that sometimes business lose money over specific time periods.

What is their tax liability?  "Well zero, of course," you say.  But actually to the math.  Profit times rate (P * TR) is the basic formula.

P = -1,000,000,000

TR = 0.21

Tax liability = -210,000,000

Ah wait, do they get a check back from the IRS for $210 million?  No, they don't.  This is where the tax loss carry forward rule kicks in.  This isn't some dirty loophole to benefit the company, no it's arguably a rule to benefit the IRS (and taxpayers)!  Possibly we agree that the IRS sending checks out to companies that lose money is a bad idea?  Probably.  This is reasonable.

So company ABC posts their $1B loss, maybe CNBC reports on it for a few minutes, but no probing stories from the newspaper reporters about the vagaries of the loss carry forward rule.

 

Now, year 2023.  Company ABC recovers, posts a $1 billion profit.

Tax liability is?  210 million, you say?  Well, no.  Remember that the loss carry forward IRS rule (that benefits the IRS and taxpayers).  Because the IRS didn't rebate the company cash in 2022, they carry forward that negative tax liability to this year.

So their tax owed for 2023 is: zero.

If you think this is dirty, well consider the two years put together.  What was the total profit for the company between Jan 1 2022 through Dec 31 2023?  Yep, zero net profit.  So really, by the end of the two year period, the correct taxation was acutally applied here.

But of course, once Company ABC files their final 10-Q or full year report for the year, you'll get the newspaper articles of outrage: "Company ABC posts $1 billion profit, but pays zero in taxes".  Cue the economically ignorant outrage.

 

Year 2024, Company ABC posts $2 billion in profit.  Pays $420 million in taxes.  No articles in newspapers written.

 

Year 2025, someone posts on Angelswin about "hey, remember Company ABC made a billion and paid zero in profit, so dirty".  Lazorko Saves considers responding, but decides it's a waste of time.

 

[Lazorko Saves]

Point of all that long-windedness is that this will probably happen to Arte here.

We might guess he posted an actual, cash-flow operating loss for many of the years he owned the team.  People accuse him of hiding and manipulating, etc.  None of us know.  But the IRS does, unless you're accusing him of accounting fraud.

Then he sells the team for, let's say $2.2 billion.  He'll pay a whopping giant tax bill on that sale.

No articles in OC Register about how much he paid.

No posts here about, "wow, he did end up paying a huge amount in taxes".

Just crickets, and more posts in the future about "we just all know these billionaires are hiding profits..."

Edited August 26, 2022 by Lazorko Saves

[Dtwncbad]

1 hour ago, Jeff Fletcher said:

I don’t think it’s improper or illegal. 
 

I retract the word manipulation. 
 

I think that big companies do their accounting in the most efficient way possible to minimize their tax bill. 

I appreciate the exchange with hopefully you knowing I was picking at language and suggested connotation that I think has an impact on people’s ability to discuss things accurately, even when not intended.

The process of this sale is going to spur many, many conversations that will ultimately end up totally contaminated with with misunderstandings and false assumptions.

And that sucks because some of these subjects are far more fascinating and interesting if they didn’t get derailed.

Thanks for responding.

 

[Jeff Fletcher]

47 minutes ago, Lazorko Saves said:

Wherein you reveal your bias.  You start with a conclusion you want to be true, and you will only seek out information that confirms it, and rationalize away that which counters it. 

By modern journalism standards, you're doing just great!  Keep it up.

I see that you didn’t read my subsequent clarification before responding. 

[Jeff Fletcher]

1 minute ago, Dtwncbad said:

Wrong poster?

Not you. @Lazorko Saves

He also jumped on my use of the word “manipulation,” which I subsequently admitted in my reply to you was a lazy word choice. He didn’t see my retraction, I don’t think. 

[Dtwncbad]

2 minutes ago, Jeff Fletcher said:

Not you. @Lazorko Saves

He also jumped on my use of the word “manipulation,” which I subsequently admitted in my reply to you was a lazy word choice. He didn’t see my retraction, I don’t think. 

Yeah I deleted my post immediately whe I realized it actually wasn’t addressed to me. My bad.

[Jeff Fletcher]

So let me start over using more careful language that hopefully satisfies everyone…

I asked the author of the original article if the Angels new owner would enjoy some tax advantages that Arte doesn’t, therefore allowing him to spend more. 

He said the new owner’s tax advantages would mostly be in the tax on the annual cash flow, and most big companies already minimize that with their accounting, so there would be minimal advantage. 
 

I hope that satisfies everyone. 

[Dtwncbad]

5 minutes ago, Jeff Fletcher said:

So let me start over using more careful language that hopefully satisfies everyone…

I asked the author of the original article if the Angels new owner would enjoy some tax advantages that Arte doesn’t, therefore allowing him to spend more. 

He said the new owner’s tax advantages would mostly be in the tax on the annual cash flow, and most big companies already minimize that with their accounting, so there would be minimal advantage. 
 

I hope that satisfies everyone. 

Ugh.  Please don’t take this as picking.  But I think there is merit to say the feedback your source gave you immediately discredits himself.

I would very skeptical to form any opinion on the subject from someone that says anything about “tax on cash flow.”

No company is taxed on cash flow.  Cash flow is something very specific and it has nothing to do with taxes.

That alone reveals they really don’t understand simple finance terms.  And if they don’t understand their terms how can you believe they understand any concepts or strategies or analysis?

 

[Jeff Fletcher]

3 minutes ago, Dtwncbad said:

Ugh.  Please don’t take this as picking.  But I think there is merit to say the feedback your source gave you immediately discredits himself.

I would very skeptical to form any opinion on the subject from someone that says anything about “tax on cash flow.”

No company is taxed on cash flow.  Cash flow is something very specific and it has nothing to do with taxes.

That alone reveals they really don’t understand simple finance terms.  And if they don’t understand their terms how can you believe they understand any concepts or strategies or analysis?

 

Cash flow was my term. I just meant annual profit. 
 

And it’s not my “source.” It’s Steve Keeney, who wrote the article. Judge him on his words, not my dumb translation of them. I don’t know all the right accounting terms. 

Edited August 26, 2022 by Jeff Fletcher

[Dtwncbad]

34 minutes ago, Jeff Fletcher said:

Cash flow was my term. I just meant annual profit. 
 

And it’s not my “source.” It’s Steve Keeney, who wrote the article. Judge him on his words, not my dumb translation of them. I don’t know all the right accounting terms. 

Fair enough.

And I am totally aware that I probably sounds like the “know it all” label I have probably well earned here picking at the terms.

But imagine you were in a conversation with some guy telling people that clearly one hitter has more power than another player because their batting average was higher.  And then everybody accepts this and starts having a whole conversation based on that.  You would (and I would say should) feel compelled to correct that misunderstanding of what batting average is or what it represents.

I know I am a know it all.  I know that.  (And that’s kind of funny all by itself).  But not every time I chime in am I trying to be a know it all sometimes I actually care about contributing to the conversation in a way that is useful.

Edited August 26, 2022 by Dtwncbad

[Swordsman78]

On 8/23/2022 at 5:36 PM, Docwaukee said:

Something important for consideration.  Whoever buys the team gets to depreciate the Trout, Rendon and potential Ohtani contracts.  

Not so fast.

-Signed, 87,000 new IRS agents

[Docwaukee]

I appreciate the interesting input from many in this discussion.  Definitely worth while and it's always nice to have knowledgeable people here to help guide us and educate those of us who don't understand the nuances of such things.  

I believe and now understand that my original statement was inaccurate and fraught with my misunderstanding of the situation.  

It would be nice, however if those with knowledge of the situation could approach the discussion with less arrogance in helping the rest of us understand.   Making it more open for people to actually ask questions of those who do understand and perhaps even further the discussion.