Did Tax Ploy Help Saints Win Super Bowl?
William P. Barrett, 07.06.10, 05:47 PM EDT
IRS disputes New Orleans team's claim that $8.5 million annual payment from Louisiana wasn't taxable as income.
Did the New Orleans Saints have some accounting help as they marched in to their Super Bowl win this year over the Indianapolis Colts?
In a just-filed U.S. Tax Court lawsuit, the partnership owning the Saints acknowledges that it didn't treat an $8.5 million annual payment from the state of Louisiana as income and therefore didn't pay taxes on the sum. Rather, the team said the money was an addition to "working capital" and a nontaxable transaction.
The Internal Revenue Service insists the money should have been included in income by the franchise, owned for a quarter-century by auto dealer Thomas M. Benson Jr. The Tax Court case challenges that position.
The litigation only concerns one tax year, 2003. But news reports and bond financing documents concerning the Superdome say such large payments have been made regularly. A similar tax treatment position taken by the Saints in other years would have afforded the team cumulatively a substantial economic edge.
Neither the team nor its tax lawyer responded Tuesday to requests for comment.
According to the lawsuit, the $8.5 million was one of a series of "inducement payments" starting in 2001 for 10 years to keep the National Football League team in New Orleans. The lawsuit says, the money was to be used, among other things, to "acquire additional and higher-priced player contacts" to make the team "more competitive in the NFL."
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In my understanding, an addition to working capital can only be excluded as income if the funds are from within the organization, its parent company or its subsidiaries or stockholders. The state of
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Sounds like income? The team says no, contending the money became a "permanent part of the Saints' working capital." In support of this position the lawsuit cites unspecified "common law principles, administrative rulings and other authorities applicable to inducement payments made by third parties." The partnership says in its lawsuit that treating the money as a capital contribution reduced the amount of income shielded by depreciation write-offs by an unspecified sum.
Benson bought the team in 1985 for $70 million. He owns 100%. Before the Super Bowl victory, Forbes estimated the team value at $942 million.
In addition to the inducement payments--started after thinly veiled threats to leave New Orleans--Benson struck a new deal before last season with the state to renovate the Superdome. The home field was badly damaged like much of New Orleans by Hurricane Katrina in 2005. The construction will add 3,100 seats and 16 pricey suites, further increasing the team's value.