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The Berman Buzz

Tax Tip Tuesday: March Madness, Playing by the Rules in Basketball and Taxes

Updated: Mar 25


.basketball on color smoke background

As we race toward the NCAA Final Four, the NBA playoffs, and Tax Day, it is crucial to remember the importance of playing by the rules.

 

Before diving in, here is a bit of trivia:

  1. The NBA three-point line measures 23’9” from the basket.

  2. The NCAA three-point line is set at 20’9” from the basket.

  3. The Memphis Grizzlies were formerly known as the Vancouver Grizzlies.

  4. Deferred compensation deductions adhere to the specialized rules of IRC Section 404, not the general rules of IRC Section 461 (no need to memorize this tidbit). Just remember, the rules are the rules.

Rules Cost Victory in Overstep

Imagine putting up a three-pointer that swishes through the net just as time expires, tying the game and forcing overtime. But wait, your foot was 1/16 of an inch on the three-point line, downgrading the shot to a two-pointer and leaving the outcome hanging by a thread. After further review, your itsy-bitsy, teeny weenie toe was on the line. The referees assert that rules are rules. Game over!

 

$12 Million Loss Over IRS Rule Misstep

In a well-known tax court decision (Hoops, LP Tax Court, 2022–9), the Vancouver Grizzlies suffered a permanent $12 million deduction because they followed the wrong IRS regulations.

 

How did this happen? When the Vancouver Grizzlies sold to the Memphis Grizzlies, the latter assumed the responsibility for the deferred compensation of $12 million owed to certain players. This agreement led to a reduction in the selling price by $12 million. Believing the reduced selling price effectively covered the $12 million owed, Vancouver deducted this amount. However, the deduction was disallowed because it was based on an erroneous application of IRS rules, resulting in the loss of the $12 million deduction. In a convoluted and complex ruling, the courts determined that to qualify for the deduction, the Vancouver Grizzlies were required to pay the players within 75 days of the sale, which unfortunately did not happen. It was an unfavorable outcome, but rules are rules.

 

Playing by the Rules

The moral of the story is clear.

 

Lesson 1: Our tax system is incredibly complex, and navigating its intricacies requires expert guidance from accounting or law firms. No matter how daunting or convoluted the rules may seem, relying on professionals is essential to ensure compliance and avoid costly mistakes.

 

Lesson 2: Don't step over the line! Whether on the court or with taxes, playing by the rules is key to success.


Here to Help

If you have questions about your unique situation or need strategic financial advice, we are here to help you navigate the complexities of tax season and ensure your financial well-being. We build value-added relationships with each client to understand their business structure to provide solid solutions, and our approach offers direct access to the firm's decision-makers. Our innovative cross-functional services help businesses address the challenges ahead. Contact us to let us know how we can best support you.




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