Forbes, Did Tax Ploy Help Saints Win Super Bowl?:
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 [New Orleans Louisiana Saints Master Limited Partnership LLC v. Commissioner, No. 13635-10)], 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 IRS 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.
Update: Calvin Johnson (Texas):
This is ordinary "income" under § 61. It improves net present value of the recipient. It is an "accession to their wealth" (Glenshaw). It is Haig Simons income. It is realized by receipt and hence separated from any capital. It is not a recovery of any capital investment. It is not an aggregation by owners contributing start up capitla in return for a percentage share. It is not corpus or capitla interest that must be preserved fro remaindermen and is not available to any living income beneficiary. Working capital is the accounting name for assets of the corporation in cash or near cash and it includes taxable cash. A taxpayer may reserve whatever he wants as not available to owners but hat has no impact on taxable income. Thus “working capital” is not a category implying exemption. It does not fit under § 118, which covers only corporations; outside a statute there is not an analogy but a silhouette.
