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HOUSTON, TX – MAY 04: Stephen Curry #30 of the Golden State Warriors goes up for a lay up defended by Austin Rivers #25 of the Houston Rockets in the fourth quarter during Game Three of the Second Round of the 2019 NBA Western Conference Playoffs at
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When you’re hot, you’re hot. And that’s exactly the case for the owners of the Golden State Warriors, whose team has won the three of the last four NBA titles and are favored to win the championship again this season.
The IRS made public Friday a ruling that the Golden State Warriors do not have to pay taxes on what amounts to an estimated $300 million, interest free loan for the construction of the Chase Center, the $1 billion, privately financed arena slated to open next season.
Here’s the deal.
To help finance their new arena, the NBA team is selling membership fees that will typically between $35,000 and $15,000 a pop for 13,000 of the arena’s 18,000 seats. The Warriors will repay to season-ticket holders in 30 years, with no interest.
If you cannot afford the $35,000 membership fee don’t sweat it. The Warriors will let you pay in installments—with interest. But here’s the rub: In the same ruling, the IRS said that those who buy the memberships cannot deduct the loan from their taxable income.
According to the Willens Report, the IRS based its ruling on Sec. 61 of the Internal Revenue Code, which provides that gross income means “all income from whatever source derived, unless excluded by law.” The Supreme Court, in Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), defined gross income as any item that increases a taxpayer’s net worth. The Court referred to gross income as “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” However, when a taxpayer receives the proceeds of a loan, the taxpayer incurs an obligation to repay the loan at some future date and, therefore, the loan proceeds are not gross income to the taxpayer. See Commissioner v. Tufts, 461 U.S. 300 (1983).
The membership fees have apparently sold like hot cakes given the team has a waiting list of more than 40,000.