Can any financial tax person explain R. Wilson's thoughts

[PromoTheRobot]

There may be something to this. He may have needed to do this just to have the working capitol to run an NFL team.

 

But, this is what all smart business people have been doing for years, partly because the banks allow them to and partly because of the US tax system being a complete joke. Working for the Glazer family (Owners of the Bucs and Man U.) has opened my eyes to this amazing business model.

 

I work for a commercial real estate company that owns shopping centers as separate entities. Our company would buy a shopping center, then refinance it as much as possible, essentially getting 100% or more in most cases of the money invested in the center back out. As the value of the properties rose, we could refinance again and get some more millions out of the property – we essentially get paid millions to buy a shopping centers. Then when the housing market tanks, and the places are severely over-leveraged, we can walk away with non-recourse loans and just found the corporation. If we had to sell the centers, we would have to pay taxes on the gains, AND pay back any depreciation that was written off during the years we owned them. This is what they have done with the Bucs and Man U. Both are almost 100% leveraged.

 

For example, the Glazer's bought the Bucs for 195 Mil in the 90's. Now its worth what, 800 mil at least? In 15 years they have made about 600 mil through refinancing the percieved value of the team, and still own the team. They didnt have to sell the team or pay taxes on the 600 mil in profit, because its not profit - they have a bank note for the equal value of the money they are taking out.

 

This is the same model that has made Donald Trump millions. Ever notice how a lot of his casinos and buildings go bankrupt? People seem to make fun of him for this, but he is really out smarting them and everyone else. He builds these assets out of nothing, refinances the crap out of them, making millions in the process, then defaults on a non-recourse loan. All that “profit” is not taxed as income (it may be taxed a much smaller amount based on state law at the time of refinance) and he doesn’t have to pay back any written off depreciation.

 

This could work for your house too. you can get up to 85% of the value of your home out in a refinance. Do the math, it may be more profitable for you to default on a loan than sell!

 

Ralphs heirs may not be planning on selling, they may be planning on defaulting!

Thanks for the explanation. So the scenario my friend describes is entirely plausible.

 

PTR

[UpperDeck]

The difference is that the NFL is not going bankrupt so no taxes will be avoided by doing this.

[jo39416]

Here's one for the financial experts. My buddy firmly believes that Ralph hocked the Bills long ago in order to enjoy his equity now, and once he passes we'll find out a couple of dozen banks hold paper on the team as collateral. That's one reason, supposedly, he won't sell now. He'd have to open his books and the jig would be up.

 

My buddy thinks it's a brilliant strategy, essentially dodging any capital gains on the ever-climbing value of the Bills. Anyone here with a financial background care to comment?

 

PTR

 

Disguised sale rules would prevent that.

 

There may be something to this. He may have needed to do this just to have the working capitol to run an NFL team.

 

But, this is what all smart business people have been doing for years, partly because the banks allow them to and partly because of the US tax system being a complete joke. Working for the Glazer family (Owners of the Bucs and Man U.) has opened my eyes to this amazing business model.

 

I work for a commercial real estate company that owns shopping centers as separate entities. Our company would buy a shopping center, then refinance it as much as possible, essentially getting 100% or more in most cases of the money invested in the center back out. As the value of the properties rose, we could refinance again and get some more millions out of the property – we essentially get paid millions to buy a shopping centers. Then when the housing market tanks, and the places are severely over-leveraged, we can walk away with non-recourse loans and just found the corporation. If we had to sell the centers, we would have to pay taxes on the gains, AND pay back any depreciation that was written off during the years we owned them. This is what they have done with the Bucs and Man U. Both are almost 100% leveraged.

 

For example, the Glazer's bought the Bucs for 195 Mil in the 90's. Now its worth what, 800 mil at least? In 15 years they have made about 600 mil through refinancing the percieved value of the team, and still own the team. They didnt have to sell the team or pay taxes on the 600 mil in profit, because its not profit - they have a bank note for the equal value of the money they are taking out.

 

This is the same model that has made Donald Trump millions. Ever notice how a lot of his casinos and buildings go bankrupt? People seem to make fun of him for this, but he is really out smarting them and everyone else. He builds these assets out of nothing, refinances the crap out of them, making millions in the process, then defaults on a non-recourse loan. All that “profit” is not taxed as income (it may be taxed a much smaller amount based on state law at the time of refinance) and he doesn’t have to pay back any written off depreciation.

 

This could work for your house too. you can get up to 85% of the value of your home out in a refinance. Do the math, it may be more profitable for you to default on a loan than sell!

Ralphs heirs may not be planning on selling, they may be planning on defaulting!

 

Generally this is not true - you would have income from "forgiveness of debt" - unless you went bankrupt - in which case you would have to prove you legitimately do not have the assets to pay back the loan AND even in that case if you have not been very diligent it is possible to pierce the corporate veil and go after your personal assets.

[jo39416]

Heirs' tax basis becomes the market value at time of Ralph's death, instead of Ralph's tax basis of $25k. Ralph's heirs would avoid paying 15% capital gains on the sale price less $25k, saving approximately $150m.

 

The Heirs tax basis will be stepped up after the estate taxes are paid on the transfer of wealth. The family is not wealthy enough to pay the taxes, which is why the team will be sold.

 

UNLESS there has been some significant tax planning done starting in the mid 90's. If Ralph had the foresight to put his interest in a flow through - preferably an LLC and started gifting his membership interests then he could have effectively transferred a significant portion without significant (relatively) tax cost.