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The Upcoming Baltimore Orioles Sale Is Structured To Avoid Capital Gains Taxes – Above the Law

Hand holding baseball in glove with blue skyThe Baltimore Orioles, the 2023 champions of the American League East Division, may soon have a new owner. The current owner, Peter Angelos, through his family, is reportedly selling the team to billionaire David Rubenstein and his investment group (who also includes Orioles Hall of Famer Cal Ripken Jr.) for $1.725 billion.

But it is not a straightforward sale. Rubenstein and his group will initially purchase 40% of the team. The remaining 60% will be sold, reportedly for tax reasons, after 94-year-old Angelos passes away. Angelos purchased the team in 1993 for $173 million. If the sale were to take place now, Angelos would face an estimated $250 million capital gains tax on the approximately $1.5 billion profit. But by waiting until after his passing, the basis step-up rule would increase his cost basis to current market value instead of his original purchase price. If the team is sold immediately thereafter, there will be little to no capital gains tax on the sale.

Rubenstein and his group would also enjoy some tax benefits as the new owners. According to Forbes, if the buyers are able to structure this as an asset sale, they will be able to take advantage of any losses incurred to offset other income. However, investors who do not materially participate in the team management can only use their losses to offset passive income such as real estate rental income.

What is not clear is who will control the Orioles after Rubenstein’s initial 40% purchase. On one hand, the Angelos family could still control the team through its majority ownership. On the other hand, the Angelos family could allow Rubenstein to control the team after the initial purchase. If this happens, the IRS may try to reclassify the transaction as if 100% of the team was sold while Peter Angelos was still alive and thus trigger the capital gains tax. The IRS could argue that this two-step transaction was purely tax motivated, specifically to avoid the capital gains tax.

The IRS has recharacterized transactions regardless of legal form if the overall goal of the transaction was to avoid taxes. This was generally known as the “substance over form” doctrine. But they may also use the codified “economic substance doctrine” where a transaction has no economic or business purpose other than to avoid taxes. Or if multiple transactions are involved, the IRS may use the step transaction doctrine to combine all of these transactions into one, particularly where each transaction on its own has no business purpose.

But in recent years, courts have been skeptical of the use by the IRS of recharacterization arguments, particularly where the tax law allows deferral or avoidance. In 2017 and 2018, the First, Second, and Sixth Circuit Courts of Appeal decided three separate but related cases where the taxpayers used both a Roth IRA and Domestic International Sales Corporations (DISC) to avoid taxes on corporate profits. The IRS conceded that the taxpayers properly followed the laws on Roth IRAs and DISCs but used them to get around a straightforward taxable corporate distribution of profits. The appellate courts sided with the taxpayers stating that while the substance over form doctrines allow the IRS to recharacterize sham transactions, it does not give the IRS the power to second-guess the intent of Congress and correct their oversights. In 2021, the Ninth Circuit similarly held for the taxpayer who used both a Roth IRA and a Foreign Sales Corporation to avoid taxes.

Even if the sale avoids capital gains tax, Peter Angelos’s estate will be subject to federal estate taxes which is as high as 40% at the top bracket. Also, Maryland also has its own estate tax.

However, the transaction is not yet complete. The league must perform due diligence, and 75% of MLB owners must approve the sale.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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Amit Ghosh
Amit Ghosh


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