Friday, February 7, 2003
Raiders Get Mixed Results in Tax Cases Arising From Stadium Deals
By a MetNews Staff Writer
The Raiders football team won a tax victory yesterday involving the Los Angeles Memorial Coliseum, lost one arising out of an eminent domain suit in their jilted hometown of Oakland, and had a third—the product of an extended flirtation with the city of Irwindale—sent back to the U.S. Tax Court.
The Ninth U.S. Circuit Court of Appeals handed the split to the Raiders in a ruling dealing with 10 years’ worth of federal income taxes, made more complicated by the team’s penchant for trying to move.
The Raiders were long based in Oakland, moved to Los Angeles for the 1982 season, entered into a deal with Irwindale while working on options with Inglewood and other cities, and finally went home to Oakland in 1995. Lawsuits accompanied each step.
The tax troubles centered on the Commissioner of Internal Revenue’s determination that loans and legal settlements were income to the team.
The appeals court ruled yesterday that a $6.7 million loan by the Coliseum Commission during the team’s brief Southern California sojourn really was a loan, even though it was never paid back under the terms agreed to by the parties.
The team was to get the money, use it to build luxury suites in the historic Coliseum, rent out the suites and use the rental proceeds to pay back the loan. But the suites were never built. First, the Los Angeles Olympic Committee pointed out that they were planning to hold the 1984 Summer Olympics in the stadium, and that heavy construction over a good portion of the seating at that time would be inconvenient.
Actual construction began in 1987, but was halted by the commission because the Raiders had failed to obtain performance bonds. The Raiders said they were only too happy to get the bonds, but would not continue because the commission had failed to make agreed-upon improvements in the Coliseum. Construction never resumed.
The commission that year sued over breach of the lease and failure to repay the loan. The suit was settled in 1990.
The Tax Court held that the obligation to construct the suites was illusory and that the commission’s loan payments to the Raiders thus were not loans at all but taxable income.
The Ninth Circuit disagreed.
“At no point were the Raiders free to ignore their obligation to construct the suites,” Judge A. Wallace Tashima wrote. “They could only delay the construction for a reasonable time and were required to use their best efforts to complete the suites and begin repayment of the loan. These limitations on the Raiders’ discretion were sufficient to create a non-illusory obligation both to construct the suites and to repay the loan that would have been enforceable under California law. The fact that the obligations were later extinguished by the settlement of the 1987 lawsuit does not indicate that the obligation was illusory at the time the contract was made.”
The Oakland tax question was whether the money the Raiders received in a settlement with the city should be considered income.
Knowing the team was heading out of town, the city attempted in 1980 to seize it in a condemnation action. The effort failed and the Raiders sued for damages, saying the team lost millions in profits. The parties ultimately settled for $4 million.
Since the tax commissioner knew that part of the claim was for lost profits, which would have been taxable, he demanded taxes on $600,000 of the settlement, and the Tax Court awarded it.
Tashima said the commissioner was entitled to the tax money since the bill of damages included mostly taxable items.
The Irwindale claim arose out of an agreement under which the Raiders would begin playing in that city in 1992 in a stadium built in an area known for its gravel pits. Under the agreement the city advanced the team a $10 million loan, which would not have to be repaid if the city failed to build the stadium and live up to other obligations. The city had an out—it would be excused if a third party imposed an obstacle that prevented it from doing what it had to do.
In September 1988 the state Legislature passed a law barring Irwindale from using general obligation bonds to fund construction of a stadium that would be turned over to a private company—like the Raiders.
That, the tax commissioner said, was a third party obstacle, making the “loan” into taxable income.
But Tashima said just because the city was planning to sell bonds and now could not longer do it, it was not relieved of its obligations to use some other method to try to build a stadium. It was up to the Tax Court, he said, to determine at what point both parties considered the affair a wash and the loan became a taxable payment.
The Raiders left many Los Angeles officials unenthusiastic about their remaining in town. The team attracted fans who often were more interested in drinking and reveling after the games, sometimes violently, than the games themselves.
Now back in Oakland, the Raiders lost the Super Bowl last month to Tampa Bay.
Disappointed fans burned cars, threw bricks through windows, upended trash cans and bus benches, and set several businesses on fire, prompting a response from riot officers wielding tear gas and rubber bullets.
Oakland Mayor Jerry Brown remained philosophical, saying it could have been worse.
The case is Milenbach v. Commissioner of Internal Revenue, 97-70123.
Copyright 2003, Metropolitan News Company