Odd things can happen when a political party rams through a major change in tax law because it needed a political victory — any political victory — at any cost.
The “tax reform” law was created in secret and passed with almost no time allowed for inspection.
Now, sports teams are worried they won’t be able to trade players without taking a major tax hit.
“This is a change we hope was inadvertent, and we’re going to lobby hard to get it corrected,” the chief legal officer of Major League Baseball tells the New York Times.
The change they’re worried about adds one word to the code — real — that had previously allowed farmers and other businesses to exchange assets without a tax hit. Now, like-kind exchanges are limited to “real property.”
When player contracts are traded from one sports team to another, the teams will have to pay capital gains taxes because people have value and aren’t real estate. This particularly hits baseball teams hard at the trade deadline every summer when teams that are out of the pennant race trade valuable stars to good teams in exchange for mere prospects of little immediate value.
The confusion is only one of many side effects of the new tax law, which sped through the House and Senate in less than two months at the end of last year, resulting in a series of changes that were both intentional and inadvertent. Republicans say they weren’t trying to hamstring sports teams: The change in the like-kind provision, Senate staff members said, was simply an attempt to broaden the United States tax base.
But that is little consolation to the teams who now join restaurateurs, independent agriculture businesses and multinational corporations on a long list of entities affected by the law in ways they did not see coming, and who now face long odds to secure changes or clarifications.
Major League Baseball and N.B.A. officials expressed hope that Congress would revisit the provision, which is one of many parts of the law that could raise their taxes or hurt their revenues.
Complicating the problem is that nobody really knows how to place a value on a trade in baseball.
Unless Congress takes another run at cleaning up a hastily written and passed tax bill, the Times suggests there could be fewer trades in baseball this year.