Forcing Donald Sterling to sell the Clippers could save him hundreds of millions in taxes

If Sterling had voluntarily sold the team for $1 billion, he would have owed about $200 million in federal income tax and another $123 million in California state income tax. But thanks to a tax law that applies only to forced sales or other “involuntary conversions,” Sterling’s profits may all be tax-free.

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Section 1033 of the tax code provides a special tax treatment for people whose property has been stolen, appropriated by the government (e.g. eminent domain), or otherwise “involuntarily converted.” The basic idea is that if you have received money because someone took your stuff away from you, you shouldn’t have to pay taxes since you didn’t enter into the transaction voluntarily…

There are several requirements that Sterling would have to satisfy in order to qualify for this tax benefit. One requirement that is likely to generate controversy with the Internal Revenue Service is that Sterling must use the sale proceeds to purchase “other property similar or related in service or use” to the converted property. The easiest way to satisfy the similarity requirement would be to purchase one or more other sports franchises. However, Sterling may find it difficult—to put it mildly—to find a willing seller, given his unpopularity.