First Northwest Industries of America, Inc. v. Commissioner
United States Court of Appeals for the Ninth Circuit
649 F.2d 707 (1981)
The taxpayer (plaintiff) purchased the Seattle Supersonics, a basketball team that became part of the National Basketball Association (the NBA), for $1,750,000. By purchasing the team, the taxpayer acquired 13 rights, including franchise rights to participate in the NBA and to be the exclusive NBA owner in the Seattle area, the right to participate in an expansion draft, and the right to share in the NBA’s expansion proceeds. The United States Tax Court allocated $500,000 of the taxpayer’s purchase cost to the right to participate in the expansion draft and $250,000 of the purchase cost to the right to share in the expansion proceeds, leaving $1,000,000 of the purchase cost for the 11 remaining rights, including the franchise rights. Years later, the NBA expanded by creating and selling three new teams, increasing the number of NBA teams from 14 to 17, and distributed the proceeds among the existing owners, including the taxpayer. The taxpayer subtracted its basis when calculating its gain from the expansion proceeds. The Commissioner of Internal Revenue (the Commissioner) (defendant) determined that the taxpayer could not subtract its basis from its gain because the rights given to the new team were created, not transferred from the existing owners to the new owners. In particular, the Commissioner argued that the taxpayer’s franchise rights were not transferred to the new owners. The United States Tax Court reversed the Commissioner and held that the taxpayer could subtract its basis in the rights it had lost when the NBA expanded. To calculate the basis, the tax court argued that the taxpayer had previously held a one-fourteenth interest in the 11 unallocated rights associated with owning an NBA team but now held a one-seventeenth interest. This meant that the basis that the taxpayer could withhold was the proportion of the taxpayer’s interest that had been transferred to the new owners, approximately $175,000 out of the taxpayer’s remaining $1,000,000 purchase cost. The Commissioner appealed.
Rule of Law
Holding and Reasoning (Wright, J.)
What to do next…
Unlock this case brief with a free (no-commitment) trial membership of Quimbee.
You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 726,000 law students since 2011. Some law schools—such as Yale, Berkeley, and Northwestern—even subscribe directly to Quimbee for all their law students.Unlock this case briefRead our student testimonials
Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.
Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.Learn about our approachRead more about Quimbee
Here's why 726,000 law students have relied on our case briefs:
- Written by law professors and practitioners, not other law students. 45,700 briefs, keyed to 983 casebooks. Top-notch customer support.
- The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
- Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
- Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.