Milenbach et al. v. Commissioner

The Raiders (plaintiff) were a professional National Football League team located in Oakland, California. In 1979, the Raiders began negotiating with the Los Angeles Memorial Coliseum Commission (LAMCC) to use the Los Angeles Memorial Coliseum (the LA Coliseum) as its home venue. Between 1982 and 1984, the Raiders and LAMCC executed a memorandum of understanding, a promissory note, and a lease (together, the agreement), which provided for the Raiders’ relocation to Los Angeles and their use of the LA Coliseum. Pursuant to the agreement, LAMCC agreed to loan the Raiders $4 million and extend an additional $2.7 million in credit, which the Raiders were to pay back out of rental receipts from luxury suites to be built at the LA Coliseum. The agreement provided that the Raiders “shall construct” approximately 150 luxury suites, and construction “shall commence as soon as practicable as determined by [the Raiders] in [their] reasonable discretion . . ..” The Raiders began playing at the LA Coliseum in 1982, and construction of the luxury suites began in 1987. However, construction stopped shortly thereafter and never resumed due to a dispute between the parties. The Raiders never made repayments on the loan, LAMCC sued for breach of contract, and the lawsuit was settled in 1990. The commissioner of internal revenue (defendant) determined that the $4 million loan was includable in the Raiders’ 1984 gross income. The tax court affirmed the determination, finding that the agreement was illusory and did not constitute a loan for tax purposes. The Raiders appealed.