Upon publishing Marc’s post, I received an email from John Hanselman at NCompass Financial, who also has some free literature to share with rookies who unfortunately do not get to experience the rookie symposium because of the lingering lockout.  His booklet is titled, The Rookie Financial Handbook, and I have embedded it at the bottom of this post for all to peruse.

Also a short read, Hanselman’s handbook discusses communications with a Certified Public Accountant after a player signs his first professional contract, considering personal disability insurance, benefits of renting instead of buying property, carving out a 5-10% after tax “fun money” allowance, proper budgeting, developing a financial roadmap, and estate planning.

The Rookie Financial Handbook from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Here are some archived Sports Agent Blog tax related posts worth taking a look at:

• A Specific IRS Request For “Additional Information”
• Cliff Lee Thinking About Texas Taxes
• Did Taxes Have A Role In Cliff Lee’s Decision?
• Agent Fees Often Raise A Red Flag To The IRS

Recently, David Collier informed me of a new IRS rule that requires reporting of foreign bank accounts, which may affect American basketball and baseball players who are playing in a professional league overseas.  Collier is a sports and entertainment attorney based in New York, New York.

The rule requires U.S. citizens who had foreign bank account(s), that combined exceeded $10,000 (or the equivalent of $10,000 in a foreign currency) at any point in time in 2010,  to report the account(s) to the IRS.

Thus, even if the account(s) did not retain a balance of $10,000 throughout 2010, and even if on December 31, 2010, the account(s) had less than $10,000, so long as the foreign bank account(s) had $10,000 or more at any point of the year, those accounts must be reported.  Importantly, account values are combined if the person had more than one account at any given time.

Many American athletes do not decide to open up bank accounts outside of the United States, but this piece of information is very useful to pass along to those who do elect to invest money into foreign bank accounts.

Certain Overseas Players Need To Report Foreign Bank Account Information from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

• Cliff Lee Thinking About Texas Taxes
• Did Taxes Have A Role In Cliff Lee’s Decision?
• Agent Fees Often Raise A Red Flag To The IRS

After writing the IRS post, I received a message from attorney-agent Ron Del Duca of Del Duca Sports.  He referenced a piece that he wrote in April 2010 on his blog, which detailed a specific instance where he responded to an IRS request for “additional information” concerning deductions that one of his unnamed clients listed on  his federal tax return.  The IRS accepted Del Duca’s response and closed the case.

Del Duca can separate himself from the competition, because not only does he have a J.D., but he also completed Master of Laws Taxation Degree (LLM) from William & Mary in 1984.  Thus, he does not have to seek help from someone outside of his company should the IRS come calling one of his clients.

Del Duca’s client was seeking to deduct a total of $52,903 in expenses.  The breakdown was as follows,

1. NFLPA union dues of $10,000.
2. Agent fees of $32,812.
3. A fine of $1,531 for being late to a team meeting.
4. Shoes and other football equipment of $1,536.
5. Game tickets for agents and other advisors of $2,269.
6. Business related trip expenses of $4,755.

A Specific IRS Request For “Additional Information” from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Ken Bolson of the New York Times does a good job of briefly highlighting the tax implications of Lee’s decision; however, I am a little confused by the very last sentence of his piece, where he writes,

He could also do what a lot of star players do: Ask the Yankees to pay his local taxes.

Interesting, because I have never heard of a professional baseball team agreeing to pay any of its players’ taxes.  A few accountants who deal with professional athletes’ taxes tell me that no team will ever pay the local taxes for an athlete.  A team may pay a player more money based on an understanding that the player acknowledges the tax consequences of his decision, but that is not a direct payment of taxes.  So where does Bolson get this idea from?

Cliff Lee Thinking About Texas Taxes from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

The questions and answers were superb, and SportsAgentBlog.com is proud to be a part of the effort.

In our first installment of the new feature, topics discussed included: student-athlete insurance policies, taxes on signing bonuses, smart investments, 401(k)s, fines as tax deductions, player-run foundations, purchasing real estate, athletes creating their own LLCs, and student-athlete preparation for the big pay day.

The interview may be read, in its entirety, here.

Ask The Expert: Emery B. Sheer, Berenfeld LLP from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

I really have to hand it to my boys over at Sports Law Blog.  My favorite part of the site is the posts that include suggested new sports law review articles.  I don’t care how busy you are; you need to take the time to stay abreast of the latest news and happenings in your industry.  Reading this site is not enough.  Some law review articles can really take your practice to the next level.

In his most recent New Sports Law Scholarship post, Geoffrey Rapp lists some great reads.  I have already read through From parts unknown: WWE v. Jim Hellwig in the ultimate battle for character copyright, Signing bonus skimming and a premature call for a global draft in Major League Baseball, and the topic I would like to cover in this post: Taxing the business of sports. You may not be able to access these articles without a Westlaw or LexisNexis login.

So back to taxes and what you need to know.  You can save your clients money by knowing which states have state taxes, what those state taxes are, and which states have reciprocal agreements with other states.  For instance, did you know that Florida, Texas, and Washington have no tax on resident or nonresident income?  That means if you are an MLBPA certified agent, you want to keep the Mariners, Rangers, Astros, Rays, and Marlins on your radar.  Unless your client is offered a similar salary by one of those teams and another team in a high tax state (i.e. – California), tax concerns may not be as much of a concern.  But if your client is offered a $4 million per year deal from Oakland, Anaheim, or the Dodgers, and a $4 million/year deal with the Marlins and he does not care where he plays the majority of his games, you should advise him to head to the East coast Sunshine State.

The four major sports leagues have teams based in twenty states that have individual state income taxes.  And those states have nonresident tax laws.  This means that whenever your clients make money for playing in a state with state income tax, they have to pay a portion of their earnings to that state.  To make matters worse, some cities have their own separate, small income taxes.  Playing in Florida, Washington, or Texas won’t allow your client to avoid all income taxes (think Federal, as well), but it could save your client a lot of money (and Geico isn’t even involved).

States with high income tax rates for professional athletes: California (9.3%) – additional 1% if you make over $1 million, Minnesota (7.85%)

States with low income tax rates: Illinois (3%), Michigan (3.9%) – Detroit also has a 1.35% city tax, though.

Pennsylvania is tricky.  There is only a 3.07% state tax, but watch out for those city taxes.  In particular, Philadelphia wants that money.  2.801% city tax for residents. 3.7716% city tax for non-residents of Philadelphia.  Ohio can also be pricey because of a separate Cleveland and Cincinnati city tax.

It’s also good to understand reciprocal agreements between states, but I’ll leave that for a future post..maybe.

A Taxing Discussion from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules

Riddell, a current Rugby League player and Spriggs, a former AFL footballer took on the Australian Tax Office (ATO) arguing that the money that athletes pay to agents for their services should be tax deductible.

Riddell employed the services of SFX Management Group for his 2005-2007 contract, paying a 7% fee on his performance contract and 20% on his media and other contracts. Spriggs hired Connors Sports Management paying 3% of his performance contract and 20% of his other contracts.

In basic terms, under current taxation law, cost incurred by the payee in generating assessable income can be claimed as deductions on his/her tax paid. Riddell and Spriggs argued that their cases should apply due to employing a sports agent to handle their contract negotiation in regards to playing, media and sponsorship.

The conclusion was made that these costs were related to the players gaining assessable income and therefore should be able to be claimed as a deduction on their tax.

I am unsure of other countries’ tax laws, but this makes perfect sense. In other professions, if you undertake expenses directly related to the income you earn then you can claim these back. If a company hires a consultant to advise them on certain business decision,s that expense is tax deductible, so why should this be different?

So what are the implications for Athletes and Agents? Well, athletes will now have a few extra dollars in their pockets, resulting in a better lifestyle for them. As for Agents, it could be a selling point as their cut being justifiable. Not to mention, it may convince some players without an agent to start looking for one.

Show me more money! from Sports Agent Blog - Sports Business, Sports Law, Sports Negotiations, NCAA Rules