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Big Money, Big Target: The IRS and Pro Athletes

We have all heard stories of professional athletes running into big problems with the IRS — Pete Rose, Lawrence Taylor, Chris Chelios, Anthony Mason, Jim Thorpe, Boris Becker, Floyd Mayweather, Marion Jones …  not to mention about the recent saga involving Philadelphia Eagles offensive lineman Evan Mathis. No professional athlete should be surprised that the IRS and other taxing authorities closely examine their returns based not just on their high net wealth but on the fact they must file income tax returns and sometimes pay additional “jock tax” fess in the many jurisdiction the play (earn income) among a variety of other factors. Through our research and dealings with professional athletes, their families, agents and financial advisors we have found that professional athletes have a near 90% chance of being audited by one or more taxation authority during their careers.
Of the 24 states that house professional sports teams, 20 collect income tax on their home and visiting teams. Nearly a dozen cities, including Pittsburgh, Philadelphia, Cleveland and Cincinnati, impose “jock taxes” and other fees on teams and players. Here are the numbers: NFL players typically file in 10 to 12 jurisdictions. NBA is somewhere between 16 and 20. MLB is somewhere between 20 and 26, and the NHL is between 14 and 16. If you are a PGA tour golfer it can be even more complicated. While establishing primary residency in an income tax free state would be extremely challenging or impossible for athletes in the NFL, NBA, MLB and NHL, more than 80% of PGA tour golfers who reside in the US live in states with no state income tax — Florida, Texas, Nevada, South Dakota, Alaska, Washington, Wyoming — or limited taxation on individual income — Tennessee and New Hampshire.
Here is the bottom line, if you are a professional athlete – you will be audited by a taxing authority at some point during your career or when you retire (e.g. the IRS has the ability to audit you up to the three years from your initial filing). When you are audited the AUTHORITY comes after YOU, not your accountant, agent or advisor. If you do not have the right advisors or accountants and more importantly if you do not have visibility into your finances you could ultimately face serious legal fees, penalties, etc.