by Jack Bechta
December 23, 02010
It’s estimated about 20% of all NFL players may be audited.
Over the last 18 months I have been getting an unusual amount of requests from clients for proof of agents fees paid for the years 2007 and 2008. Several of my clients are being audited for these particular years. It seems the IRS has targeted NFL players and many pros that play team sports.
I placed a call to a few CPA firms that work for NFL players to find out what is going on. Larry Campbell of Levine, Lofgren, Morris and Engelberg LLP, who works with 60 NFL players, sent me the following email:
Using cash makes claiming a deduction even more difficult.
"Starting with the 2006 tax returns, the IRS has been auditing professional athletes to get proof of their sport related expenses. These would include agent fees, union dues, meals & entertainment, etc... They have continued to audit athletes for their 2007 tax returns and now have just sent out in October audits for their 2008 tax returns. I do not see the IRS stopping these audits anytime soon. These audits are called correspondence audits and are done all through the mail. Therefore you do not get a chance to talk face to face with an agent during the process. I would estimate that about 20% of athletes are being audited each year where as the average for the rest of the country is less than 2%.
The biggest problem I am seeing when going through these audits is that the players are not keeping the backup evidence necessary to get credit for their deductions. The IRS typically does not consider a credit card statement as sufficient backup. They also want to see a copy of the actual receipt/invoice for the purchase and as proof that the payment was made, either through a credit card statement or check copy. I have been recommending that my clients get a scanner and software to help keep better track of their expenses. That way after they scan the receipt they don’t have to worry about finding them when the IRS comes knocking.
The other issue I have seen is that the players only have 90 days to respond to the IRS before the case is closed and the tax is assessed. This can be difficult when the player gets the notice during their season and their mail may be going to an address where they do not get mail during the season. The worst thing they can do is to ignore any notices. These will not go away and they will put liens against your property or tax future tax refunds. This may also affect their credit.
One other thing to note; Cities and states are looking for revenue so I would expect an increase in audits from them as well."
Another CPA I spoke with, John Palguta of MAI Wealth Advisors, who works with some of the biggest names in the NFL, is seeing the same thing. He told me that “the audits are no aberration and he expects them to continue”. John sent me the following email concerning the increase in these audits:
"Over the past two years the IRS has significantly increased the number of audits for team sports athletes; specifically football and baseball players. The IRS is specifically focusing on unreimbursed employee business expenses. This would include contract negotiation and financial management fees, training and conditioning expenses, union dues, clubhouse and locker room dues, professional fines and investment management fees. The IRS also requests a letter from the athlete's employer documenting the employer's reimbursement policy.
The keys to a successful "no change" response from the IRS are to initially utilize a CPA that only claims allowable expenses as business deductions and to have the proper documentation. Cancelled checks (both front and back) along with receipts are required.
As far as the IRS is concerned cash is not KING when it comes to a deductible expense. If you want the deduction you need to write a check or get a receipt otherwise you will end up paying Sam."
Players are notorious for not keeping good records. Most of all expenses associated with their job are deductible. That includes agent and legal fees, dues, fines, training equipment, training expenses, supplements, video equipment used to study game tapes, and charitable donations. Even when a rookie has to pay for the vet's dinners, he can deduct it. I advise my clients to take a second and get in the habit of writing a note on every receipt they get describing the purpose of the expense. I then encourage them to keep all the receipts in one place. However, I’m sure every time the car is detailed many receipts disappear.
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