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Wednesday, April 7, 2010

The Feds Need Money, So the IRS Hammers Your Client

As the government deficit grows, the Tax Man seems to be increasing its compliance audit of big coin taxpayers. Below is a response that I sent to an IRS request for 'additional information" concerning some deductions that my client took on his federal tax return (the letter was accepted and no additional assessment was made).

Internal Revenue Service
P.O. Box 309011, AMC 8228
Memphis, TN 37501-0001

Re: Player X

2007 Tax Year Inquiry
Notice #: LTR 566
Dear Sir or Madam:

As tax counsel to the above taxpayers (Form 2848 attached), and incident to your notice dated November 30, 2009 (Attachment A to this letter), please find enclosed the following information that you have requested in regard to Lines 20, 21, 22 and Employee Business Expenses for the 2007 taxable year. More specifically, the following is noted in regard to the expenses deducted by the taxpayer on his 2007 tax return (the relevant portions of said return noted on Attachment B).

The taxpayer is a professional football player in the National Football League (“NFL”). Even though he presently plays for XXXXX, in 2007 the taxpayer played for the XXXXX (see Attachment C). On line 21 of Schedule A of his 2007 tax return, the taxpayer deducted a total of $52,903 for unreimbursed employee expenses. Note that there is no reimbursement policy by NFL clubs (including the XXXXX, the taxpayer’s employer in 2007); no reimbursement payments are included in the taxpayer’s 2007 Form W-2 from the XXXXX. As to the $52,903 figure, the appropriate breakdown and supporting documentation is as follows:

1. Union Dues of $10,000. The taxpayer paid to the NFL Players Association union dues of $10,000 during the 2007 tax year (see Attachment D). Note that the union dues are not reimbursed by his employer (i.e., the team). This amount of $10,000 is noted on Line 4 of the Miscellaneous Itemized Deductions Statement for Schedule A (see page 3 of Attachment B).

2. Agent Fees of $32,812. Like all NFL players, the taxpayer has an agent that handles his contractual matters. As noted on Attachment E (which includes invoices and copies of cancelled checks for 3 separate agent fees paid in 2007), the taxpayer paid his agent contracted for and deductible agent fees of $32,812 during 2007. This amount of $32,812 is part of the $38,148 amount noted on Line 4 of Form 2106-EZ (i.e., line 4 of page 2 of Attachment B). Note agent fees are not reimbursed by the taxpayer’s employer.

3. NFL Fine of $1,531. The taxpayer was fined by his employer for the infraction of being late to a team meeting; this amount of $1,531 is noted on the Year-to-Date payroll report provided by the team (See Attachment F, notation ‘F’). The amount was directly deducted by the team from the taxpayer’s pay and is a business expense. This amount of $1,531 is part of the $38,148 noted on line 4 of Form 2106-EZ (i.e., page 2 of Attachment B).

4. Equipment of $1,536. The taxpayer purchased specific shoes and other equipment for the purpose of his football profession; the amount of $1,536 for this business expense was deducted by his employer from his paycheck as noted on Attachment F (notation ‘E’). Note that the employer did not reimburse the taxpayer for this expense. This amount of $1,536 is part of the $38,148 noted on line 4 of Form 2106-EZ (i.e., page 2 of Attachment B).

5. Ticket Expense of $2,269. The taxpayer purchased NFL game tickets for individuals that were assisting him in potential various income producing activities and in his professional football career, including for his agent and other advisors. The amount of $2,269 represents the deductible business expense portion of the $6,728 of tickets deducted by the taxpayer’s employer as noted on Attachment F (notation ‘T’). Note that the employer did not reimburse the taxpayer for this expense. This amount of $2,269 is part of the $38,148 noted on line 4 of Form 2106-EZ (i.e., page 2 of Attachment B).

6. Travel Expenses of $4,755. The travel expense amount of $4,755, which is part of the $42,903 amount noted on line 1 of the Miscellaneous Itemized Statement and also separately stated on line 3 of Form 2106-EZ (i.e., pages 2 and 3 of Attachment B), relates to travel that the taxpayer made to XXXXX and XXXXX during the year for purposes of the taxpayer visiting individuals and events that relate to his job as a professional football player and other related business matters, including meeting with potential business opportunities, meeting with his football agent and other advisors, and helping to plan a football camp (see article noted as Attachment G). These expenses are included as a portion of the deduction that is noted on the Saints pay summary on previously referenced Attachment F (see notation ‘A’), it being the customary policy for teams to deduct from the paychecks of players their personal purchase of air tickets and other items such as non-team lodging expenses.

Note that as instructed by the IRS, I have also included a completed Form 13825, “Employee Business Expense Questionnaire” (see Attachment H).

It is requested that all further correspondence in this matter be directed to my office.


Ronald M. Del Duca, Jr.