Baseball season got underway this spring with a new frustration for ball players.
For years, professional athletes have been allowed to request a certain number of free tickets per game that they can give to friends or family. In some sports, the players get only two tickets per game. Professional baseball players have the option of requesting up to six tickets per game.
And although the tax code is clear about the fact that fringe benefits with a discernable value are subject to taxation, many of the sports clubs have simply given the tickets to players without taxing the players for the benefit.
But that's all changing.
The Internal Revenue Service is cracking down on this particular fringe benefit and requiring that ball clubs start including the face value of the tickets as income on W-2 forms and withholding income tax on that value. And baseball players, with their busy game schedules, are getting hit particularly hard.
"In football, you have 16 games. Baseball's got 162 games. Baseball gets hit a lot harder," explained Steve Piascik, founder and president of Richmond, Va.-based Piascik & Associates, a CPA firm specializing in the needs of professional athletes.
The rules regarding the taxability of fringe benefits haven't changed, but the level of enforcement has.
"There definitely has been a change of emphasis. It's a fallout from the tax shelters," said Tom Wilson, managing director with the IRS Service Team at PricewaterhouseCoopers in San Francisco. Wilson is the former IRS industry director for, among other areas, the entertainment and sports industries.
Wilson said that the IRS is able to expand its focus on high-income taxpayers due to recent increases in staffing. "They've been able to hire people over the past couple of years. Previously, they were dealing with staffing shortages and were not able to get to a lot of returns. Now, with additional hires, they are able to focus on some of these areas they were not able to do before," he explained.
Some players who use their full complement of free tickets could face an increase in their taxable income of over $30,000, with resulting withholding of more than $10,000, depending on the individual's tax rate. Those who don't take advantage of all the free tickets that are available to them, or who are in a lower tax bracket, will have lower tax withholding.
Mitchell Freedman, president of MFAC Financial Advisors Inc., has always believed that the free tickets represent taxable income to the players. But, he commented, "The teams left it to the athletes as to their obligation to report the income."
"Many athletes that do receive these tickets don't just use them personally," he said. "They turn around and sell them, so they are converting it into cash. The IRS is putting on pressure to close a loophole that's been abused for a long time."
No more games
Even though many ballplayers are complaining, Piascik explained that things could be worse. Instead of having to pay tax on the face value of tickets, the players could be hit with the tax on the fair market value of the tickets. "The IRS could make the argument the other way - that someone would charge $600 for floor seat tickets, so why is it not a higher taxable event than face value?"
Things could be worse.
"At least the IRS is not going back and auditing these guys and figuring out why they're not including it in income, or auditing the teams for not collecting payroll taxes," said Alan Tharp, manager of the sports division at Solana Beach, Calif.-based Hamilton Accountancy Corp. "They could be a lot more aggressive."
Accounting for the tickets by the sports clubs is a computerized process. Even that has generated some complaints among players who find the system to be inconvenient. Typically, the players must enter their ticket request in a computer in order to obtain the tickets and simultaneously add the value to their personal taxable income. Players who make their complementary tickets available to teammates must make sure that they report the transaction properly, so that the correct player gets charged for the tickets.
While other professional sports franchises have been collecting taxes on the tickets issued to players, many teams had not instituted any such program before this year. "The players are upset," said Tharp. "I think baseball might have been the only pro sports group that wasn't doing it."
Piascik advised clients to report the ticket income long before the controversy hit the news. "We've been saying it for years: Tickets are taxable. Period. Can we fight it? No!"
Randy Neumann, former heavyweight boxing contender and president of Randy Neumann & Associates, a financial planning firm in Paramus, N.J., thinks it reasonable for the IRS to expect withholding on the value of the tickets. "The players can certainly afford it," he said. "They think that they're persecuted, but it sounds reasonable to me. It's income. They could scalp the tickets. If they want to give them away, it's their business - there's a value to them."
Not everyone takes the side of the IRS. "I think it's ridiculous," said Steven Shapiro, founding partner of Alloy Silverstein Shapiro in Cherry Hill, N.J. "The tickets are de minimis. It's a courtesy. Every athlete gets tickets for relatives or friends who come to a game."
"If they sell the tickets, that would be one thing, but if they're just giving them away, I think they shouldn't be taxed," said Shapiro.
Wilson explained that, rather than having to audit the individual returns, the IRS will count on the athletic organizations to treat the ticket distribution properly. "I do know the IRS integrates with the league. They'll try to get them to pass the message on," he said. "They're holding the league responsible for communicating the information to everyone."
From an accounting perspective, "It's just an administrative burden for filing the returns," said Piascik. The issue of multi-state taxation can be particularly cumbersome, with players reporting revenue for game participation in other states. "The ticket should be part of the compensation for the away-game state. That's where the service is being performed."
There may be some other side effects for accountants who work closely with the professional athletes. "It probably means I'll get a lot less tickets this year, so I'm not happy about it all!" said Tharp.
