Ask The Taxgirl: Big Ben Tax Consequences

Taxpayer asks:

So you’re a football fan, can you tell me what happens to Ben Roethlisberger after his suspension? Can he claim that lost income as a deduction? Just curious. Thanks.

Taxgirl says:

Yup, I’m a football fan (though I don’t think I’ll have much to cheer about this season – thanks, Andy Reid). And I used to be a Roethlisberger fan. Don’t get me started.

(note to self: focus on the tax part, focus on the tax part)

From a federal income tax perspective, you can’t generally claim lost wages as a deduction. This is especially true if the wages were payable based on specific performance of a task. So if the Gap pays me by the hour and I expect to work 20 hours, and I only work 10 hours, I can’t claim the difference as a deduction. Similarly, if Ben’s contract pays by the game, and he is banned from six games without pay, then his paycheck is simply lower. He reports a lesser amount of income than expected and takes no deduction.

Of course, this assumes a lot of things about his contract. In particular, I’m assuming that his pay is largely based on a per game basis and that he’s a cash-based taxpayer. If, however, the suspension – and resulting pay decrease – were treated more as a penalty or a fine, the result could be different. In that case, assuming that the payment of the fine or penalty could be considered an “ordinary and necessary” expense, Roethlisberger could take a deduction on his taxes. The analysis here would be similar to the Belichick “cheater cheater” situation. While I felt that Belichick’s fine was neither “ordinary” nor “necessary”, many of my readers disagreed.

It’s tricky here because I think that we would all agree that Roethlisberger’s underlying behavior was neither ordinary nor necessary (nor appropriate nor acceptable – but I digress). The bigger question is whether the focus should be on the underlying behavior or the actual fine. If Ben doesn’t pay the fine or penalty (assuming that it could be characterized that way), he can’t continue to play in the NFL and thus, continue to generate income from the business of simply being him – in that way, paying it is arguably a business expense. But an argument could be made that the underlying behavior which gave rise to the penalty or fine was personal, not business, in nature and therefore, in no case should any related penalty or fine be deductible.

It’s worth noting that if Roethlisberger had been found guilty of a criminal act and required to a pay a fine as a result, that would not have been deductible. You cannot take a deduction for fines, fees or penalties paid to the government as a consequence of breaking the law. That’s clear under sec 162(f) of the IRC which says:

No deduction shall be allowed… for any fine or similar penalty paid to a government for the violation of any law.

It’s a public policy argument. So, no deduction for the result of criminal behavior.

But that’s not what happened here. There were no criminal charges. And as I’ve said before, the NFL, despite how highly it thinks of itself, is not the government. So if the pay cut were more properly a fine or penalty, is it deductible?

I think there’s an argument both ways here, as before, though I personally think Roethlisberger is on much thinner ice than Belichick. I would come down on the side of “not deductible” though I understand the arguments to the contrary. It’s tricky and a bit subjective. Quite frankly, that should make the real worry for Roethlisberger whether his return is reviewed by a Cleveland Browns fan.

Thoughts?

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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Kelly Phillips Erb

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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