NBA players must now pay for their free tickets

[JeeberD]

No free lunch, or basketball tickets, IRS says (http://www.chron.com/cs/CDA/ssistory.mpl/business/3004255)

Free tickets, one of the perks in professional sports, now come with a price in the National Basketball Association.

On Jan. 1 the NBA began withholding income tax from its referees to account for the two complimentary tickets they get per game they work.

Some of the league's 30 teams, including the New York Knicks, are withholding taxes on the tickets they give to their employees. The Houston Rockets are also complying, a spokesman said.

Players say they are angry that about $10,000 will be withheld from their paychecks for what is supposed to be a fringe benefit.

"It's bull," said Sacramento Kings forward Chris Webber.

For Webber, who made about $16 million last season, the most that would have been withheld for free tickets would have been $13,815.90, based on the maximum income-tax rate of 35 percent and the average price of tickets as calculated by the Team Marketing Report.

Responding to recent corporate scandals, the Internal Revenue Service is scrutinizing noncash compensation such as homes and cars or — in the case of professional athletes — extras like free tickets, said Elizabeth Buchbinder, a tax partner with Ernst & Young in Washington.

"There's an increased IRS audit focus on executive compensation, and a big part of it is the noncash perk," Buchbinder said.

IRS spokeswoman Nancy Mathis, citing privacy laws, wouldn't talk about the professional sports leagues.

Giving free tickets to players is common among the major professional sports leagues.

The average price last season of a premium NBA ticket, the type players typically get for free, was $152.93.

Free tickets make up a percentage of a referee's compensation. Officials would get $25,080.52 in free tickets if they accept all that are available to them for games they work.

Billy Hunter, executive director of the New York-based NBA players' union, said he would make the ticket tax an issue during negotiations to extend the labor agreement, which expires after this season.

Not that the players can't afford it, but I think that's a bunch of garbage. I hate the IRS...

[Farrah Whitworth-Rahn]

What kind of accountants do these NBA teams have anyway? I'm disappointed their service provider couldn't find a work around for them.

[QuikSand]

Setting aside the specifics of millionaire athletes here... and everyone's instinctive hatred for the IRS...

If you work for someone, and they pay you monetary salary but also give you a benefit which has a substantial monetary value ... why does it make sense to treat one as taxable income, and the other as if it didn't even exist? Doesn't that just encourage all sorts of back-door compensation designed for the explicit purpose of shorting the government of tax revenues?

[Farrah Whitworth-Rahn]

Setting aside the specifics of millionaire athletes here... and everyone's instinctive hatred for the IRS...

If you work for someone, and they pay you monetary salary but also give you a benefit which has a substantial monetary value ... why does it make sense to treat one as taxable income, and the other as if it didn't even exist? Doesn't that just encourage all sorts of back-door compensation designed for the explicit purpose of shorting the government of tax revenues?
I don't think it makes sense at all. With referees, since the article states free tickets make up a percentage of the compensation (I'm assuming the contracts do also) the value of the tickets should be included in income and income taxes, and payroll taxes should be withheld.

But that's only due to how the contracts are structured. There are ways, agressive yet legal ways, to structure these contracts so the transaction isn't taxable to the refs.

[JeeberD]

I think it's just a matter of time before Everyday Joe starts getting taxed for the coffee and doughnuts (among other things) that his work provides for him...

[albionmoonlight]

And to follow up on QS's point--a lot of things that make the tax code complicated can be traced back to people trying to take maximum advantage of the government's lax policies.

For instance, it used to be the case that the government did not really enforce compensation rules on "barter" exchanges (you do my dental work, and I'll paint your house). People, however, got creatitive and started setting up entire complex barter systems with their own sets of currency. Then the IRS had to step in to stop the rampant abuse.

It used to also be that you didn't have to pay taxes on the appreciation of the principal in your bonds, only the interest coupon payments that you received. (Back in the day when things had to be "sent to the printer," bonds had to be printed a few weeks before they issued. Sometimes the interest rates would change in the interim and the bonds would have to be sold at a discount to make up the difference.) The IRS decided that it was not worth bothering people to collect the taxes on the little bit of investment income that they would receive in principal accumulation, so they let people have the freebees. So, of course, people invented zero-coupon bonds in which all of the appreciation is in the form of increasing the principal. Then the IRS had to make special and complicated rules to deal with it.

And, to use the above as an example, if the IRS were to say that only cash money is taxable income, do you think that it would be a matter of hours or days before employers started paying almost no salary, but gave people the "perks" of housing, groceries, cable, internet, electricity, water, sanitation, meals out, movies, sporting tickets, gas, automobile payments, airline tickets, etc.?

[QuikSand]

But that's only due to how the contracts are structured. There are ways, agressive yet legal ways, to structure these contracts so the transaction isn't taxable to the refs.

We're on different sheets of music here.

My question above is not "what is allowable under the current law?"... but rather "what makes sense as a matter of public policy?"

(I am not prepared to argue against your thesis that clever people can dodge taxes)


Here's an example. If my employer decided to switch my form of compensation -- and to (hypothetically) just start making my $500/month car payment for me, and to reduce my paycheck by $500/month as an offset... to me, that's a wash. I am still getting from them the same level of compesation, in practical effect.

Is it fair if the tax law says that I suddenly get a tax break for that, since them paying for my car is not direct cash compensation? That doesn't make any sense to me, as a practical matter. If an employer materially benefits an employee as part of an employment contract, then I think it stands to reason that that compensation ought to be treated the same way, whatever its form. There shouldn't be unequal tax treatment based on sleight of hand in the manner used to compensate employees.

[albionmoonlight]

I think it's just a matter of time before Everyday Joe starts getting taxed for the coffee and doughnuts (among other things) that his work provides for him...
Not really. . .

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000132----000-.html

Look in particular at IRC Sections 132 (a)(4) and (e)(1).

This gets more complicated, but rest assured that donuts are safe :D

[Anthony]

i can't speak about Refs, cuz it's implied the tickets are a percentage of their compensation, but perks are not compensation - they are the inherent benefits to being in a particular line of work. i fully believe that athletes should be charged for those seats - they make a lot of money so that the teams can attract a crowd but then they give away some of the most expensive seats in the house away for nothing. but a perk is a perk. it's an added benefit - not a substitution for pay.

[Farrah Whitworth-Rahn]

We're on different sheets of music here.

My question above is not "what is allowable under the current law?"... but rather "what makes sense as a matter of public policy?"

(I am not prepared to argue against your thesis that clever people can dodge taxes)
The taxes are still paid on the value of the tickets, just not by the refs. There is no dodging in any sense of the word. Just wanted to point that out.


Here's an example. If my employer decided to switch my form of compensation -- and to (hypothetically) just start making my $500/month car payment for me, and to reduce my paycheck by $500/month as an offset... to me, that's a wash. I am still getting from them the same level of compesation, in practical effect.

Is it fair if the tax law says that I suddenly get a tax break for that, since them paying for my car is not direct cash compensation? That doesn't make any sense to me, as a practical matter. If an employer materially benefits an employee as part of an employment contract, then I think it stands to reason that that compensation ought to be treated the same way, whatever its form. There shouldn't be unequal tax treatment based on sleight of hand in the manner used to compensate employees.
It depends. Much of these compensation cases are decided by the IRS and the tax court based on facts and circumstances surrounding the transaction. In the example you cited, there is no difference between the car payment and compensation because your employer intends for one to replace the other. That's the situation with the refs, most likely based on the way their contract is structured. They should pay tax on the tickets, it's compensation.

However, let's twist your example a bit to make it simliar to NBA players. Your employer continues to pay your salary of $500 a month in cash. But your employer also agrees to make your car payment of $500. Your position within your company requires you to travel around the city visiting clients, delivering product and in general use your vehicle for work. Your personal use of your vehicle is insignificant compared to your business use.

Use of your vehicle in the due course of your employment is integral to your employment. You're better at your job because you can visit with clients and deliver excellent client service. In some respects, using your vehicle is more convenient for your employer, so he doesn't mind paying your car payment. Should you pay tax on the portion of your car payment that relates to your work with your employer? No, because it's not income to you. It's not in place of any salary, it's a tool to do your job - a business expense to your employer.

I don't know the specifics of the NBA contracts, or how many tickets given to each player or any of those details. So my comments are a bit blind, but I think a good accountant can build a reasonable basis that that some level of tickets to each player is a tool to do their job.

[Anthony]

not without a lot of lying and extensive stretching of truth. i don't see how you can make a case for an NBA player needing tickets to do his job. especially the highest priced ones. i personally think perks are exempt from taxation and if they aren't then they should be. to me they're gifts in the most basic sense of the word. items/tools that don't result in one being able to do their job but are nice to get for free. i used to be a CSR for a cable tv company when i was in college, and we got free cable while i worked. that was a perk. i wasn't paid any less as a result of receiving that "gift" nor was receiving free cable a necessity to do my job.

[rkmsuf]

The hoes have to sit somewhere. Get off these guys.

[QuikSand]

Should you pay tax on the portion of your car payment that relates to your work with your employer? No, because it's not income to you. It's not in place of any salary, it's a tool to do your job - a business expense to your employer.

Again, same church, different pew.

I have no argument with exempting truly business-related expenses being covered without taxation. My argument, in the generic sense, is with the general concept of non-monetary compensation, and whether it ought to receive wholly different tax treatment than monetary compensation. I say no, that a fair taxation policy ought to have parallel treatment for people in more or less parallel circumstances - a sort of "horizontal equity."

As I stated above -- I'm trying to set aside the exact specifics of these athletes, since I don't claim to have many details of how their contracts work or how this compesation is structured. I'm reacting mostly based on the predictable "those IRS fuckers" response that stories like this generally instigate. (Not to mention the fact that every time "those IRS fuckers" lose a case against a clever tax-dodger, it's your kids who end up paying for it)

[Tekneek]

If the tickets are printed with a price of $0 or COMP on them, do they have a dollar value?

Why do I have a problem with this? It is because I don't agree that income should be taxed anyway.

[sterlingice]

Not really. . .

http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000132----000-.html

Look in particular at IRC Sections 132 (a)(4) and (e)(1).

This gets more complicated, but rest assured that donuts are safe :D

Homer: Let the bears pay the bear tax. I pay the Homer tax.
Lisa: That's home-owner tax.
Homer: Well, anyway, I'm still outraged.

SI

[mgadfly]

If perks aren't going to be taxed I'll take a job with lots of perks and minimum wage. They could give me the perk of buying me a house, and a perk of purchasing me a big SUV, and the perk of delivering groceries to my house, and the perk of providing heat and electricity to my house.

Then they could provide me the perk of membership to the country club (I like to golf) and another perk of one of those big screen liquid crystal television sets. I'd then lower my pay demands considerably.

[MrBug708]

For Webber, who made about $16 million last season, the most that would have been withheld for free tickets would have been $13,815.90, based on the maximum income-tax rate of 35 percent and the average price of tickets as calculated by the Team Marketing Report.

Can't believe this was missed. They got more taken out for most fines than they do for this loss.

[rkmsuf]

Why would any team "give" tickets to players? That's insane to begin with.

I mean teams should make available good seats to player's peeps but they should be bought to begin with.

Utter nonsense in context with player salaries. It's ok for fans to pony up but no way the trillionaires have to.

F U Webber.

[Farrah Whitworth-Rahn]

I have no argument with exempting truly business-related expenses being covered without taxation. My argument, in the generic sense, is with the general concept of non-monetary compensation, and whether it ought to receive wholly different tax treatment than monetary compensation. I say no, that a fair taxation policy ought to have parallel treatment for people in more or less parallel circumstances - a sort of "horizontal equity."Horizontal equity is good in theory, but practically impossible to achieve in application. As I hopefully illustrated with my argument on those vehicle expenses - a good accountant can argue that it's not compensation to begin with, and therefore shouldn't even be subject to tax. Short of eliminating all but cash compensation, it seems impractical.

In any case, I don't think there is such a thing as non-monetary compensation, and so I don't think there should be a difference in the way it is treated for taxation purposes. There is a dollar value associated with everything employees are given. Whether it's the Diamondbacks tickets my firm gives me, or the low interest loans they offer for first home purchases. The face value of the tickets, or the difference between the market interest rate and the interest rate charged by my firm are easily identifiable, and therefore easily taxable. Nothing is truly non-monetary. When there is a dollar value established, it should be treated as cash compensation.

But again, all this goes back to the assumption that it's compensation in the first place. And my job is to make a strong, legal case that it is not.

EDIT: One more thing - fair taxation policy is all relative anyway. What's fair for me, may not be fair for you. :)

[ISiddiqui]

Well it's a good thing the NBA players have to pay for their own tickets. Its an interesting way to skate tax law (it's not income, it's free tickets, um... perks), but it wasn't going to fool the IRS for too long.

[Tekneek]

If perks aren't going to be taxed I'll take a job with lots of perks and minimum wage. They could give me the perk of buying me a house, and a perk of purchasing me a big SUV, and the perk of delivering groceries to my house, and the perk of providing heat and electricity to my house.

You need to get in good with a church. A kid I knew in high school lived on a church's property. His dad was the Pastor. Everything having to do with their house was done through the church. There were no taxes on it at all, and the family did not pay for the cable TV, phone, or utilities directly. The family van was owned by the church. According to them, this was not considered income although it all 'came with the job.'

[finkenst]

i do have a question about this:

So, i get taxed on my income (dollars only). I do not get taxed on my benefits which my employer figures up at another 25% of my wages.

What's your opinion on that part of total compensation?

[QuikSand]

What's your opinion on that part of total compensation?

In my judgment, the fairest system would be to say that it is all taxable income, and then the taxpayer should receive a complete deduction for any categories that we, through the policymaking process, determine ought to be tax-exempt. If we judge health care to be such a priority that it ought to have that status (and I'd have no quarrel with that judgment) then every dollar spent on your insurance premiums shoudl be tax-deductable. As a practical matter, it would work out to be the same thing -- except that we'd actually be deliberating what expenses are worthy of deductabilty, rather than essentially allowing employers to define what is a benefit, what is a work expense, and what is just a "perq."

[Easy Mac]

You need to get in good with a church. A kid I knew in high school lived on a church's property. His dad was the Pastor. Everything having to do with their house was done through the church. There were no taxes on it at all, and the family did not pay for the cable TV, phone, or utilities directly. The family van was owned by the church. According to them, this was not considered income although it all 'came with the job.'
I think parsonages are exempt from taxes and I think there are tax breaks for clergy. I know my family did not have to pay for our house, and I'm pretty sure my dad got a tax break. The church wasn't rich, so there was no van or utilities.

[Ksyrup]

Why would any team "give" tickets to players? That's insane to begin with.

I mean teams should make available good seats to player's peeps but they should be bought to begin with.

Utter nonsense in context with player salaries. It's ok for fans to pony up but no way the trillionaires have to.

F U Webber.

Randy Johnson's current contract gives him two courtside tickets for Phoenix Suns games through the 2010-11 season and six premium tickets for all Diamondbacks games starting with the first season of his retirement through 2010.

The DBacks still owe him these "perks," even though he's now a Yankee. I guess Georgie didn't like the idea of buying a guy's tickets to another team's games.

[kcchief19]

Horizontal equity is good in theory, but practically impossible to achieve in application. As I hopefully illustrated with my argument on those vehicle expenses - a good accountant can argue that it's not compensation to begin with, and therefore shouldn't even be subject to tax. Short of eliminating all but cash compensation, it seems impractical. This is covered in tax code as well. If a car is used in your job, your employer can provide you with a car. If you use a personal car, an employer can reimburse you at a set rate per mile (it was 37.5 cents, but I think it went up this year). If your employer does not reimburse you, you can take a deduction for business expenses. It is NOT salary or compensation -- it is a covered business expense. In my case, I receive a $200 car allowance, but I have to sign an IRS waiver that says I drove x number of miles in my car for business purposes during the year. If I do not sign it, the $200 allowance is considered salary. That has nothing to do with being a good accountant; it's the law in the tax code.

The reason why the tickets are now being taxed is that they always should have been taxed. The only way the tickets could ever be considered nontaxable is if they are a direct expense used in the course of business. I don't see how you could ever argue that free tickets that the referree himself does not use could be considered a deductible business expense. Especially since the IRS has already gone after the refs for selling the tickets above face value and failing to report the income, which is one reason this is coming up.

I agree that it isn't ideal. A couple of years ago, my employer had a trade account with AMC theaters and gave everyone in the company 50 movie tickets. On our next paycheck, we learned that we had to pay tax on $400 of income (50 tickets x $8, the highest price ticket AMC had). The tickets expired in two months and I had almost no time to go to the movies, so I got little benefit from them. I would have preferred the cash or no tickets at all, but that wasn't a choice.

It's not ideal, but the best solution is that if you don't want to pay the taxes, negotiate not to get the tickets.

[rkmsuf]

Randy Johnson's current contract gives him two courtside tickets for Phoenix Suns games through the 2010-11 season and six premium tickets for all Diamondbacks games starting with the first season of his retirement through 2010.

The DBacks still owe him these "perks," even though he's now a Yankee. I guess Georgie didn't like the idea of buying a guy's tickets to another team's games.

that's such nonsense; I can't even fathom that.

Provide availablity I can see. Footing the bill for a guy making 17 million is just priceless.