Athletes turn to pros to handle ‘jock taxes’

Income taxes for pro athletes are no easy layup.

Sacramento Bee

Moments after signing a National Basketball Association contract in 1997, Anthony Johnson knew what he wanted to do with his money.

The Sacramento Kings point guard interviewed several accounting firms and settled on one in his hometown of Charleston, S.C., opting to pay top dollar to keep him out of trouble with the Internal Revenue Service.

Even with a business administration degree, Johnson had no illusions of tackling the complicated nature of filing taxes as a professional athlete.

“It’s a lot of work, but fortunately for me, I pay them the big bucks to take care of all that and keep the IRS off my back,” Johnson said. “I know I would mess it up if it was all left up to me.”

That’s understandable considering professional athletes have one of the most complex tax returns. Even with the help of certified tax professionals, athletes aren’t immune to the anxiety felt by millions of Americans on tax day.

It’s not federal taxes that complicate the athletes’ returns; it’s the multistate filings that prove time-consuming.

Professional athletes are required to pay income taxes in every state and city that levies them where they earned a salary during away games. That means NBA and Major League Baseball players must file tax returns in dozens of states and several cities. In some jurisdictions, that includes practices, as well.

Each state determines taxable service performed, also known a “duty day.” The nonresident income tax, which is dubbed the “jock tax,” surfaced in the 1990s as a way for states to tap into the soaring paychecks of visiting professional athletes, said Ryan Losi, the executive vice president of Piascik Associates, an accounting and financial services firm in Virginia that works with professional athletes.

Losi said many believe “jock tax” enforcement began when California taxed Michael Jordan when the Chicago Bulls beat the Los Angeles Lakers in the 1991 NBA Finals.

Today, taxes generated in California from visiting athletes bring in an estimated $100 million each year, according to the state tax board. Though entertainers and corporate executives who travel extensively are subject to the same tax, athletes tend to bare the brunt of it nationally, Losi said.

“Athletes are generally going to have the attention focused on them because all of the information is so readily available and public information,” Losi said. “For instance, taxing authorities can go to the team’s Web site and see who played in what games and where the games were played.”

Which explains why many prominent athletes are subject to audits. Former San Francisco Giants slugger Barry Bonds was investigated for tax evasion, as was Pete Rose, baseball’s all-time hit leader who served five months in prison for not reporting earnings from memorabilia sales.

Bonds has not been charged with tax evasion; he has pleaded not guilty to perjury and obstruction of justice.

And the IRS investigations aren’t limited to athletes. The IRS told Golden State Warriors owner Chris Cohan last year that he owed $160 million in back income taxes and penalties from 1998.

Losi said he sees a fair amount of tax returns from athletes that were done incorrectly or were not filed in the various states they were required. Which is why Johnson said he doesn’t take the chance.

“I knew there were different things that you need to get in order before you start making the money you make in the NBA,” said Johnson, who also filed for his business, AJ Custom Doors and Windows. “I try to stay on top of things as much as possible. I keep everything in folders and cabinets.”

Kings forward Mikki Moore said he needed to file an extension to file past April 15 as he waits for his W-2 forms from the New Jersey Nets, with whom he played last season during the 2007 filing year.

Moore said his mother used to file his taxes for him.

“But it was overwhelming to her, so I had to get someone to come in,” Moore said. “I would do it myself, but I have to make sure they are done right, because if you don’t do your taxes, they will come get you.”