According to the WSJ Law Blog, the common consensus is that Patriots coach Bill Belichick will be able to deduct his $500,000 cheating fine as an “ordinary and necessary business expense.” Hooray?
From the TaxProf Blog, where the question first arose:
If Bill were my client, I would advise him to claim the fine as a deduction subject to the 2% miscellaneous itemized deduction rules (under 162). A few considerations:
1. If it is ordinary and necessary, he may negotiate to turn the fine into his employer (the Pats) as an expense reimbursement under an accountable plan. I think Kraft would tell him to get out of his office, though.
2. It’s been reported Bill has an annual salary of about $5 million, so let’s use that as a rough approximation of AGI. Assuming no other miscellaneous itemized deductions subject to limit, that shaves $100,000 off his deduction right there, leaving him with $400,000.
3. The Pease phaseout will get him, as well. Assuming $5 million of AGI and $1 million of itemized deductions (about standard), the Pease phaseout will reduce his itemized deductions by $145,308. The pro-rated share (40%) of this assigned to the remainder of the fine is $58,123. That leaves him with $341,877 to deduct.
4. Assuming he is in the 35% bracket, the federal tax subsidy on this will be $119,657. The IRS will subsidize 24% of the Belichick fine.
For a nice roundup of tax professor’s opinions, check out this entry on the TaxProf blog. Too funny. We think we hear Mangini crying. Can Bill deduct the spy camera, too?
Can Patriots Coach Belichick Deduct His $500,000 Fine? [TaxProf Blog via WSJ Law Blog]