Are James Harrison's Punishable Hits "Ordinary and Necessary?"

 
 
November 10, 2010

For those of you who read this blog and also follow the NFL, you'll know that Pittsburgh Steelers Linebacker James Harrison has been involved in some controversy with the league front office this year regarding his being fined for various on-the-field plays the league has deemed dirty or dangerous. If you ask Steelers Head Coach Mike Tomlin, he has said that despite the fines, he does not want his players to change their approach on the field because doing so would make them less productive. In a sense, although he would never say it so bluntly, one could say that Tomlin believes that Harrison's occasional dangerous plays are "ordinary and necessary" for him to do his job.

But what does this have to do with tax policy? It turns out that according to IRS guidelines, if such fines are "ordinary and necessary expenses" for an NFL player like Harrison to do his job, then Harrison would be able to deduct those fines from his income for federal income tax purposes. If the fines aren't "ordinary and necessary," they would not be deductible. The IRS is currently in a dispute with Lakers forward Lamar Odom over his seeking to deduct the fines he has paid to the league front office for his actions.

This Forbes article has more.

The 6-foot-10 Odom,  an important cog in the Lakers'  two-seasons-in-a-row championship performance, filed suit in U.S. Tax Court to fight an IRS bill for $87,000 over his taxes for 2007.  That includes $9,000 in interest. However, unlike many IRS efforts to collect money, the bill did not include a claim for accuracy-related penalties. This might mean the agency sees his case somewhat less harshly than others it duns.

A college dropout, Odom  is representing himself without a lawyer. In his personally signed pleading, filed at the court's Washington, D.C. office on October 25, Odom disputed a bill that the IRS sent him in August. "The taxpayer claimed $12,000 of employee business expenses for fines that were assessed by the National Basketball Association," he declared, writing in the third person. "These fines are commonly assessed on professional athletes and are work related. Therefore the fines incurred are ordinary and necessary employee business expense." The petition, which listed his address as an agent's office in Los Angeles, offered no details about the nature of transgressions leading to the fines.

One point I would make in the case of Odom is that if complaining to the referee actually works (and I think it does...just ask his teammate Kobe Bryant) or yelling at another player to intimidate him or engaging in some violent activity makes you more competitive as other players are scared of you (ask NHL players about this), many fines may actually be ordinary and necessary employee expenses.

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