Deducting Disciplinary Fines as a Business Expense
In case you haven’t heard, New England Patriots coach Bill Belichick was recently fined $500k by the NFL after his staff was caught videotaping the New York Jets’ defensive signals for future reference. What’s particularly interesting about this case is that according to a variety of tax experts, Belichick might be able to deduct the $500k fine as a business expense..
Apparently, this issue turns (at least in part) on whether or not Belichik broke the law, as fines paid to the government for a violation of the law cannot be deducted. Short of that, “ordinary and necessary” business expenses are deductible.
According to Myron Grauer of the Capital University Law School, the fine is deductible because it’s an “ordinary” expense:
“…in this day and age, it probably is ‘ordinary’ for coaches and players in professional sports to cheat and, if caught, to be fined by the league, the fine levied on the Patriots’ coach can be viewed as an ordinary and necessary business expense.”
Mike McIntyre of Wayne State University went on to argue that:
“The fine was for violating a rule, not for cheating. No professional football game is played without someone breaking the rules. It is expected that people will break the rules.”
Of course, the issue of whether or not Belichick’s actions were “ordinary and necessary” for an NFL coach is debatable. In fact, if we go too far down that road, college football coaches would be allowed to deduct money that they pay to prized recruits to get them to commit to their school. Sure, it’s against NCAA rules, but if it’s not illegal, and if everyone is doing it, then it’s ordinary and necessary… Right?
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Filed under: Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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September 25th, 2007 at 9:32 am
“The fine was for violating a rule, not for cheating. No professional football game is played without someone breaking the rules. It is expected that people will break the rules.â€
Yup. And therein lies the reason I don’t attend professional sporting events or watch them on television. Ugh! What nasty people! Who wants to watch a bunch of crooks and thugs chase each other or a ball around a court or a field? And for heaven’s sake, why PAY to watch them?
September 25th, 2007 at 12:21 pm
This probably is another case of the law protecting only the rich. It’s interesting that videotaping is against the rules but if someone just sat there and wrote it down, it probably wouldn’t be a problem.
September 26th, 2007 at 11:12 am
I’d think of it more as a dock in pay than a fine. I’m sure he isn’t writing a check for the amount. It will more likely be deducted from future paychecks. As such, it is purely an in-house transaction, implemented by the employer, not a law-enforcement agency, so the law regarding deducting legal fines does not apply. It’s more like being docked for being late to work–you are not breaking a law, just a company policy.
As for the colleges compensating players, technically YES you should deduct that, just as the player receiving it should declare it as income! Thus such schemes can be construed as breaking the law–tax law.
October 7th, 2007 at 2:04 pm
So I wonder… would this apply to all players, coaches, athletes owners, etc. fined for arguing, getting tossed from a game, etc? If so, I think that is good news for Mark Cuban.