This post was originally published on Forbes Feb 19, 2015
The Tom Brady/Malcolm Butler Super Bowl truck grabbed the attention of the tax blogosphere with a strength not seen since the revelations about Anietra Hamper's undergarment decisions. I resist piling on to these things, unless I have something different to offer so I was going to let the story pass. One of my sources reached out to me, though, and indicated there were tax aspects of this affair that had not been properly plumbed. Since this matter is about as important as the NFL's tax exemption, I just had to jump in. Hopefully this will be the final word on Chevytruckgate.
Not A Lot Of Sports Talk In Oxford MA Accounting Office
One of the things that I don't miss now that I am no longer part of a large of firm is sports talk. I work in an office in the basement of my condo with my covivant, who is one of the few people in the United States who knows less about sports than I do. We had a tradition the last couple of years of watching the Superbowl at a a friends house, but we skipped it this year. CV is convinced that the event is scripted like professional wrestling. From what I heard about the last one, I think she may be on to something. Anyway it turns out that the big play at the end has created some tax talk. I thought it was all over and that Kelly Phillips Erb, Robert Wood and Ryan Ellis had amply covered this pressing topic, but then I heard from Brent Lipschultz. I'll give you just a little background. If you are a normal American you can probably skip the next two paragraphs, but you have to remember there are tax geeks that are like CV. The only reason she knew about the Superbowl before I told her about it is that her kids grew up in Massachusetts and are Patriots fans.
The Super Bowl is the biggest deal in American football, which is not very much like what the rest of the world calls football. We call that soccer, but never mind. The Suprerbowl is the final post-season game. The team that wins it is the champion. The Superbowl has begun to take on religious significance. Evidence of this is that it is about the only thing left that we still use Roman numbers for. The one we just had was XLIX, which probably confuses the hell out of a lot of people. It looks like the NFL may give up on the Roman numbers next year. We have not had a one letter Superbowl in 40 years and the NFL's decision may rob us of that.
Anyway the main way to get points in the game is to get an odd shaped ball across a line. You can have somebody carry the ball across the line or you can have one of your guys, the quarterback, throw the ball to somebody who is already over the line or who carries it over the line after catching it. The risk with the latter course is that one of the guys on the other team might catch the ball. Then it is their ball and they will start trying to get it across a line at the other end of the field, so they can score points. Or if it is late in the game and they are ahead, they can just more or less sit on the ball while time runs out.
So what happened on February 1 was that the New England Patriots were ahead by 4 points, but with very little time left the Seahawks had the ball very close to the magic line which would get them 6 points. Pete Carroll, the Seahawks coach decided that the ball should be thrown and sure enough it was caught by Patriot Malcolm Butler rather than whoever on the Seahawks was supposed to catch it. There are some people who are awful mad at Pete Carroll, but that's the sport story. The tax story is about Tom Brady, the Patriot's quarterback.
Tom Brady was deemed to be the most valuable player. Because he was the most valuable player Chevrolet was going to give him a truck. But Tom Brady thought that the truck should go to Malcolm Butler, who made the big play that saved the Patriot's lead.
Tom Brady's generosity sent the tax blogosphere into a tizzy. Holy smokes. Tom Brady is going to have to pay income taxes on the value of the truck and then he will have to either pay gift tax or eat into his unified credit on the value of the truck less the annual exclusion. That's what had everybody excited. But it seems like there was a happy ending. Chevrolet gave the truck directly to Malcolm Butler. According to this story
Shortly after being awarded a 2015 Chevy Colorado for winning Super Bowl 49 MVP honors, the Patriots quarterback said he wanted to give the vehicle to Butler, who sealed the victory with a late interception.
However, if Brady had gifted the truck to Butler, the signal-caller would've been hit with some hefty taxes (which he could clearly pay with no problem, but that's beside the point).
To save Brady from having to pay the levy, Chevy stepped in and gave the car directly to Butler on Tuesday.
Not So Fast
Brent Lipschultz is a partner in the Personal Wealth Advisory Practice of EisnerAmper. EisnerAmper is a top 20 accounting firm, so there are a lot more guys to talk about football with.
EisnerAmper represents a lot of athletes so they can probably talk about football and have a plausible argument that they are not goofing off. Here is an article they wrote about the tax implications of the game the rest of the world calls football. Anyway, Brent thinks that the arrangement of having Chevrolet give the truck directly to Malcolm Butler does not generate the happy tax result that has been ascribed to it.
He believes, and I think that he has a good point, that Brady was in constructive receipt of that truck, the moment he was named MVP. There is a concept called "assignment of income", which is something that you are not supposed to do.
Brent pointed me to a Tax Court decision involving Paul Hornung, who was a big time football player when I was a kid who got a Corvette from Sport Magazine in 1962. He tried to exclude it entirely as a gift, which did not work, since the magazine was not acting from detached generosity. The constructive receipt issue in the case was about whether he should have picked up the income in 1961 (He got the award on December 31) or 1962 when he picked up the car.
The Tax Court ended up ruling the latter, so the case does not really support Brent's argument that well. I still thing he is right though. In Revenue Ruling 58-235 when the executive director of a tax exempt organization appeared in a quiz show and directed the prize go to the organization, he was still taxed on it. There is also case law about lottery tickets that indicate you can't shift income after the drawing.
Now as a practical matter, if Chevrolet issues the 1099 to Malcolm Butler, who dutifully reports the income, that will probably be the end of the story. But what if Brady catches the Agent From Hell. AFH will have read all these stories and will be all over the issue. Of course it is not like it is that much money to Brady, but there is a principle involved. Wouldn't it be good if there were a fallback position? Well there is and I'll have to take the blame for this one, although I can't say for sure that some other tax blogger has not thought of it.
The Brady Brand
According to Forbes (And how could you do better?) Tom Brady gets about $7 million a year in endorsement income. Like I have said my knowledge of sports is subpar for an American male, but there is one thing that I have picked up. Part of Tom Brady's image, or you might say his brand, is that he is a "There is no I in team" type of guy. I was way too preoccupied with the repair regs and Kent Hovind to pay much attention to Deflategate, but I don't think that it could have helped the Brady brand. So this class act with the truck might have been just the uptick his image needed. That's the story I would have ready for AFH. Passing up that Chevy truck for a teammate was a shrewd move to keep the endorsements coming. But there is more.
Maybe Tom Brady is still loyal to the Dodge Dart and showing up at Chevy dealership, even to pick up a free truck, would be an embarrassment.
I don't know if that's the case, but if I was representing Tom Brady at an audit by the Agent From Hell, I think I could convince myself.