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Fighting His Way Out of IRS Penalties. Literally.

BoxingIRS penalties and fees have caused a fair amount of consternation among taxpayers in the past, but in what might be a bout for the record books, we could witness the first time a taxpayer literally fights to pay what they owe and reduce penalties.

Floyd Mayweather, widely regarded as one of boxing’s greatest, apparently owes the IRS unpaid 2015 taxes. The boxer’s recent tax court petition seeking an installment agreement with the IRS might represent his first foray into the super heavyweight category.

Mayweather’s 2015 fight against Manny Pacquiao reportedly earned him as much as $220 million, and likely represents a significant portion of his income to which the taxes are due. The $22 million Mayweather reportedly owes is tiny relative to his estimated net worth, but net worth doesn’t need to be liquid. And as penalties and interest accrue over time, it’s a safe wager the bill could amount to a knock-out blow.

The boxer has requested in his petition that the IRS await payment until his August 26 fight with Conor McGregor, which he claims will provide the liquidity he needs to meet his tax obligation: the fighter’s guaranteed purse from the 2015 Pacquiao fight was $100 million, and his upcoming fight with McGregor is expected to earn him a similar amount. Again, keep in mind, that’s the guaranteed purse—win or lose. The final amount to the winner is a composite of various factors that could boost Mayweather’s take as high as $400 million.

The IRS, on the other hand, holds that Mayweather’s substantial estate (reportedly including a garage filled with about $15 million in cars) could liquidate assets or apply for a loan to pay the back taxes and penalties immediately.

Mr. Mayweather has done some—let’s call it “creative”—bobbing and weaving when it comes to taxes. In 2014, he visited a strip club, where he dropped a reported $20,000 cash on exotic dancers, and then proceeded to 1099 the club for the amount. While this is something the IRS would probably appreciate, it’s not exactly what one might term a common occurrence.

In the meantime, should the IRS grant Mr. Mayweather’s request for an installment plan prior to the McGregor fight, he will have to provide them with information on all his available assets, which includes homes, cars, jewelry and a host of other items against which the IRS could place a lien as a hedge against potential nonpayment of the installments. Additionally, they will demand information on all outstanding debts and a statement of monthly necessary living expenses. The IRS will use Mr. Mayweather’s list of necessary expenses (tips to exotic dancers surely fail to meet the standard) to help determine how to craft his installments so as not to interfere with the necessities of life (mortgage, food, transportation, etc.), but also to make certain that Mr. Mayweather does not attempt to reduce his installment amounts by claiming unnecessary expenses (see the aforementioned tips).

Even if Mr. Mayweather’s request is granted, he will continue to accrue penalties and interest on the unpaid balance until it is paid in full. The penalties generally amount to 0.5% of tax not paid by due date on the return (reflected in the notice) —generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy.

It seems likely, however, that the tax court petition is a delay tactic. By the time the court has a chance to hear the case and make a ruling, Mr. Mayweather will probably have had his payday from his upcoming fight and made payment in full, averting a lien action.

IRS payment agreements can be complex, even for clients who don’t climb into the ring, then climb back out with a few hundred million dollars. For guidance that can save your clients time and money, be sure to check out the AICPA Tax Section’s dedicated IRS Collections Guidance and Resources page.

Adam Eric Junkroski, Lead Manager­, Communications, Tax, PFP, S&C — Public Accounting, Association of International Certified Professional Accountants

Boxing courtesy of Shutterstock

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