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Boxer Throws in Towel on IRS Deficiency Notice

Posted on Jan. 20, 2023

Boxing champion Floyd Mayweather peacefully resolved a Tax Court case by conceding that he owes the IRS an extra $5.6 million in taxes because of a disallowed flow-through deduction for legal expenses.

The parties agreed that he must pay the IRS an income tax deficiency of $5,549,675 and a section 6662(a) penalty of $1,109,935 for tax year 2017, according to a January 18 stipulated decision entered by Tax Court Judge Emin Toro in Mayweather v. Commissioner.

Mayweather, who is frequently ranked as one of the highest-paid athletes in the world, founded his own boxing promotional firm, Mayweather Promotions LLC, in 2006. The firm is a Nevada limited liability company that elected S corporation status.

In his May 2022 Tax Court petition, Mayweather contested an IRS deficiency notice asserting that his income tax liability for tax year 2017 was $58,630,758 rather than the $53,081,083 he reported on his 2017 Form 1040. The $5,549,675 underpayment resulted from the IRS’s disallowance of a $14 million deduction that Mayweather claimed on his Schedule E for legal expenses incurred by Mayweather Promotions. The notice further asserted that Mayweather was liable for a penalty of $1,109,935.

According to the IRS’s explanation of adjustments — a complete copy of which was included as an attachment to the agency’s June 2022 answer — the deduction was disallowed because Mayweather hadn’t established that the expenses were incurred or paid during the 2017 tax year or that any amount qualifies as legal expenses under the tax code.

The petition disputed that contention, arguing that “the taxpayer was involved in multi-year business litigation and incurred business expenses related to such litigation. The taxpayer deducted the expenses in the 2017 tax year and should be allowed a deduction under IRC Section 162(a) as ordinary and necessary business expenses.”

A trial was scheduled for May 1 in Las Vegas, but that was rendered moot by the parties’ settlement.

Asked why Mayweather conceded the deficiency and penalty amounts in full, his attorney, Jeffrey A. Morse, said in a January 19 email to Tax Notes that “the only issue in the case was in which year the deduction was allowable, 2017 or 2018. The taxpayer has amicably resolved the issue with the IRS.”

Mayweather has butted heads with the IRS on previous occasions. He filed a Tax Court petition in July 2017 asking that the agency grant him a reprieve on his unpaid 2015 taxes until after his August 2017 fight against mixed martial artist Conor McGregor. The outcome of that case is unknown because the docket (Dkt. No. 14462-17L) is sealed.

Another Tax Court case, filed in 2013 (Dkt. No. 29461-13), resulted in an August 2016 stipulated decision that Mayweather owed the IRS $1,627,563 for tax year 2006 but was off the hook on penalties.

The case is Mayweather v. Commissioner, Tax Court Dkt. No. 10353-22.

Subject Areas / Tax Topics
Magazine Citation
Tax Notes Federal, Jan. 23, 2023, p. 611
178 Tax Notes Federal 611 (Jan. 23, 2023)
Institutional Authors
Tax Analysts
Tax Analysts Document Number
DOC 2023-1729
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