On July 5, 2017, well-known boxer Floyd Mayweather filed a Tax Court petition seeking Collection Due Process (CDP) relief. Mr. Mayweather’s petition uses the Tax Court’s form petition and parts of the petition are handwritten. My clinic uses the form petition but most of our cases do not involve $22 million. The use of the petition for a case of this dollar amount shows the ability of the form to serve taxpayers at all ends of the income spectrum. The form gets the job done and wastes little energy.
The petition attaches the determination from Appeals as the instructions provide. The determination offers a couple of interesting side notes to discuss. First, the notice of determination sent to a taxpayer, like a statutory notice of deficiency, contains the Social Security Number of the petitioner. Petitioners receive instruction from the Tax Court in the form package to redact the SSN. The Court will get the SSN on the special form it has devised for that purpose and putting the SSN on that form keeps the number from the public eye. Leaving it on the determination letter without redacting it opens the petitioner up to things that happen when the SSN gets in the wrong hands. We try to be diligent in the clinic to find and redact the social security information of the taxpayer on every page of the notice we attach. Programs exists that will allow you to perform the redaction in a cleaner form than might be available if you just use a marker. Don’t miss this important step in filing a petition.
In addition to the redaction issue which is present in every case, the CDP notice of determination contains the misleading guidance on when to file the Tax Court petition that we have discussed previously. Carl Smith has carefully tracked Tax Court orders over the past two years. Because of his work, we know of seven cases in which the language in the CDP notice of determination has caused taxpayers to petition on the 31st day which has caused them to be dismissed for lack of jurisdiction. With Carl’s help, the Harvard clinic is litigating some of these cases and arguing that the notice has misled the petitioner in to filing late. We have blogged about this before. Look carefully at the wording in the second paragraph. The IRS should change this wording and avoid misleading taxpayers into losing their Tax Court opportunity.
Enough diversions, let’s talk about Mr. Mayweather’s little $22 million dollar problem.
Maybe you and I wish we earned enough to have a $22 million tax problem. It’s hard to imagine. We know the amount because the IRS filed a notice of federal tax lien (NFTL). The NFTL provides an exception to the normal rules regarding disclosure of a taxpayer’s information. In order for the IRS to protect and secure its interest in a delinquent taxpayer’s property, Congress authorized the IRS to make the liability public. When the IRS does file a NFTL against a celebrity, the news media usually picks it up and the celebrity is held up to a mild form of public shaming or at least notoriety. Several news outlets, here, here, here, and here together with many others did the honors in covering the NFTL filed against Mr. Mayweather.
In 2015, Mr. Mayweather made a lot of money in a fight. When a foreign fighter gets paid in the United States, 30% is paid to the IRS. When a US citizen fights, the fighter gets the entire purse with no withholding so it is up to the fighter to make the appropriate estimated payments. I presume that insufficient estimated payments were made on the $100 million paid to Mr. Mayweather for his fight in 2015, but I do not know that for certain. I am told that a fighter earns the money in one of these fights as soon as the opening bell rings and that the money is frequently paid on the night of the fight. The payments to Mr. Mayweather go to a corporation that he controls which would then distribute money to him. I am also told that someone from the IRS attends these major fights in an effort to ensure that the IRS gets its take from the purse. The fact that Mr. Mayweather does not seek to contest the liability in the CDP context suggests that he agrees with the amount. Now, the question is how will he pay the tax and what will the IRS do about it if he does not.
I assume without knowing that some breakdown in communication between Mr. Mayweather and the IRS may have occurred before the IRS sent the notice of intent to levy. It is also possibly based on their respective positions taken in the CDP case that what I am calling a breakdown was an offer from Mr. Mayweather to fully pay the liability with a short term installment agreement following certain liquidity events with the IRS rejecting that proposal and demanding immediate payment by liquidating assets or borrowing money. The notice of determination speaks only about sustaining the levy action and not about the NFTL. The newspaper stories would only know the amount of the liability because of the filing of a NFTL. I cannot tell why the NFTL was not a part of the CDP case.
With the focus on levy, the parties each took their respective corners in the CDP hearing. From the IRS corner came a pronunciation that Mr. Mayweather had sufficient income and equity in assets to fully satisfy the liability. From the Mayweather corner came the position that although he did have enough assets to satisfy the liability, it did not make financial sense to liquidate or borrow on those assets when he would soon have a liquidity event and was about to have another fight with a proposed payday that would more than satisfy the outstanding liability. The proposed purse for Mr. Mayweather from the upcoming fight is purported to be between $100 and $200 million. Mr. Mayweather offered to fully pay the liability with a short term installment agreement. Without knowing more, it’s hard for me to argue with the logic of a short delay in these circumstances.
In pre-CDP days, the IRS would simply have issued a levy on the fight promoter or whoever makes payment of the purse to the fighters after a fight. I doubt the Revenue Officer in pre-CDP days would have exhausted too much effort trying to persuade Mr. Mayweather to liquidate his assets because the RO could tie up the purse and doing so would solve the problem in the easiest, most efficient manner. Because the timing of the CDP notice and the upcoming fight allow Mr. Mayweather to keep the IRS from levying on the purse unless it can show jeopardy, the statute gives him the upper hand while the CDP matter awaits final disposition. By filing a relatively simple form (Form 12153) followed by the filing of the Tax Court petition (using the simple form provided by the Court), Mr. Mayweather wins this fight for the low cost of $60 and some attorney’s fees.
Unless the IRS wants to find that jeopardy exists, its hands are tied. The championship fight will occur even before the answer is due in the Tax Court CDP case. The Settlement Officer must have known this yet did not want to enter into an agreement allowing for a short term installment agreement. Now, Mr. Mayweather can make the installment payments he proposed while the CDP case is pending in Tax Court without having to pay the fee for an installment agreement. The savings in the installment agreement fee will more than make up for the $60 fee he paid to file his petition. I would like to know what the SO thought would happen with the issuance of this notice of determination. The taxpayer couched his request as a short term installment agreement. It sounds similar to a forbearance request because it essentially requests the IRS to wait to a date certain for full payment. A short term installment agreement or a forbearance request provides a type of resolution where the taxpayer has the ability to full pay upon the occurrence of an event sometime in the near future. The IRS gains little by forcing a taxpayer to sell or lien assets when a big payday is coming up. There may be more than meets the eye here but agreeing to take the taxes through a short term installment agreement seems in everyone’s interest.
Although the filing of the CDP petition essentially allows Mr. Mayweather to win this fight over the timing of the payment and structure the payment in a manner convenient to him, the IRS does not lose here if it gets the $22 million. I hope the purse is large enough to fully pay the 2015 liability and the tax on the new winnings. I wish Mr. Mayweather well in his upcoming fight with a person other than the tax man. If his tax issues cause him to want to assist others at a different end of the income spectrum in their fights with the tax man, I know a clinic willing to accept a share of the purse and put it to use providing representation.