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NFLPA Concerned about Bonuses and U.S. Tax Code Section 409A

By Rick Karcher, Michael McCann, Geoffrey Rapp, Greg Skidmore, and Howard Wasserman

a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://1.bp.blogspot.com/_zGTe5MsCVYc/SUqBOKpUuOI/AAAAAAAAA0E/GTQFFbugrZc/s1600-h/Tax+Code.jpg"img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 200px; height: 266px;" src="http://1.bp.blogspot.com/_zGTe5MsCVYc/SUqBOKpUuOI/AAAAAAAAA0E/GTQFFbugrZc/s320/Tax+Code.jpg" alt="" id="BLOGGER_PHOTO_ID_5281175593421158626" border="0" //aAaron Zelinksy of Yale Law School and a href="http://www.huffingtonpost.com/aaron-zelinsky"The Huffington Post/a passes along a link to a a href="http://www.benefitscounsel.com/archives/001980.html"story/a on Janell Grenier's Benefits Blog, which excerpts a a href="http://www.nationalfootballpost.com/2008/12/monday-money-matters-15/"story/a from Andrew Brandt on The National Football Post:br /br /div style="text-align: center;"* * *br //divp/pblockquotepEven though 409A has been around now for three years, employers continue to be surprised at the implications, as evidenced by a href="http://www.nationalfootballpost.com/2008/12/monday-money-matters-15/" target="_blank"this story/a:br //ppNFL agents were sent an urgent memo this week from the NFLPA, requiring immediate attention to Federal Tax Code 409A. This provision, originally aimed at bloated executive compensation packages, potentially calls for a full tax burden on signing bonuses and future guaranteed money in the year the package is negotiated, even if the money is deferred over several years. This would have dramatic ramifications. /ppVirtually every signing bonus of any significance in an NFL contract is paid out over a period of at least a couple of years. For instance, if an NFL player signed a contract in March 2008 with an $8M bonus, payment terms of that bonus might have looked something like this:/p p$2M upon execution of the contract;br /$2M in October 2008;br /$1M in both March and October 2009;br /$1M in both March and October 2010. /p pSome teams have more deferrals than others, but the amount of deferral is usually not a sticking point in negotiations with agents, as the money is guaranteed. . . /p pThe NFLPA was clear about the importance of this provision in its memo to all agents: ?This memorandum identifies an extremely important tax issue that may affect your player-clients and requires your immediate attention. The NFL has just informed the NFLPA that NFL clubs did not draft or amend many NFL player contracts in order to bring them into compliance with Section 409A of the Internal Revenue Code. As a result, many player contracts that include certain deferred compensation arrangements may not comply with the new tax provisions, thereby resulting in accelerated taxable income and/or an additional 20% tax, imposed on the player-client, unless the contracts are amended on or before December 31, 2008.?/p/blockquotep /pdiv style="text-align: center;"* * *br //divbr /For other Sports Law Blog posts on tax law, click a href="http://www.google.com/search?q=taxamp;btnG=Google+Searchamp;domains=http%3A%2F%2Fsports-law.blogspot.comamp;sitesearch=http%3A%2F%2Fsports-law.blogspot.com"here/a. For a post on the potential sports-related implications of President-elect Obama's tax plan (which calls for an increase in the top marginal tax rate from 35 percent to 39.6 percent), click a href="http://sports-law.blogspot.com/2008/11/will-likely-increase-in-marginal-tax.html"here/a.

Full post as published by Sports Law Blog on December 18, 2008 (boomark / email).