Hot on the heels of ESPN’s Outside the Lines “sources” that were in the same room as Texas A&M star quarterback Johnny Manziel when he signed a bunch of autographs for a guy, but never witnessed him accepting money for them, is a follow-up report by the Worldwide Leader that features a “prominent autograph broker on eBay” claiming that Manziel would no longer sign autographs for him “without compensation.” I have to admit, the accusatory statement of a guy of who received 250 free autographs from Manziel only to be told he wouldn’t be receiving free autographs anymore is pretty damning. Pretty damning indeed.
But while the theoretical and word-of-mouth evidence is stacked up against Manziel, I’m a little more interested in the facts and the real evidence that could deprive is of one of college football’s most exciting players this year. Like, for instance, the taxes that Manziel would have to pay on that alleged “five figure flat fee” that he received for signing all of those autographs at the BCS Championship Game.
Fortunately, Forbes staffer Kurt Badenhausen recruited pro athlete tax return specialist K. Sean Packard to break down the problems that Manziel faces from the U.S. Government if he’s guilty of taking cash for ‘graphs, and I don’t understand any of this at all.
“A man has a right in the publicity value of his photograph…” Or so said the Court of Appeals in Halean Laboratories v. Topps Chewing Gum, the landmark 1953 case recognizing a celebrity/athlete’s right to enter into exclusive contracts to profit from his image.
Unfortunately, the NCAA has determined that the only people able to profit from the images of college athletes are the NCAA, the conference and the college in which the athlete attends.
Here is where Johnny Manziel or Johnny Football—a trademark he cannot monetize until after his eligibility is exhausted—may be running into trouble. ESPN ’s Outside the Lines is reporting that Manziel received a “five-figure flat fee” to sign hundreds of pieces of memorabilia, over a thousand of which were later authenticated. If found guilty of these transgressions, Manziel could lose his eligibility at Texas A&M. There are also tax consequences involving multiple parties.
First, the obvious: Manziel must report the income he received as self-employment income on his tax return. He will pay both income and self-employment taxes on the fees he received for signing all the photos and other merchandise while in Miami for the BCS Championship Game.
If he can establish that the main purpose of his trip was to make money signing autographs, he could deduct a portion of his travel expenses to Florida, assuming he paid for the trip, but could not deduct the entire trip due to the personal pleasure he no-doubt enjoyed in Miami. If he supplied the Sharpie, he can deduct that too!
As a 20-year-old college student, Manziel is likely claimed by his parents as a dependent on their tax return. To be claimed as a qualifying child dependent, Manziel must meet five criteria: relationship, age, residency, support and “joint return.” He meets four of the five easily, but the support test is where it may get dicey for the Manziel family.
Luckily, the IRS provides some room here because his scholarship is ignored in determining who provides his support. But if the five-figure sum he was paid, in addition to other income sources, was enough to constitute over half of his support for the year, his parents would lose the $3,900 exemption, which he would then claim on his return.
The last person affected is the one who paid Manziel to sign the memorabilia. According to the OTL report, not long after the BCS championship game, eBay was flooded with the signed memorabilia, which will generate taxable income. Deductions against that income include eBay commissions, postage, the pictures themselves and authentication fees. But what if the NCAA investigation is not complete by the end of January and this person is trying to protect himself and Manziel from NCAA trouble by not issuing him a 1099 so Manziel does not have to report the income?
If this is the case, the payer cannot deduct the payment to Manziel because there is no paper trail. It was probably paid in cash and Manziel likely did not issue a receipt, so there would be no 1099 to provide the IRS with an income offset for the expense. Additionally, the IRS could hit the payer with a minimum $250 fine for intentionally disregarding the reporting requirements if it can show that his purpose for not issuing the 1099 was to protect himself and Manziel. And if he attempts to take a deduction he knows he cannot back up, he could be it with additional penalties and potentially tax fraud charges.
Although the NCAA is notorious for dragging its feet, the investigation will likely be complete by January when Manziel is expected to declare for the NFL draft and can cash in on the Johnny Football moniker. With the investigation complete, Manziel will hopefully not complicate his troubles by filing a tax return with improper information.
Many athletes have run into trouble with the IRS for failure to report income related to signing autographs. Pete Rose and Darryl Strawberry were both convicted of tax evasion around signing memorabilia. Rose was sentenced to five months in prison in 1990, while Straw drew six months of home confinement when he plead guilty in 1995.
Soooooooooo… is Manziel going to play or is he gonna be in prison or something like that? Why does everything have to have so many words and be so smart all the time?