Can Shohei Ohtani’s Gambling And Theft Controversy Provide Him With Tax Relief?

// During an interview last week, Shohei Ohtani’s English translator, Ippei Mizuhara, said that he had accrued $4.5 million in gambling debt and that Ohtani had offered to loan him the money to pay it.

A few days later, the Los Angeles Dodgers fired Mizuhara. Ohtani then made a statement claiming that Mizuhara stole the money by accessing his bank account and transferring the money to a bookie. He also denies that he was involved in gambling of any kind.

googletag.cmd.push( function() { // Display ad. googletag.display( "div-id-for-top-300x250" ); });

The MLB announced that an investigation is going on to determine whether any improper sports betting has occurred.

Sponsored How Generative AI Will Improve Legal Service Delivery Learn how emerging tools will likely change and enhance the work of lawyers for years to come in this new report. From Thomson Reuters  

In addition, the IRS’s Criminal Investigation Division in Los Angeles has confirmed that they are investigating Mizuhara and his bookie. Ohtani is not being investigated.

So why is the IRS investigating them? There are several red flags that may have sparked IRS interest. First is theft. Generally, thieves do not report their theft income even though they are required to do so. Second is gambling. A lot of sports betting is done underground with cash, so winners may prefer to hide their money instead of reporting it for tax purposes. Sometimes gambling can be a front for money laundering. Lastly, a lot of money and a celebrity are involved.

googletag.cmd.push( function() { // Display ad. googletag.display( "div-id-for-middle-300x250" ); }); googletag.cmd.push( function() { // Display ad. googletag.display( "div-id-for-storycontent-440x100" ); }); googletag.cmd.push( function() { // Display ad. googletag.display( "div-id-for-in-story-youtube-1x1" ); });

The IRS also tends to announce significant investigations and criminal convictions close to the tax return deadline of April 15 in hopes that it will make people think twice about deliberately falsifying or omitting information on their tax returns.

The Department of Justice’s Tax Division will decide whether to indict Mizuhara and his bookie for any tax crimes. But this will take some time because the investigation is ongoing and the case must go through several departments at the IRS and the Department of Justice before a decision is made. Generally, tax crime prosecutions are rare, but their conviction rate is over 90%.

Sponsored Sponsored This AI-Powered Document Tool Will Meet You Where You Are Lexis Create provides simple access to internal and external knowledge — directly within Microsoft Word. From Ethan Beberness   Sponsored Early Adopters Of Legal AI Gaining Competitive Edge In Marketplace How to best leverage generative AI as an early adopter with ethical use. From LexisNexis   Sponsored How Generative AI Will Improve Legal Service Delivery Learn how emerging tools will likely change and enhance the work of lawyers for years to come in this new report. From Thomson Reuters   Sponsored Early Adopters Of Legal AI Gaining Competitive Edge In Marketplace How to best leverage generative AI as an early adopter with ethical use. From LexisNexis  

Generally, gambling income is taxable after deducting gambling losses only up to the amount of the winnings. If there are excess losses, they cannot be used to offset other income, nor can they be carried forward or backwards to other years.

As mentioned earlier, income from theft is also subject to income tax reduced by any ordinary and necessary expenses connected to the theft.

Can Ohtani deduct the amount of the theft from his income? Unfortunately, no. This theft appears to be a personal loss and not connected to his work as a professional baseball player. The Tax Cuts and Jobs Act (TCJA) has severely limited personal theft loss deductions from 2018 to 2025. To qualify for the theft loss, the theft must be connected to a federally declared disaster.

googletag.cmd.push( function() { // Display ad. googletag.display( "div-id-for-bottom-300x250" ); });

Even if Ohtani could take the theft loss deduction, his large salary would have subjected him to the alternative minimum tax (AMT) which adds back most itemized deductions to taxable income.

However, he may be able to claim a theft loss deduction from his California taxable income as California tax law does not conform with the TJCA limitation on theft losses.

Sponsored Sponsored Legal AI: 3 Steps Law Firms Should Take Now If 2023 introduced legal professionals to generative AI, then 2024 will be when law firms start adapting to utilize it. Things are moving fast, so… From LexisNexis   Sponsored Profit Powerhouse: Elevating Law Firm Financial Performance In this CLE-eligible webinar on April 10th, we’ll explore the most common accounting pitfalls and how to avoid them for your firm. From Pilot and Above The Law  

If Mizuhara’s story is correct and Ohtani willingly loaned him the money, this money is not taxable income to Mizuhara, and Ohtani cannot claim a deduction. But if Mizuhara is unable to pay back the entire amount loaned, then Ohtani can claim a nonbusiness bad debt deduction which will be treated as a short-term capital loss. This loss can offset up to $3,000 of ordinary income every year although it can fully offset any short-term capital gains.

This story has a lot of twists and turns with many unanswered questions. But given the stakes involved, including a possible lifetime ban if Ohtani is found to be gambling, taxes should be the least of his worries.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

Topics

Baseball, Gambling, Ippei Mizuhara, Shohei Ohtani, Tax Law