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Will the Tax Man Cometh to Coach Rodriguez?

6 Pages Posted: 23 Nov 2009 Last revised: 15 Dec 2009

Douglas A. Kahn

University of Michigan Law School

Jeffrey H. Kahn

Florida State University - College of Law

Date Written: August 4, 2008

Abstract

When Richard Rodriguez moved from West Virginia University to the University of Michigan. Coach Rodriguez had a contract with his former employer that required him to pay $4 million dollars to West Virginia if he left for another coaching position. After a suit was filed, it was reported that the parties agreed that the $4 million dollars will be paid to West Virginia, of which Rodriguez will pay $1.5 million dollars in installments, and the University of Michigan (his new employer) will pay the remaining $2.5 million. How tax law applies to that buyout and whether Coach Rodriguez will incur federal income tax liability because of Michigan’s payment of $2.5 million are interesting questions. Simply put, will Michigan’s payment of 62.5 percent of the buyout obligation cause the taxman to cometh to Coach Rodriguez?

We conclude that a payment of a buyout fee to terminate an employment contract is a deductible expense, and that the employee does not incur income tax liability when the new employer pays all or part of his buyout obligation.

Keywords: Taxation, Employment, Termination, Buyout, Rodriguez, Coach

JEL Classification: H20, H24, H25

Suggested Citation

Kahn, Douglas A. and Kahn, Jeffrey H., Will the Tax Man Cometh to Coach Rodriguez? (August 4, 2008). Tax Notes, Vol. 120, No. 5, pp. 274-278, 2008; U of Michigan Public Law Working Paper No. 175. Available at SSRN: https://ssrn.com/abstract=1510385

Douglas A. Kahn

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4043 (Phone)

Jeffrey H. Kahn (Contact Author)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

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