Tax Magic: Did Billy Donovan Pull Income Out of a Hat?

10 Pages Posted: 14 Jul 2007  

Jeffrey H. Kahn

Florida State University - College of Law

Joshua P. Fershee

West Virginia University - College of Law

Abstract

Billy Donovan is the men's head basketball coach at the University of Florida. Donovan agreed to become the new coach of the Orlando Magic, a professional basketball team and he signed a five-year, $27.5 million dollar contract with the Magic.

Almost immediately after signing the contract, Donovan had second thoughts about joining the Magic and leaving the University of Florida. After some negotiation, the two sides reached an agreement that allowed Donovan to walk away from the employment contract with the Magic and remain the head coach at the University of Florida. This article addresses the question of whether Donovan realized income from those transactions.

In examining the question of whether Donovan realized taxable income we will discuss the tax consequences of two possible circumstances. In the first circumstance, we assume that the Magic released Donovan without receiving any compensation from him. The second (and seemingly more accurate circumstance) assumes that the Magic, in exchange for releasing Donovan from the employment agreement, required as compensation his execution of the non-compete contract.

Keywords: Tax, Income, Donovan, Employment Contract, Non Compete

JEL Classification: H20, H24

Suggested Citation

Kahn, Jeffrey H. and Fershee, Joshua P., Tax Magic: Did Billy Donovan Pull Income Out of a Hat?. Tax Notes, Forthcoming. Available at SSRN: https://ssrn.com/abstract=999669

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

Joshua Paul Fershee

West Virginia University - College of Law ( email )

Box 6130
Morgantown, WV West Virginia 26506
United States
304-293-2868 (Phone)

HOME PAGE: http://law.wvu.edu/faculty/full_time_faculty/joshua-p-fershee

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