Sep 26, 2014 - 10:15am

Should Derek Jeter Cry Foul Over Gift Tax Rules?


Digital Content Intern, U.S. Chamber of Commerce

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Derek Jeter is facing a $16,000 tax bill on gifts.
Derek Jeter is facing a $16,000 tax bill on gifts.
Derek Jeter is facing a $16,000 tax bill on gifts.
Photo: Jin Lee/Bloomberg

There are two things to be learned from Derek Jeter’s retirement: that the United States has a very complex tax code and that free gifts aren’t always free.

The 40-year-old New York Yankee shortstop is retiring this week, and has been on a sort-of “farewell tour.” During his “farewell tour“ he’s received countless gifts from other ball clubs including custom cowboy boots, golf clubs, kayaks, guitars, autographed  jerseys from opposing players, trips, wine, and even a seat from Seattle’s Kingdome.

But as Forbes and other publications have asked: Are such gifts taxable? It depends. According to the IRS, in order for an item to qualify as “gift,” you must first look at the givers actual intention. In other words, your gifts despite being given with pure admiration and respect only count as tax-free gift when given strictly with “detached and disinterested generosity.”

If the nature of the gift is marketing or it is made in the business environment, for publicity, or in expectation of something in return, the receiver will be expected to pay taxes. Why? Because the IRS states those gifts have a “double intention.” So be careful—unwrapping that gift may result in an unforeseen tax bill.

To be fair, the tax code does account for gifts from bosses and employers. Bosses can give employees tax-free gifts such as the “occasional doughnut and coffee,” the “occasional tickets for entertaining events,” and  holiday gifts (that don’t exceed $100).

At the end of the season, according to the Bleacher Report, the New York Yankee star will owe about $16,000 in state and federal taxes on the gifts. To prevent these payments, Jeter could have run the risk of upsetting his friends and fans, and denied the gifts. A more cordial and non-taxable option would have been to ask for any gifts to have been donated to his charity, the Turn 2 Foundation (as the New York Daily News and MLB Commissioner Bud Selig did).

This isn’t Jeter’s first run in with the tax man. Back in 2007, Jeter was accused of cheating New York out of millions in taxes by claiming he lived in Florida when he really was living it up in Manhattan. In 2012, he was hit with a $265,000 tax bill for his $12 million mega-mansion in Tampa, after not paying the proper amount in 2011.

Nevertheless, Derek Jeter’s gift tax troubles show that without a good understanding of our tax code, many every day decisions can have costly results for individuals and businesses. 

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About the Author

Digital Content Intern, U.S. Chamber of Commerce