Major league baseball imposes a "luxury tax" on teams whose payrolls exceed $189 million per year. The Dodgers are such a team, spending more than $274 million on player payroll this year.
It remains to be seen whether fielding a team that requires paying the luxury tax penalty will enable the Dodgers to win their first World Series since 1988. (As of today, they are tied at one game apiece in the National League Championship Series with the Chicago Cubs.)
In this post, let's look at a different type of tax penalty involving baseball: the litigation by former Red Sox slugger Mo Vaughn against the IRS.
In 2004, Vaughn hired a company to handle his finances and his tax returns. That company filed returns for him from 2004 to 2006, but did not pay his taxes for 2006. And in 2007, the company didn't file Vaughn's taxes and didn't pay them either.
Vaughn took back control of his financial management in 2008. Analyzing his statements, he realized the owner of the company he had hired had been embezzling money from him. After suing the company and its owner, Vaughn obtained court judgments against them.
But what about the late filing penalties that the IRS imposed for the two years that the company failed to file Vaughn's taxes? Vaughn took the IRS to court, contending that the penalties should be removed because his tax preparer's fraud gave him "reasonable cause" not to file.
The case went up to the Sixth U.S. Court of Appeals. Citing a 1985 U.S. Supreme Court case called United States v. Boyle, the Sixth Circuit held that reliance on an agent does not relieve a taxpayer of the responsibility to file and pay taxes in a timely manner.