In addition to facing so-called “jock taxes in multiple states [160 Daily Tax Report H-1, 8/19/14], professional athletes face another challenge: audits. Changes to federal returns often require corresponding modifications to state returns, which could be a significant compliance hurdle given the number of jurisdictions in which most professional athletes perform. The complexity of this task increases even more when accounting for the different rules states use to attribute athletes’ income to their jurisdiction.
At the federal level, the IRS audits individuals with high adjusted gross income (AGI) more frequently than average taxpayers. According to the 2013 IRS Data Book, less than one percent of all returns are subject to audit. But that number increases to nine percent for returns with AGI between $1 million and $5 million, nearly 16 percent for AGI between $5 million and $10 million, and over 24 percent for returns with AGI over $10 million.
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