Save the Gold Watch Receipt: An Analysis of the Gift Tax on Athlete Retirement Gifts

Abstract

The retirement of professional athletes is an emotional and complex decision for competitors who dedicate their lives to a particular sport. It is common for professional teams, leagues, and other athletes to celebrate the careers of stellar professional athletes with charitable gestures and gifts. However, these gifts can create a financial burden when one is required to pay the gift tax on the item’s value. The purpose of this study is to detail the rules, history, and application of Internal Revenue Code (IRC) Section (§) 102, which could tax athletes who give and receive gifts. Athletes should be cautious when giving gifts, as amounts exceeding the annual and lifetime exclusion limits can trigger the gift tax, causing future complications for decedents with the estate tax. Teams should also explicitly state their lack of a detached and disinterested generosity when honoring an athlete, as the gifts provided are considered taxable compensation.