Major League Baseball star, Shohei Ohtani finds himself unwittingly thrust into a complex financial and legal controversy involving his former translator, Ippei Mizuhara. Mizuhara acknowledges an accumulated $4.5 million gambling debt, and alleges Ohtani willingly provided him funds to offset this amount. Ohtani refutes these claims, contending that Mizuhara illegally accessed his bank account to fulfil his debt obligations. In response to these allegations, the Los Angeles Dodgers terminated Mizuhara’s employment.
Both the MLB and IRS are actively scrutinizing this matter, an inquiry instigated by a combination of factors such as potential theft, illicit betting, possible money laundering and an involved high-profile figure. As of now, Ohtani is not the subject of any active investigation.
Considering potential tax implications arising from these circumstances, legislation requires income earned from gambling and theft to be taxable. Under current guidelines, the taxable amount from gambling is derived after deducting losses recorded up to the winning sum. Additionally, tax is also applied to theft-derived income after factoring in ordinary and necessary expenses connected to the theft.
Ohtani, as it appears, will not be able to deduct the theft amount from his income. Current tax laws implemented under the Tax Cuts and Jobs Act (TCJA), impose restrictions on personal theft loss deductions, only allowed if the theft is linked to a federally declared disaster. Furthermore, Ohtani’s substantial salary would subject him to the alternative minimum tax (AMT), which minimizes most taxable deductions.
Despite these federal restrictions, Ohtani may still claim a theft loss deduction from his California taxable income, demonstrating a distinct divergence between federal provisions under the TCJA and those under Californian law. He can find the necessary information here.
Assuming Ohtani opted to loan Mizuhara funds willingly, then Mizuhara is exempt from taxing on the loaned amount, and Ohtani cannot claim it as a deduction. If, however, Mizuhara defaults on repaying the loan completely, Ohtani is then entitled to claim a nonbusiness bad debt deduction which reflects as a short-term capital loss. This loss can be offset annually up to $3,000 of ordinary income, or be fully offset against any short-term capital gains.
Clearly, the evolving Ohtani situation presents numerous complexities. It remains to be seen whether these controversies will indeed translate into tax relief for the MLB player, and more importantly, whether they will affect his career in any significant way.
For more details on this ongoing situation, click here.