Twins suing IRSover payments to players

by Paul Markgraff

The Minnesota Twins just can’t seem to catch a break in the Twin Cities. St. Paul citizens voted against their new stadium, game attendance has decreased in recent years, and the team’s rank among baseball’s elite has been nonexistent for some time.
Now, the team has Uncle Sam to deal with.
The Minnesota Twins and MTI Partnership, LLP, a general partner acting on behalf of the team, are suing the Internal Revenue Service for $185,000, the amount of money the IRS owes the team, according to the lawsuit.
Seem complicated? It is.
During the years 1986 to 1988, many Major League Baseball clubs tried to stop free agents from leaving their teams by “depressing salary levels, the levels of other contract benefits.” They also discontinued special promises baseball teams make to players to ensure they’ll be on the field opening day. These actions violated a contract drawn up to allow free agents more access to other teams around the league.
In the end, all teams guilty of these infractions were forced to compensate their players because, according to the arbitrator, “the violation of the Union Contract resulted in the players as a whole suffering damages in the 1986, 1987 and 1988 baseball seasons.”
The Twins compensated players affected by their actions.
In total, the Twins organization compensated 41 players for the damages they sustained between 1986 and 1988. The team paid out $4,695,281 in non-interest, monetary damages and $1,106,785.74 in interest on the monetary damages to the players.
In a private letter ruling made in 1995 by the IRS, they found that, “the interest portion of the Settlement Payments is not wages subject to federal employment taxes,” but that, “the non-interest portion of the Settlement Payments is wages subject to federal employment taxes.” The Twins are arguing that the non-interest part is not wages subject to taxes.
What’s more is that the IRS did not use the tax scales for 1986 to 1988 to decide how much the Twins owed it. Instead, the IRS used tax scales for 1994 to 1997 to decide how much the Twins owed. The team is also challenging that ruling.
Karen Bailey, spokeswoman for the United States Attorneys Office, said that the matter is still under litigation and she could not comment on it.
Charles Schreffler, attorney for the Twins, said it would be like a large tax refund.
“Our position is these are taxes which the Twins have paid but shouldn’t have paid,” he said. “This has proceeded through the normal channels which include appealing administratively to the IRS to get a refund. And if those administrative appeals are denied, then the next step is to file a lawsuit which is what we’ve done.”