Aroldis Chapman and the taxman
With less than a week remaining in 2009, it seems unlikely that Cuban free agent pitcher Aroldis Chapman will agree to a deal with a team and be able to receive his bonus prior to the end of the year, which would have unfortunate tax implications for the phenom.
By signing in 2010, Chapman's bonus will now be eligible to be taxed by the U.S. government.
"Signing bonuses that are received outside the U.S., by a non-U.S. resident, and in a tax year in which the person did not work in the U.S., are not subject to U.S. taxation," wrote agent Joe Kehoskie, who has represented Cuban players for several years, in an email. "As far as I'm aware, neither the Hendricks brothers nor Rodney Fernandez (who represent Chapman) have ever completed a contract for a foreign free agent, so I bet this issue flew right under their radar. Right now, it's shaping up as a $3 million (or more) loss for Chapman.
"For most players, the net effect is that they pay 20% or 25% in taxes at home instead of 35% or 40% in total state and federal taxes in the U.S.," Kehoskie added. "Thus, it can be a nice savings, but it's not a windfall for the average player from Latin America. For Chapman, however, his residency in tax-free Andorra could have resulted in several million dollars in tax savings -- savings that, with 2010 only days away, now seem all but lost."
Shrewd representatives of teenage July 2 prospects from Latin American usually don't have their players participate in any games in the United States in the same year they sign for the specific reason of avoiding paying taxes on their bonus. For example, Michael Ynoa, who received a record $4.25 million bonus from the Oakland A's in 2008 did not participate in a professional game in the U.S. until 2009. Miguel Angel Sano, who received a $3.15 million bonus this year from the Minnesota Twins, won't make his debut until next year.