Los Angeles Dodgers superstar Shohei Ohtani may have to wait years to find out if he can deduct the $16 million his translator allegedly stole to fund a multimillion-dollar gambling habit.
When Ohtani migrated across Los Angeles this offseason and signed a $700 million contract with the Dodgers, he probably bet that he wouldn’t be the subject of any larger news story than the record-setting deal.
Perhaps “bet” is an ironic word choice, because that’s just what Ohtani’s translator, Ippei Mizuhara, is accused of stealing from his boss to do.
Federal prosecutors in Los Angeles filed a criminal complaint, based on an affidavit from an IRS Criminal Investigation division special agent, against Mizuhara on April 11. The former translator is accused of stealing $16 million from the account where Ohtani had his salary from the Los Angeles Angels deposited.
Mizuhara allegedly paid for his losses out of Ohtani’s bank account but had the winnings deposited into his own personal account. In the complaint, the special agent described the contents of text exchanges between Mizuhara and various bookmakers, including one in which the bookie complained that the translator wasn’t returning calls accompanied by an ominous reference to watching Ohtani walk a dog.
According to the complaint, Mizuhara placed 19,000 bets from late 2021 through early 2024, averaging 25 wagers per day. He won $142 million but lost on $183 million worth of bets, leaving a $40.6 million hole, according to the allegations. He’s also accused of using Ohtani’s money to buy $325,000 worth of memorabilia, including copies of his boss’s trading cards, on eBay.
Before the criminal complaint was filed, there had been some concern in the baseball world that Mizuhara was simply a front for Ohtani betting on sports. However, the affidavit closes with a text exchange in which the bookie posits that reports of theft weren’t true but the translator responded, “Technically I did steal from him.”
Mizuhara now faces federal bank fraud charges, but questions remain about any potential tax consequences for the two men.
Can Ohtani deduct the theft loss? Should Mizuhara pay taxes on his alleged $142 million of gambling wins, and what is the effect of the accompanying $183 million in gambling losses? Does he owe taxes on the $16 million he allegedly stole? And are criminal tax charges in the offing?
Stealing First
Section 165(c)(3) and (e) allows taxpayers to take deductions for theft losses in the year of discovery or later. That means Ohtani wouldn’t have to revisit his 2021 and 2022 tax returns or worry about the tax result on his 2023 tax return (assuming he filed for an extension).
However, there are at least two other issues to address before Ohtani could deduct any of the allegedly stolen money.
First, section 165 theft loss deductions require proof of some sort of theft. Mizuhara’s text message acknowledging the theft might make that fairly straightforward, especially if he pleads guilty or is convicted.
More notably, taxpayers cannot take section 165 theft loss deductions until they have exhausted reasonable prospects of recovery. The possibility of criminal restitution along with any separate suit against Mizuhara could delay any claim Ohtani might have for a theft loss deduction for years.
Ohtani’s Dodgers contract, $700 million for 10 years of play, includes an eye-catching deferral that could complicate his preference for when he might be able to take any possible theft loss deduction. He’s only getting $2 million per year for 10 years with the rest delayed, so he might want some portion of the $16 million deduction to come later.
Larry A. Campagna of Chamberlain, Hrdlicka, White, Williams & Aughtry told Tax Notes that even if Mizuhara’s criminal case proceeds, it could complicate any bid by Ohtani to delay a theft loss deduction.
The problem for Ohtani is that it might be clear already that Mizuhara can’t pay back the $16 million, according to Campagna. That might mean that there’s no reasonable prospect of recovery for at least part of that loss already, he said.
According to the complaint, Mizuhara’s net gambling losses exceeded $40 million. He allegedly stole only $16 million from Ohtani, and some text messages imply the bookies were hounding the translator for money. In other words, there might not be much blood to get from that stone.
What if Ohtani has a claim against some sort of insurance policy?
Campagna said that question raises the issue of who hired Mizuhara, Ohtani or the Angels and Dodgers. If there’s some claim against the team, that might be a bigger pocket with some prospect of recovery, he speculated.
Alyssa Maloof Whatley of the Law Offices of Alyssa Maloof Whatley suggested that Mizuhara might have had some sort of fiduciary responsibility toward Ohtani that could also support a suit that might be a reasonable prospect of recovery. She also questioned whether the translator has much money for repayment.
Ian M. Comisky of Fox Rothschild LLP highlighted the potential effect of a criminal restitution order against Mizuhara on Ohtani’s ability to claim a theft loss deduction. Such an award, or a separate suit to collect, would be a prospect of recovery, he said.
At that point it would be a judgment call, starting with the tax return preparer, as to whether that prospect of recovery is reasonable, Comisky said.
The deferred payments in Ohtani’s contract with the Dodgers might not put the pitcher in a rush to claim the deduction, Comisky said. The IRS often challenges the year of a theft loss, so Ohtani might want to file protective claims in multiple years, he added.
TCJA’s on Second
Ohtani would face another wrinkle if he wants to claim a theft loss deduction, at least before 2026. The Tax Cuts and Jobs Act narrowed casualty losses, including theft loss claims, in section 165(h)(5). That provision restricts casualty loss deductions from 2018 through 2025 to only those taxpayers in federally declared disaster areas or to the extent of casualty gains.
The 2025 debate over whether to extend the expiring TCJA provisions and, if so, which ones, is already being called the “Super Bowl of Tax.”
If the TCJA restrictions in section 165(h)(5) expire, Ohtani could be happy if he is unable to prove that there’s no prospect of recovery of some portion of what Mizuhara allegedly stole before 2026.
“It is unfortunate circumstances, and maybe inequitable in this case, where we have people that are getting scammed with no recourse or no options when it comes to tax because of the Tax Cuts and Jobs Act removal of personal and casualty losses except for federally declared disaster zones,” Whatley said. “Whether it’s a professional baseball player who got scammed out of $16 million, or a lot of my older clients that have been scammed out of their retirement proceeds in fake investment scams with crypto, what remains is not a good way to deal with these problems.”
Sometimes the tax law doesn’t keep up with reality, Whatley said.
Before the TCJA, taxpayers usually wanted to accelerate casualty and theft loss deductions, Campagna noted. It’s fair to predict that Mizuhara’s criminal case won’t be resolved overnight, but it’s uncertain if it could be pushed past 2025, he said, adding that an extension is still possible.
Betting on Third
Ohtani isn’t the only one who might care about the TCJA extension. A provision restricting gambling losses could affect Mizuhara as well.
Normally, under section 165(d) amateur gamblers have to basket their gambling activity, meaning gambling losses are allowed only to the extent of gambling wins. And those gambling losses are taken as itemized deductions incompatible with the standard deduction.
Before the TCJA, professional gamblers could take gambling losses greater than gambling wins and could deduct other expenses, all on Schedule C. The TCJA imposed basketing on professional gamblers, restricting all losses to offsetting only gambling gains. That provision also expires after 2025.
While the TCJA removed most of the benefit of professional gambling, Mizuhara may still have wagering tax questions when it comes time to substantiate the losses he would use to offset his gains.
Gamblers don’t always have to assign each bet to each win in order to compute their gambling gains and losses. Often, especially with table and slots play, they can track gains and losses using a per-session method, although the IRS generally cuts off gamblers’ sessions at 24 hours.
Mizuhara might have trouble using a session method because the IRS guidance is generally focused on play at casinos or racetracks, rather than sports betting.
Campagna noted that the IRS’s positions on play sessions aren’t particularly compatible with sports betting.
However, the online sports book Mizuhara gambled at, while illegal, may have substantial records of his activity, Campagna said.
Whatley noted that gambling can be addictive and addicted gamblers are much less likely than professional players to keep records the IRS would consider adequate. Addicted gamblers generally aren’t operating in the logical frame of mind most conducive to meticulous recordkeeping, she said.
Bryan Camp of Texas Tech University School of Law floated an idea on an April 16 webcast sponsored by the American Bar Association Section of Taxation that might help Mizuhara.
A legislative clarification of the concept of a gambling session would make many taxpayers’ lives easier, Camp said. His proposal would add “wagering gain” to the definition of income and then define the term to net all gambling gains and losses over the course of a tax year, he said.
Thus, each year would be its own gambling session. with only one net gain to pay taxes on or one net loss for amateur gamblers (and professional gamblers before 2026) to ignore.
Comisky suggested another complication for Mizuhara, returning to the prospect of a restitution order: deducting litigation payments to the government under section 162(f).
The TCJA tightened the section 162(f) restrictions on deducting settlements and penalties paid to a government. However, it left in place an exception for amounts paid as restitution, remediation, or to come into compliance with the law.
An order requiring Mizuhara to repay Ohtani sounds like it would clearly fit that exception, Comisky said. There would then be the question of what income Mizuhara would have to offset with a deduction arising from those future payments, he added.
Not Safe at Home
The last two issues for Mizuhara could be the simplest.
The taxability of illegally obtained income is well established — just ask Al Capone. So Mizuhara should have tax liability for the $16 million he allegedly stole.
However, unlike Capone, Mizuhara might not have to worry about criminal tax charges, according to Campagna.
While the tax community has long known that illegal income is taxable, that might be one area where Mizuhara could claim ignorance of the law to some benefit. Because criminal tax charges generally require proof of a “voluntary, intentional violation of a known legal duty,” it might be hard to convict Mizuhara of a tax crime if he can show he didn't know he had a legal duty to pay taxes on illegal income.
The government might have an easier time asserting a criminal tax charge if it has separate evidence of dishonesty, like lying to accountants or investigators, Campagna said.
Counsel for Mizuhara declined to comment, and Ohtani’s attorneys didn’t respond to a request for comment.