What if Joe Louis Had a Good Tax Adviser?

Small mistakes can cost you big.

That's what famous heavyweight boxing champion Joe Louis found out the hard way.

Louis earned big money boxing during the time of WWII. In fact, he earned over $370,000 in his first two years as a professional boxer. That's equal to over six million dollars in 2015 dollars.

Louis was a stand-up guy and was generous with his money:

• He voluntarily paid back all the welfare payments his stepfather had received during the depression.
• He bought uniforms for some black army officers.
• After the bombing of Pearl Harbor he donated his entire winnings from a fight to the Naval Relief Fund, then the winnings from another fight to the Army Relief Fund, and more.

But something else was going on while Louis was punching his way to prosperity: Uncle Sam was busy raising income tax rates on Americans like Louis. When he first started his boxing career, the top marginal income tax rate was only 24%. By the time he started making serious money the top rate had jumped to 79%.

That's right, Louis had to fork over 79% of his winnings to Uncle Sam. But it only gets worse. During WWII the tax rate jumped to 90%. And, it gets even worse.

The IRS would not let Louis deduct the winnings he donated to the Naval and Army Relief Funds because he endorsed the check in his own name before donating the money. He had receipt of the funds so they became income to him.

Interest and penalties on Louis' IRS debt were so high that he was never able to pay it. He died broke. That's the short version of the story.

William N. Goodman, CPA of Easton Pennsylvania wrote up an eye-opening and very sad account of the IRS's persecution of Joe Louis.

If only Louis had the advice of a good tax adviser his life could have been completely different.