Can Williams get a tax break for her tirade?

It was the tirade heard 'round the tennis world.

U.S. Open Champion Serena Williams, in the midst of defending her titled against the unseeded, unranked Kim Clijsters, faulted on her serve in the second set. On the second serve, Williams was called for a foot fault (which replays indicated might not have been the proper call), making it a double-fault. The double-fault changed the entire game.

Williams went back to serve again -- and didn't. Instead, she stopped and walked over to the line judge, shouting at her, cursing and waving her racket and ball. Williams allegedly threatened the line judge, screaming, "I swear to God I'm f****** going to take this f****** ball and shove it down your f****** throat, you hear that? I swear to God."

The line judge, whose name has been withheld by the USTA, then went over to the chair umpire. After a conversation, the chair umpire awarded a penalty point to Clijsters, which ended the game.

The outburst initially resulted in a $10,000 onsite fine from the U.S. Tennis Association (USTA) for Williams' bad behavior. It was the maximum onsite penalty that could have been imposed.

There was a sense at the time that the matter was far from over. This week, that turned out to be true. The USTA considered Williams' conduct a second time because it happened at a Grand Slam tournament. On Saturday, the Grand Slam committee agreed with the findings that Williams violated the "major offense" rule for "aggravated behavior."

As a result, Williams was hit with the highest possible fine: a $175,000 penalty if Williams violates probation. The $10,000 onsite fine has been credited toward the overall amount, leaving her with a potential penalty of $165,000. As part of her punishment, she must pay half, or $82,500, immediately She then faces a "probationary period" at Grand Slam tournament games in 2010 and 2011. If she has another "major offense" at a Grand Slam tournament in that time, she must pay the balance of the fine and would be barred from participating in the following U.S. Open.

The fine is a pretty big bite of the $350,000 that Williams earned by making it to the U.S. Open semifinals. It is, however, just a tiny portion (about 1%) of the more than $6.5 million in prize money that she claimed in 2009. So, kind of the equivalent of a hefty speeding ticket for you and I.

Williams has since apologized for the incident, claiming that it won't happen again. It certainly felt out of character for her. But if the behavior was really out of the bounds of what is acceptable in the sport, does that mean that she has to eat the entire fine -- with no tax deduction?

Here's where I'm going with this: it's clear that you can't deduct fines, fees or penalties paid to the government for breaking the law. According to 26 USC Sec 162(f): No deduction shall be allowed under subsection (a) for any fine or similar penalty paid to a government for the violation of any law. But then, the USTA isn't the government.

So, might Williams deduct the fine as a business expense? To be considered a bona fide business expense under 26 USC Sec 162(a), the expense must be "ordinary and necessary... in carrying on any trade or business." Her "business" is of course, the business of being Serena, tennis player extraordinaire.

Is this fine ordinary and necessary?

Serena has long been considered the more polished of the two Williams' sisters and not known for outbursts during matches. She is well on her way to a permanent spot in tennis history as one of the greats, having won more Grand Slam titles than any other female player playing today and more career prize money than any other female athlete in history. This behavior is clearly out of the ordinary for her - and quite frankly, out of the ordinary for tennis players as a whole. While players and coaches in other sports constantly rack up penalties and fines (Bill Belichick, anyone?), tennis players have long been the exception to the rule. In fact, it's been noted that the Williams' fine is twice as much as the previous record for a tennis fine - that one was imposed on Jeff Tarango nearly 15 years ago.

Of course, the argument for the deduction would center not so much on the amount of the fine as the fact that there was a fine. Again, as tennis players go, I don't think that penalties and fines are all that ordinary. But if you consider Williams' profession as "sports athlete" as opposed to "tennis player", I think you're opening the door for the idea that it could be an ordinary expense. After all, an ordinary expense is one that is "common and accepted in your trade or business" - and I think we're pretty much at the point where fines are common and accepted in professional sports whether we like it or not.

Which brings us to the second part of the equation: is the fine necessary? A necessary expense is one that is "helpful and appropriate for your trade or business." I don't think this qualifies as either. In the Belichick matter, the argument was made that the fine was related to conduct which helped the Patriots win -- in that case, the fine could have been considered necessary.

But in this instance, the action giving rise to the fine didn't help Williams win -- in fact, it did exactly the opposite. Indeed, the only argument that I can see supporting the "necessary" premise is that the actual payment of the fine is necessary for Williams to continue to play in the US Open and that is, I think, tenuous at best.

But it all might not matter in the long run, anyway. You see, assuming that the fine does qualify as a miscellaneous business expense, it would be subject to the 2% limitation for those expenses, meaning that Williams could only deduct the amount of those expenses exceeding 2% of her adjusted gross income (AGI). Her prize money alone -- not counting endorsements -- for 2009 was $6.5 million. If you assume that her AGI is somewhere around $10 million (and I think that number is probably low), then she could only deduct those miscellaneous business expenses which exceed 2% of that, or $200,000. That means she'll need another $117,500 in fines (or other miscellaneous business expenses) before she can start benefiting from those deductions.

It's an interesting question for Williams and her tax team. But it's an even more interesting question, I think, from a tax policy standpoint. Assuming that she is allowed to claim the deduction -- and that's a big assumption -- is it good policy? Should professional athletes be allowed to claim tax deductions for fines and penalties related to breaking the rules?