There can't be any way MLB would let them get away with that. The IRS certainly won't. That should be perfectly legal. Tanaka personally saves on taxes associated with the penthouse, but the Yankees would be on the hook for whatever taxes would be tied to it. So it's not like the IRS is missing out on anything, just getting it from the Yankees and not Tanaka. I would think housing arrangements similar to this aren't all that uncommon in sports. Then it has to count against the cap. There's a reason we don't see NFL and NBA players living in team-owned housing, driving team-owned cars, etc. I don't believe MLB's luxury tax rules are written badly enough to allow it. FWIW, this is very common in soccer in general, and with MLS in particular. Usually the low end earners end up living in apartments or condos subsidized and/or provided by the team. Its considered similar to how they look at a per diem.