The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax

Abstract

Few organizational acronyms are more familiar to Americans than those of the National Collegiate Athletic Association (NCAA) and the Internal Revenue Service (IRS). Although neither organization is particularly popular, both loom large in American life and popular culture. Because there is a tax aspect to just about everything, it should come as no surprise that the domains of the NCAA and the IRS overlap in a number of ways. For many decades, the strong tendency in those areas has been for college athletics to enjoy unreasonably generous tax treatment-sometimes because of the failure of the IRS to enforce the tax laws enacted by Congress, sometimes because Congress itself has conferred dubious tax benefits on college sports. In just the past year, however, there have been signs of what may be a major attitudinal shift on the part of Congress-although so far there have been no signs of a corresponding change at the IRS. This article offers an in-depth look at the history and current status of four areas of intersection between the federal tax laws and college sports. Part I considers the possible application of the tax on unrelated business income (UBI) to big-time college sports. It concludes that, even in the absence of any change in the statute, there is a strong argument that revenues from the televising of college sports should be subject to the UBI tax. Part II examines the tax status of athletic scholarships. It explains that athletic scholarships as currently structured are taxable under the terms of the Internal Revenue Code, and that the IRS seems to have made a conscious decision not to enforce the law. While the first two parts of the article address areas where the traditional sweetheart arrangement between the IRS and the NCAA remains in effect, the final two parts of the article consider areas where Congress has very recently intervened to increase the tax burden on college athletics. Part III describes how Congress, three decades ago, explicitly permitted taxpayers to claim charitable deductions for most of the cost of season tickets to college football and basketball games, and how Congress in 2017 to the surprise of many observers, including the authors of this article-repealed that special tax benefit. Finally, Part IV addresses issues of both statutory interpretation and policy raised by Congress's creation, in 2017, of a 21 percent excise tax on at least some universities paying seven-figure salaries to their football and basketball coaches. The article's conclusion suggests the IRS should follow the lead of Congress, and reconsider the administrative favoritism toward college sports described in Parts I and II.