Article | Tax Law
The NCAA and the IRS: Life at the Intersection of
College Sports and the Federal Income Tax
by Richard Schmalbeck* & Lawrence Zelenak†
From Vol. 92, No. 5 (July 2019)
92 S. Cal. L. Rev. 1087 (2019)
Keywords: Tax, NCAA, IRS, College Sports
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,1 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, college athletics have enjoyed unreasonably generous tax treatment—sometimes because of the failure of the IRS to enforce the tax laws enacted by Congress, and sometimes because Congress itself has conferred dubious tax benefits on college sports. Very recently, 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 to big-time college sports. It concludes that, even in the absence of any change in the unrelated business income statute, there is a strong argument that revenues from the televising of college sports should be subject to the unrelated business income 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 but that the IRS seems to have made a conscious decision not to enforce the law.
While the first two Parts of this Article address areas in which the traditional sweetheart arrangement between the IRS and the NCAA remains in effect, the final two Parts of this Article consider areas in which 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and basketball games and how Congress in 2017—to the surprise of many observers, including the authors of this article—repealed this special tax benefit. Finally, Part IV addresses issues of both statutory interpretation and policy raised by Congress’s creation, in 2017, of a twenty-one percent excise tax on at least some universities that were paying seven-figure salaries to their football and basketball coaches. This 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.
*. Simpson, Thacher, and Bartlett Professor of Law, Duke University School of Law.
†. Pamela B. Gann Professor of Law, Duke University School of Law. The authors are grateful to Katherine Pratt, Paul Haagen, Steven Willborn, Leandra Lederman, David Gamage and the participants in conferences and workshops at the law schools of New York University (the National Center for Law and Philanthropy), Northwestern University, Duke University, Indiana University, and Loyola (L.A.) University, and for the research assistance of Kevin Platt.