Congress, Taxes, & the NCAA
It seems Congress wants in on the college sports business. Currently, college athletic departments enjoy tax-exempt status for federal tax purposes. This means that your athletic department doesn't pay income taxes and those "contributions" you make to secure your right to purchase season tickets are 80% deductible.
This week, however, Congress sent Myles Brand a letter asking him to justify the tax exemption of college athletics given multi-million dollar coaching salaries and huge TV contracts. You can read analysis from the bloggers here or here. The consensus from tax experts seems to be that this is going nowhere. Congress won't yank the NCAA's tax-exempt status because 1) it will make to many people upset, 2) it is generally against the tax law and IRS precedent, and 3) even if Brand says college sports is unrelated to an educational purpose, the NCAA has a back up exemption category as it promotes amateur athletics. I agree with this analysis.
To me, it may be difficult to show that the revenues from college athletics are somehow unrelated to higher education (this would subject sports income to the dreaded unrelated business income tax). The players attend the school, provide needed exposure to higher education, arguable increase admission applications and alumni giving, and provide a competitive outlet for the physical education department. If the football team isn't related to the educational purposes of the college, how is the glee club? In essence, it is a slippery slope that should not just include athletics. The blatant fact of this investigation is that Congress is attacking college sports because it now thinks college sports make too much money, which is also likely false (outside of the national powers, most schools lose money on athletics as the New York Times constantly reminds me).
The intent of the unrelated business income tax is to avoid an unfair competitive advantage by one business because it is attached to a tax-exempt entity, thereby avoiding income tax, while the competitor ponies up to Uncle Sam. But who does the NCAA (or even a single school) compete against? Either no one in the case of the NCAA or another tax exempt entity in the case of a single school. There is no competitive advantage as a result of the tax-exempt status.
Lastly (I could literally go on for a day on this), even if the NCAA says that college sports are not related to the purposes of higher education, they are certainly related to the fostering of amateur athletics for national competition, another tax-exempt purpose.
This week, however, Congress sent Myles Brand a letter asking him to justify the tax exemption of college athletics given multi-million dollar coaching salaries and huge TV contracts. You can read analysis from the bloggers here or here. The consensus from tax experts seems to be that this is going nowhere. Congress won't yank the NCAA's tax-exempt status because 1) it will make to many people upset, 2) it is generally against the tax law and IRS precedent, and 3) even if Brand says college sports is unrelated to an educational purpose, the NCAA has a back up exemption category as it promotes amateur athletics. I agree with this analysis.
To me, it may be difficult to show that the revenues from college athletics are somehow unrelated to higher education (this would subject sports income to the dreaded unrelated business income tax). The players attend the school, provide needed exposure to higher education, arguable increase admission applications and alumni giving, and provide a competitive outlet for the physical education department. If the football team isn't related to the educational purposes of the college, how is the glee club? In essence, it is a slippery slope that should not just include athletics. The blatant fact of this investigation is that Congress is attacking college sports because it now thinks college sports make too much money, which is also likely false (outside of the national powers, most schools lose money on athletics as the New York Times constantly reminds me).
The intent of the unrelated business income tax is to avoid an unfair competitive advantage by one business because it is attached to a tax-exempt entity, thereby avoiding income tax, while the competitor ponies up to Uncle Sam. But who does the NCAA (or even a single school) compete against? Either no one in the case of the NCAA or another tax exempt entity in the case of a single school. There is no competitive advantage as a result of the tax-exempt status.
Lastly (I could literally go on for a day on this), even if the NCAA says that college sports are not related to the purposes of higher education, they are certainly related to the fostering of amateur athletics for national competition, another tax-exempt purpose.
I've rattled off enough tax law to put a normal person to sleep, so I'll shut up now.
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