This post was originally published on Forbes Sep 1, 2015
The tax story in Billion Dollar Ball: A Journey Through the Big Money Culture of College Football by Gilbert Gaul is not even the most interesting part of the book. Still it is a great story.
If you live inside the bubble of college football, writing a large check to lock down a seat at your favorite college stadium and then getting to deduct 80 percent of the amount from your taxe s, feels normal. But if you happen to reside outside that zip code, the seat donation scheme probably feels strange, even wrong.
Taxpayer, an individual, made a payment of $300 to a particular athletic scholarship program maintained by a university, an organization described in section 170(c)(2) of the Code. This payment entitled the taxpayer to become a "member" of the program. The only benefit afforded members is that, for an additional $120, they are permitted to purchase a season ticket to the university's home football games, with preferred seating. Preferred seating means merely that the season ticket will be for a seat between the 40 yard lines. No tickets for seats between the 40 yard lines are available to nonmembers of the program. The $300 membership fee is paid annually, and a member is required to make a separate $300 payment for each season ticket the member purchases. There are approximately 2,000 people on the waiting list to become members, and a person is made a member only when a season ticket between the 40 yard lines becomes available.
such amount would be allowable as a deduction under this section but for the fact that the taxpayer receives (directly or indirectly) as a result of paying such amount the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution
Colombo's analysis indicates that there is not much the IRS can do under existing law to address the issues. It is important to keep in mind that many of the largest football programs are not even 501(c)(3) organizations, rather they are arms of state government, which raises touchy constitutional issues (Gaul notes that college football coaches are the highest paid public employees in virtually every state in the country).
... current law makes it virtually impossible for the IRS to withdraw exemption either from the NCAA or universities operating major athletic programs. It is somewhat more plausible that the IRS could tax revenues from Division I football and/or basketball under the UBIT, although even that course of action would have to scale considerable legal hurdles. Moreover, even if the IRS applied the UBIT to big-time athletic revenues, this course of action may not have much benefit to the reform movement. Evidence suggests that this action might be largely a “paper tiger” because virtually none of these programs would have taxable income in the tax accounting sense after applying appropriate tax accounting....
The regulations under Section 4958 make abundantly clear that (1) reasonable compensation is determined based upon an employee’s entire compensation package and that (2)the “reasonableness” of compensation is measured by what the market is paying for similar services including the for-profit market. Thus whether Nick Saban’s and John Calipari’s salaries are “reasonable” depends not only on the market for other Division I coaching jobs at similar high-profile football and basketball programs but also on what NFL and NBA coaches make.
Because the football schools now had to rely on women's rowing to offset their big numbers, part of the job description of rowing coaches was to effectively become used-car salesmen and meet a quota by producing enough bodies. ...... The coaches looked anywhere they might find a tall, rangy woman with a little muscle on her. And when they saw one, they shadowed her until the right moment. Then they leaped forward and made their pitch 'Hey, have you ever thought about women's rowing?