By: Leandra Lederman
On February 14, the Indiana University Maurer School of Law’s Tax Policy Colloquium hosted Larry Zelenak from Duke University School of Law. Larry presented his fun new paper, co-authored with his colleague Rich Schmalbeck, “The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax.” Larry really hit this one out of the park, with a crowd that was nearly standing-room-only! Larry also hosted a terrific Valentine’s evening event, “Tax Sitcom Night,” featuring three classic sitcom episodes in which couples encounter the federal income tax together. I’ll discuss each of these briefly in this blog post.
Larry and Rich’s paper argues that the IRS has not done as much as Congress to cut back on “unreasonably generous tax treatment” of college athletics. The paper covers four principal topics, which Larry explained was a combination of Rich’s work on two issues and Larry’s on the other two. The four topics are:
- The possible application of the unrelated business income tax to college sports;
- the federal income tax treatment of athletic scholarships;
- the recently changed tax treatment of charitable deductions for most of the cost of season tickets to college ball games; and
- the new 21% excise tax of IRC § 4960 on compensation in excess of $1 million on certain employees of tax-exempt organizations.
Each of these topics is interesting in its own right, and together they make a strong case that the IRS, and Congress at times, have tilted the playing field in favor of college athletics at the expense of protection of the federal fisc. I won’t give a play-by-play of these four issues here, as the paper does a great job of it and is available on SSRN, but I will mention a couple of highlights.
In the discussion of issue 2 (the treatment of athletic scholarships under IRC § 117), the paper discusses the history of Rev. Rul. 77-263, which is the most recent guidance on this issue. The facts the Revenue Ruling sets for include “Once an athletic scholarship is awarded for a given academic year, it cannot be terminated in the event the student cannot participate in the athletic program, either because of injury or the student’s unilateral decision not to participate, and the student is not required to engage in any other activities in lieu of participation in a sport.” The paper points out that shortly before the IRS issued this ruling, the NCAA had revised its rules to allow schools to cancel scholarships at the end of the current term (semester or quarter) for athletes who chose not to participate. This does not appear to have been known to the IRS, and the paper argues that this NCAA rule change “made the Ruling factually obsolete from the day it was issued.” (p.53) Of course, schools can choose to be more generous than the minimum NCAA requirements. A student attendee at the Colloquium told the group that Indiana University (IU) has a Student Athlete Bill of Rights that is more generous, which appears to make it a trailblazer. However, it appears that an IU athlete can lose a scholarship for voluntary nonparticipation. The bill of rights includes the statement that “Scholarship terms will not be reduced because of a student-athlete’s injury, illness, or physical or mental condition nor on the basis of a student-athlete’s ability, performance, or contribution to the team’s success.” This does not seem to encompass voluntary quitting.
The second issue I’ll tackle is the paper’s conclusion that “Two provisions of the Tax Cuts and Jobs Act of 2017—the elimination of the charitable donation for ticket purchases, and the excise tax on seven-figure coaches salaries—indicate that Congress has had second thoughts about the sweetheart deal traditionally afforded college sports by the tax system.” (pp.90-91) I’m not sure I would generalize from two changes made in the same law, especially when they were made as part of the 2017 Act. That law was expensive, and because of the Byrd Rule, involved a search for pay-fors that included a number of small revenue raisers. These provision may also reflect some anti-education sentiment. At the time IRC § 117(d) (exclusion of tuition waivers) was up for repeal, which led to protests and ultimately was retained. A provision that did pass, as the paper notes, is the 1.4% tax on net investment income on the endowments of certain private colleges and universities in new IRC § 4968.
As mentioned above, Larry kept the ball rolling after his presentation by running Tax Sitcom Night. This was the second time Larry has hosted an event like this at IU. The first one was in 2012 and covered working-class sitcoms. This IU event is modeled after Tax Movie Night, which I attended at least once at NYU when I was there for other reasons. It’s a whole lot of fun. And scholarly, of course! I recommend Larry’s article collecting numerous sitcoms with tax-related episodes, “From the Great Gildersleeve to Homer Simpson: Six Decades of the Federal Income Tax in Sitcoms,” 117 Tax Notes 1265 (2007) (paywalled).
Maurer’s Valentine’s Day tax sitcom event featured episodes from “Occasional Wife” (That’s How They Got Capone); “The Odd Couple” (The Ides of April); and “Roseanne” (April Fools Day). All of these episodes involve couples, although, as Larry pointed out, only the couple in Roseanne are actually married. All three episodes were very good, and had some particularly funny moments for tax lawyers. Some of the best moments were the “return signing party” the employer held at the office in Occasional Wife (complete with “party pens”)—not much privacy there!—and the IRS agent in The Odd Couple who remembered that on Oscar’s returns years earlier, he was married!
“Occasional Wife” is worth a bit of further discussion because it’s something of a historic relic. The tax episode, like most of its episodes, is not available online. (The pilot can be found here.) It was cancelled after just one season (perhaps because, as Larry noted, it was one of the first sitcoms not to have a laugh track?). The basic premise as described in the opening credits, was that the leading man Peter’s boss “believe[s] in married executives. No marriage, no promotion.” So, Peter put Greta, a hat-check girl, “on salary” and set her up in an apartment two floors above his, so she could run down the fire escape, showing up as needed to fool Peter’s boss. The problem Peter runs into in episode 12 is that his boss has hired an accountant to prepare all of the employees’ tax returns and Peter is caught between the prospect of committing tax fraud or his boss finding out that he’s actually not married. It’s fun and farcical, and it even had a sports connection: “The sitcom’s uncredited narrator was the well-known sports announcer Vin Scully.”
My own Valentine, Nick Cole, who probably knows more about pop culture than anyone else I know, joined us for the discussion after the sitcoms. He recalled that the mid-‘90s TV show “Ned and Stacey,” starring Thomas Haden Church and a pre-“Will & Grace” Debra Messing (which he and I had both liked), also featured a man whose boss will only promote married men. (I’ll leave the employment law issues here to others.) In Ned and Stacey, however, the couple actually does get married (a marriage of convenience—Stacey wants to move out of her parents’ house). I found this blog post comparing Ned and Stacey and Occasional Wife (although, fair warning, its author seems to hate Ned and Stacey).
Thank you again to Larry for coming to Bloomington for a double-header: a home run of a talk and a delightful Tax Sitcom Night!
The Surly Subgroup 