Guest editorial -- Funding future hinges on skybox tax ruling
By Sheldon Elliot Steinbach
American Council on Education
A pending Internal Revenue Service determination could have a dramatic impact on the fiscal structure and economic vitality of 21st century Division I athletics and could do serious damage to fund-raising for numerous athletics departments.
The IRS is questioning whether a donor can deduct his or her gift to a university athletics program as a charitable contribution because the donor received in return priority rights for seating in a skybox rather than another part of the stadium.
Denying charitable-contribution deductions to individuals who donate money to help build and lease skyboxes would significantly alter the current fund-raising practices for building, expanding and renovating university stadiums and arenas. In addition, as the costs of supporting and enlarging athletics programs continue to escalate, any IRS decision that would decrease revenue from gifts of this kind also will have an enormous impact on operating budgets.
As colleges and universities see it, the IRS has no legal basis for denying the deduction, but if the IRS takes that position, the higher education athletics community many need Congress to repair the error.
Since 1988, college and university athletics programs have benefited from help provided by Congress when raising money for athletics facilities. That help, known as the "80/20" rule, allows donors to take a charitable-contribution deduction for 80 percent of a payment they make in return for priority rights to purchase seating in college and university athletics facilities. The 80 percent deduction is available regardless of the demand for seating.
Recently, the IRS has signaled that it may try to limit this benefit to priority rights for general athletics seating and deny it where the donor gets the right to purchase seating in a stadium or arena skybox. The issue has reached this critical point because the IRS is challenging the deduction claimed by a taxpayer who contributed to a building fund to support the construction of skyboxes at Iowa State University's Jack Trice Stadium and received the right to lease a skybox in return.
The IRS has yet to reach a final decision on the taxpayer's deduction. Although the tax law is notoriously complex, there is a clear legal case sup-
porting the same deduction for donors who receive the right to purchase skybox or other luxury seating as is allowed to donors who get the right to purchase seating elsewhere in the stadium.
Certain IRS personnel have questioned the application of the 80/20 rule where rights to purchase skybox seating are involved because a wholly separate part of the tax code denies taxpayers a business-expense deduction when they pay or lease or otherwise purchase skybox seating. For example, if a business leases a skybox in a professional stadium for all of the home games played by the football team resident in the stadium, the business may deduct only the cost of the highest-price tickets for an equal number of seats elsewhere in the stadium and not the full cost of the skybox lease, regardless of whether the business can demonstrate that its use of the skybox is business-related.
There is nothing explicit in the part of the law that provides for the 80/20 rule [section 170(l) of the Internal Revenue Code] that either limits its application where skyboxes are involved or makes a connection between the 80/20 rule and the limitation on business-expense deductions for actual skybox lease payments [section 274(l) of the Code]. It is reasonable to expect that Congress would have made a connection in the law or the legislative history if it intended for there to be one given that the 80/20 rule was enacted two years after the rule limiting the business-expense deduction for skybox lease payments. It seems far more sensible to conclude that the two rules are wholly unrelated.
By its terms, the limitation on the business-expense deduction applies only to expenses that serve a business purpose. The 80/20 rule treats payments made to colleges and universities in exchange for priority seating rights as charitable contributions, which, by definition, are made for the benefit of charitable institutions, not to serve the business interests of the contributor. That Congress made no connection between the two provisions most likely reflects Congress' view that the general limit on deductions for skybox-lease payments had no effect on the specific allowance of a deduction for payments made only to colleges and universities and then only for priority rights to purchase seating, not for the purchase of the seating itself.
If the IRS is worried about the deductibility of the cost of personal-seat licenses or other priority seating rights for professional teams, it can rest easy. The 80/20 rule applies only to payments made to colleges and universities for priority seating rights, and then only if the seating is at a college or university athletics events. If demand for skybox tickets to a professional team's games is so high that a taxpayer has to buy a personal-seat license in order to be able to lease the actual skybox seating, the IRS is free to characterize the cost of the personal-seat license as part of the ticket purchase and limit the amount deductible from the combined payments -- for the seat license and the skybox lease -- to the cost of an equivalent number of tickets elsewhere in the stadium. Nevertheless, the IRS must recognize the special treatment Congress has ordered when the payment for priority seating rights is made to a college or university and may not make an unauthorized conclusion about the scope of the treatment.
The IRS national office deserves the chance to finish looking at this matter objectively, and review these arguments, provided it can reach a conclusion within the next few weeks. They already have had more than seven months to review the taxpayer's case. Colleges and universities can hope that the IRS will make a decision based on the words of the law, the purpose they are intended to serve and the legislative history Congress wrote to explain itself. However, if the IRS concludes that the mere use of the word "skybox" in another part of the Code in a wholly unrelated context somehow limits the availability of the 80/20 rule, college and university athletics departments need to let Congress know that the IRS has unfairly eliminated a fund-raising tool that Congress gave them -- and that college athletics will be seriously hurt if Congress doesn't fix the IRS's unjustified mistake.
Sheldon Elliot Steinbach is vice-president and general counsel for the American Council on Education.
Letter to the Editor -- Athletic training issue needs input from all levels
As potentially the last class of internship student athletic trainers enters my training room this fall, I applaud The NCAA News for featuring an article on the internship and curriculum routes to become a certified athletic trainer (ATC) ("Athletic training change likely to affect NCAA membership," May 24 issue).
The use of and reliance upon student athletic trainers has been an issue many ATCs have struggled with for many years.
We all agree that a student athletic trainer cannot and should not be expected to perform as an ATC. But in many instances at various NCAA levels, the adage that "someone is better than no one" must be reevaluated and defined as to the proper level of care that institutions provide to their student-athletes.
On the hierarchy of care, I would much rather have a student athletic trainer from a formalized education program providing services at practices or events versus a college work-study first-aider, but many times we do not have the luxury of choosing coverage.
With the NATA College and University Athletic Trainers' Committee and Appropriate Medical Coverage Task Force hard at work, I encourage all college and university ATCs to provide support to these committees. Shaping change involves each of us and does not stop at the training room door.
Karen D. Fennell
Assistant Athletic Trainer
Saint Louis University
Opinions -- Athletes not the only students facing early-exit options
C.W. Nevius, columnist
San Francisco Chronicle
"Asked recently about the exodus of players from the college game -- roughly 70 have left early in the last three years -- NCAA President Cedric Dempsey said that a plan was proposed that would give college players loans of up to $25,000, but the organization has concluded that would not make a difference. 'The opportunity for some athletes to earn $3 million a year after they have come out of an underprivileged background, which gives them a chance to help their parents, is tough to compete with,' Dempsey said.
"Here's a question: Why should you? Suppose you were an 18-year-old computer whiz. You have a scholarship to college, but during the summer you come up with a hot new idea for the Internet. You put a little cash together, work in the garage, and the next thing you know you are guaranteed $9 million over the next three years. Unfortunately, things are a little busy at that point, so you decide to postpone going to college. What should we do? Insist that you go, so that you can form lifelong college friendships and spend hours in the student lounge discussing Kafka? I don't think so. ...
"The simple fact is, this train is way too far down the track to bring it back. As long as high-school and college basketball players are guaranteed huge money by the NBA, it is impossible to make the argument that they should turn it down and stay in school. Let them go. Because then we will get to the really entertaining part. Having handed millions to 18-year-old kids and told them they are the next Michael Jordan, let's watch the NBA try to coach them."
Glenn Rogers, columnist
San Antonio Express-News
"It seems only athletes are scorned when they prematurely traipse away from the hallowed halls. Why? We hear people relentlessly complaining about their paychecks, rolling their eyes while explaining how their employers make buckets of money while sitting on payrolls. These same folks then turn around and express amazement and anger when they hear about huge contracts handed out to young dunkers and ballhandlers.
"Why do they want to slam still another door to financial success in the faces of inhabitants of the middle- or lower-income ranks? A contract worth millions changes the financial situation of a family for generations to come, including the prospect of college educations for generations of kids to come.
"Opponents of early draft entries ignore any of this. They talk about the need and benefits of a full college education. College is a wonderful world for those interested in broadening their outlooks on life, engaging in the interaction between those of different cultures and opinions. It's not quite so wonderful for those not interested in such exchanges and who see more advantages to instant wealth. Some know doors to further education and mind-broadening experiences will remain open after they advance to the NBA. ...
"Completing college, as an athlete or not, is a wonderful opportunity. It's fine and more than dandy for those who elect to start their professional careers after four years of absorbing life on campus and in lecture halls. It's also not mandatory for an enjoyable and fruitful existence. It's another wonderful option. College athletes, somewhat like entertainers and others possessing rare and profitable gifts, have another option -- the chance to early on exercise and enjoy their talents and produce a nice pile of money."
Wally Scerbiak, basketball student-athlete
Miami University (Ohio)
Chicago Daily Herald
"I feel a player needs to stay in college and develop fundamental skills and mature as a person to be able to succeed at the next level. A player should stay as long as he can because you can't duplicate the college experience. A player who finishes his senior eligibility but leaves when he is close to graduating -- I don't think that's smart. When you move on, you don't go back. I worked hard for four years. Three days before graduation I was finishing my last hour needed for my marketing degree so that when I stood up with the other 3,043 students, I had sealed the deal. I am a college graduate."
Mark Nagel, student
University of Northern Colorado
Street & Smith's SportsBusiness Journal
Discussing the NFL's and the WNBA's restrictive draft eligibility rules:
"Although it is unfortunate that athletes are often deluded into leaving college early for an unfulfilled professional career, each year there are thousands of people who start businesses that are doomed to failure. No one cares when college sophomores majoring in music, art or business leave school to pursue their chosen careers. Those students are following the American dream -- and unfortunately the potential exists for that dream to become a nightmare. ...
"Each year hundreds of college athletes complete their fourth year in an athletics uniform at a school from which they will never graduate. Those players who are talented should be allowed to pursue a professional career as soon as they feel they are capable. Restricting that right is a clear violation of the law."
Athlete agents
Frank Bauer, athlete agent
Associated Press
"You've got people going out, starting firms representing athletes, who have no credentials and no clients. So the question is, 'How do you get that client?' When that starts up, sometimes they feel like they have to induce a client to go to their side. That's when you get a problem."
Leonard Mungo, attorney
Associated Press
"The basic issue is you have kids who are being exploited by the schools. These players know what they're worth and they know the schools are taking advantage. Then you have 900 agents out there looking to sign 240 players who get drafted. Not every agent can afford to play by the rules."
Baseball bats
Mark Johnson, baseball coach
Texas A&M University, College Station
USA Today
"I'm happy we're doing something about it, but we haven't solved the problem. The new (standards) are more comparable to wood bats, but the exit speed and dealing with the bat's 'sweet spot' to me are still the most important things. The ball is still coming off a lot faster than it does with a wood bat."
Pat Murphy, baseball coach
Arizona State University
USA Today
"I think it's a shame the coaches' integrity has been challenged. Some people think we're getting paid by the bat companies and compromising safety. Coaches would not be putting kids on the field if there was a safety issue. I think the aluminum bat companies have provided more for college baseball than any industry out there. Is there too much offense in the game? There may be. There's not really a way to measure it except over time."
