There's no denying that amateur sports, especially college football, are big business. Together, the 15 top-grossing teams score over $1 billion in revenue, with the University of Texas Longhorns alone generating $71.2 million in profit.
Numbers like that would normally make the "receivers" at the IRS smile. But college football is different. The big Division I schools that sponsor the most competitive teams are all tax-exempt. And the IRS loses again on a juicy revenue stream that's unique to college sports -- required donations, sometimes totaling twice the cost of a season ticket, that fans make to the school to secure those seats.
Back in 1986, boosters couldn't deduct the contributions
they made specifically to secure sports tickets. But Louisiana Senator
Russell Long, who sat on the Finance Committee, met with lobbyists who
argued that his home state Louisiana State University needed
tax-deductible contributions to add seats to Tiger Stadium. Long agreed,
but didn't want to be seen showing favoritism to his own constituent.
So he approached Texas Representative Jake Pickle, whose Austin district
included the Longhorns' campus. Together, the two lawmakers cobbled
together the sort of backroom deal that makes the rest of us proud to be
Americans. They added a provision to the 1986 Tax Reform Act which
preserved a 100% deduction -- for just those two schools! Here's how the
legislation describes one of them to limit its reach:
"Such institution was mandated by a State constitution in 1876; such institution was established by a State legislature in March 1881; is located in a State capital pursuant to a statewide election in Sept. 1881; the campus of such institution formally opened on Sept. 15, 1883; such institution is operated under the authority of a 9-member board of regents appointed by the governor."
every other school in the country complained. So -- did the lawmakers
turn red in embarrassment at getting caught with their hands in the
cookie jar and shut down the offending provision? Noooooooo . . . two
years later, they voted to trim the deduction to 80% of the donation,
but extend it to everyone.
How much does this all cost the
IRS? Well, nobody really knows. But Ohio State University is the leader
in seat-related donations, with $38.7 million. LSU is next with $38
million, and Texas is third with $33.9 million. (In fact, LSU is about
to spend $80 million to add 70 more luxury boxes and 6,900 more seats, which should bring in another
$15 million in donations.) If the average donor pays 25% in federal
tax, that means $22 million in lost tax dollars. And that's just three
schools out of 1,000 eligible to collect such donations. Of course,
defenders of the deduction argue that it's worth the hit to the
Treasury. They note that donations go to support scholarships,
facilities, and other university expenses.
This Saturday, it will be hard to turn on a television without hearing about the upcoming election or "Frankenstorm" Sandy. College football will provide a welcome respite to millions of fans across the country. So next time you sit down to watch your favorite team, hoist a cold one to the tax code that helps make their success possible!
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday from 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
If you found this article helpful, I invite you to leave a commit and please share it on twitter, facebook or your favorite social media site and with your friends, family and colleagues. Thank you.