Tax Ramifications of the National Labor Relations Board (NLRB) Decision in Making College Athletes Employees

On March 26, 2014, Peter Sung Ohr, Regional NLRB Director, announced that athletic scholarships given to Northwestern University football players represent compensation for athletic services performed. Ohr wrote, “The players spend 50 to 60 hours per week on their football duties during a one-month training camp prior to the start of the academic year and an additional 40 to 50 hours per week on those duties during the three-or-four-month football season. Not only is this more hours than many undisputed full-time employees work at their jobs, it is also many more hours than the players spend on their studies.” As a former college athlete, I can relate to this statement. I truly did spend more time at sport-related functions (practices/games/traveling) than I did in the classroom each week.

Statements such as Ohr’s raise questions as to the ramifications of “compensation” in exchange for performance of athletic services. In response to the NLRB decision, U.S. Senator Richard Burr (R-NC) requested tax guidance from John Koskinen, IRS Commissioner. Commissioner Koskinen replied, stating “The NLRB decision does not control the tax treatment of athletic scholarships. The treatment of scholarships for federal income tax purposes is governed by the Internal Revenue code (Code).” Koskinen states, “The ruling holds that the athletic scholarship awarded by the university is primarily to aid the recipients in pursuing their studies and, therefore, is excludable under Section 117.”

Excluded Scholarship Income

Athletic scholarships are only excluded from the recipient’s income if they are a qualified scholarship under Section 117. To receive tax-free treatment:

  • the student must be a degree candidate at an eligible educational organization; and
  • the scholarship must be used for qualified expenses.

Qualified expenses include tuition, required fees (i.e., student activity or technology fees) and books, supplies, and equipment required by their curriculum.  It is important to note that room and board is not a qualified expense.

The conversation regarding payments to athletes will continue as we watch court proceedings regarding NCAA regulations barring compensation to athletes.

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