(04-24-2014 07:58 AM)lew240z Wrote: It doesn't matter to the IRS whether the players are unionized or not. An NLRB administrator has ruled that players at private schools are employees. Until and unless, a higher NLRB or court rules otherwise, the IRS can tax their scholarships, room and board, provided uniforms, medical benefits, etc.
I have seen all kinds of posts regarding the question of taxability of athletic scholarships. I don't believe that any of them have been made by a CPA or tax attorney familiar with this aspect of the tax code.
I have tried to research the subject on line, but with very unsatisfying results. Opinions seems to be all over the map. If you look only at IRS publications, the answer seems definitive. Only the portion of a scholarship that is used to pay for tuition, books, fees, etc is tax exempt. Expressly taxable are any amounts above that, including room and board, whether or not the athlete lives on campus.
For the athlete who shares an athletic scholarship with another athlete, none of it would be taxable because neither would be receiving an amount more than the educational expenses. For the full ride athlete, though, IRS Publication 970 says they have taxable income.
If you go to the websites of schools that offer athletic scholarships, the Financial Aid section of the site basically says the same thing - room and board are taxable. However, other parts of those schools' sites (see the University of Wisconsin for example) often state explicitly that athletic scholarships are tax-exempt, without the qualification about room and board.
An article published in the Duke Law Journal is even more interesting, IMO. When discussing the question of taxability of scholarships the author offers the caveat that the answer to the question can only be inferred,
because there is virtually no case law on point to cite. That's a remarkable assertion, considering how ubiquitous (and lucrative) athletic scholarships are. It suggests sort of a "don't ask, don't tell" approach by the IRS.
If schools are, in fact, correct in stating that the full value of an athletic scholarship is exempt, including amounts paid for room and board (i.e. living expenses), then there is no reason to assume that payments to cover other living expenses (which schools refer to as full cost of attendance) such as a monthly stipend would be taxable either, as long as they don't exceed the amount that non-athletes are estimated to spend for this like laundry, travel (including car use), entertainment and the like. Those schools can rightly point to the fact that they have long recognized these expenditures as being part of the "full cost of attendance" for all students, and aren't creating that notion merely to disguise the nature of payments they would like to make to athletes.
If there are any qualified professionals who can shed light on this subject, their input would be most helpful. For that matter, anybody who can cite a specific IRS publication or ruling saying athletic scholarships are fully exempt would clear up a lot.