Gary C. Randall, Athletic Scholarships and Taxes: Or a Touchdown in Taxes, 7 Gonz. L. Rev. 297 (1972).
In the case of an individual, gross income does not include:
(1) any amount received -
(A) as a scholarship at an educational institution . . . .
Although athletics at the intercollegiate level are doubtless as American as motherhood and apple pie, a few malcontents suggest, now and again, that intercollegiate sports have become a business venture, performed primarily for the faithful alumni rather than for the benefit of the students. There have even been those who have suggested that athletic scholarships are presently “pay for play” and should be, at the very least, based on need rather than athletic ability.
The coaching fraternity is hardly ecstatic about the concept of awarding athletic scholarships on a need basis, rather than on an ability basis. Perhaps the most successful college football coach in the country, Nebraska’s Bob Devaney, has stated publicly that this premise would be unacceptable to him.
Thus, the athletic scholarship game goes on. Faithful alumni contribute to the care and feeding of athletes. In return they receive a certificate that they are members of the booster club, and may receive special parking privileges at home games, and of course they obtain the warm feeling that their contribution may aid in the fielding of a particularly good team this year. They also obtain a tax deduction for their contribution.
At the other end of the contribution chain a hopefully athletically talented individual picks up his monthly stipend (all in accord- ance with the stringent rules of the NCAA), performs in his particular sport, and reports nary a cent of the grant for tax purposes. This is as it should be, of course, because athletic scholarships are surely scholarships. Or are they?
Athletic scholarships are an outgrowth of the development of college football in the United States. Although direct scholarships were relatively unknown until after World War II, some Southern institutions reportedly granted them as early as the 1930’s. Prior to that time athletes were subsidized in a more haphazard fashion.
Today, however, the grant-in-aid is a common practice throughout the country. It has been identified as the largest single expenditure for football in the typical athletic program. Aid grants are generally raised by alumni contributions, although the State of Washington now permits the use of gate receipts in the athletic programs of state institutions. But does this make them taxable to their recipients under the Internal Revenue Code of 1954?
The Internal Revenue Code says yes. The Internal Revenue Service says nothing. The United States Tax Court says no.
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