United States: Leading Tax Counsel For College Athletes Advise They May Not Realize How Good They Now Have It

In this interview with the LEAD1 Association, tax partner Lorry Spitzer examines the tax implications of paying college athletes.

  • Benjamin Franklin once said that the only two things inevitable in life are death and taxes. If college athletes were to receive compensation, what would change about their tax status?

    • Will Rogers updated Ben Franklin's observation by adding "but at least death doesn't get worse every time Congress meets!" And so it could be with college athletes. Their status as employees would likely change everything, and attempts by Congress and the IRS to "help" would probably only make matters worse.
  • What is the legal status of recent efforts to compensate athletes for their names and likenesses or to unionize them?

    • Both the NCAA and the plaintiffs in the O'Bannon antitrust case have appealed the decision of the 9th Circuit Court of Appeals, which held that the NCAA amateurism rules are an unlawful restraint of trade but that part of the relief granted by the District Court, allowing schools to pay up the $5,000 per year in deferred compensation, was erroneous. Talk about pleasing no one! In October 2016, the Supreme Court denied a request to review the case, leaving the 9th Circuit's ruling in place. The National Labor Relations Board, meanwhile, recently ruled that certain student research assistants at Columbia University are employees eligible to unionize, overturning it prior decision involving Brown University.

      Notwithstanding the Columbia decision, with its encouragement of unionization, the NLRB is showing no movement towards revisiting its interesting decision from a year ago involving football players at Northwestern University. The NLRB held in that case that whether or not football players at Northwestern are employees, a question it declined to answer, it would not effectuate the policies of the National Labor Relations Act for the NLRB to assert jurisdiction.

      Translation: no union.
  • How are student-athletes currently taxed for sports scholarship benefits?  There was a good article in Forbes about how the value of a scholarship at a private university like Stanford is worth over $130,000 per year. What is the tax treatment, at present?

    • A scholarship covering tuition, academic fees, books and supplies is tax free, but only to the extent the scholarship is not a payment for services. The balance of the scholarship paid to or on behalf of the student, for room and board and other expenses, is taxable to the student. Nonetheless, a school is not required to send a tax form to the student reporting this taxable income, with the likely result that income tax compliance is probably quite low, especially if the scholarship doesn't include extra cash for the payment of taxes (which they typically would not). The $130,000 annual figure you describe, in addition to the non-taxable amount for tuition, fees, etc., also includes a lot of benefits that would not be taxable whether or not the a student is an employee—such as for specialized skills training or coaching.
  • What happens if student-athletes are classified as employees?

    • The likely result would be that the entire scholarship would become taxable as bargained-for consideration for services.  Plus, if the student-athletes are employees, the schools would be required to give students a Form W-2 reporting the amount of wage income. Setting aside your $130,000 figure for the moment, let's assume a student has a full cost of attendance scholarship worth $70,000. That student , if classified as an employee, could easily face a tax bill in excess of $25,000, while currently he or she may be paying nothing. The student-athlete would need to be compensated almost $45,000 in cash just to break even. So my message here is that student-athletes should be careful what they wish for!
  • Could we see a world where student athletes might incorporate in an effort to mitigate the tax blow?

    • Incorporation of athletes is to some extent a relic of an earlier era of tax planning. I would not expect to see wide-spread incorporation of student-athletes even if they are treated as employees.
  • Could you foresee a future where Congress and state legislatures go after student athletes in an effort to raise revenues?

    • Let me repeat my quote from Will Rogers! Congress and state legislators could certainly muck up the area in an effort to help, but I cannot envision trying to balance the budget on the backs of student athletes. So, in a word, no.
  • One of the great things about being a scholarship athlete is graduating without debt. So could there be a world where scholarship athletes will graduate with tax debt?

    • Yes, that would be a possibility, although unlike student loans, tax debts need to be paid immediately. Borrowing money to pay a tax debt may be impractical or impossible. Because such loans would not have the special treatment afforded student loans, lenders may be unwilling to lend.
  • Based on your considerable experience and established expertise as a tax attorney, is it the last thing in the world anyone should want is to get on the radar screen of the IRS?

    • Who wouldn't want to be on the radar screen of a governmental agency whose mission is "service" to its "customers."
  • Can you think of any previous examples where a change in status resulted in tax consequences that proved to be crippling to a party?

    • The Supreme Court has correctly pointed out that the power to tax involves the power to destroy.  The long-lasting debate as to whether a worker is an "employee" or an "independent contractor" is an example of a well-meaning IRS forcing "employee" characterization on certain workers, causing existing business models to fall apart. Also, the revelation that certain nominees for high-level governmental positions hadn't paid employment taxes on their housekeepers, because they were treating them as independent contractors, certainly proved crippling to their nominations!
  • There are many benefits that student athletes receive about which many are unaware. One example is expert counseling in schoolwork, nutrition, physical fitness, and career counseling. Many times this extends for life as an athlete is always welcome back at school to use the fitness center, as just one example. What happens if tax authorities go after these untaxed benefits?

    • As we discussed, some benefits for training and the like are unlikely to be taxable even if the student-athletes are characterized as employees. But you are correct in pointing out that some kinds of deferred benefits, such as a lifetime "right of return" to earn a degree from the school, could become taxable immediately to the student-athletes if they are treated as employees, which would be a really terrible result not only for the athlete, but as a matter of good public policy. Schools have a responsibility to the student-athletes that fill the stadiums and arenas every weekend, and a change in the tax rules shouldn't make that responsibility more difficult to fulfill.
  • What are student athletes missing about how good they have it now under their current tax status?

    • It bears remembering that the current tax system, by making scholarships for tuition and fees tax free, is favorable to the student-athletes. If student-athletes are characterized as employees, it would require a fairly large payment just to overcome the lost tax benefit.

The 129 member schools of LEAD1NATION! thank Mr. Spitzer for being so generous with his time in this interview and providing an invaluable service to all those in these programs!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.