Touchdown for Stadium Seat Tax Breaks

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Rose Bowl Shmose Bowl – Michigan Moves Forward with Tax-Favored Expansion

The big game could have gone better for the Wolverines (final score, USC 32, Michigan 18), but for now, the renovation of The Big House, Michigan's 100,000-plus seat football stadium in Ann Arbor, is surging ahead with the momentum of an unblockable touchdown run.

Since 1988, college sports have received a forward pass from the IRS to offer alumni and other supporters of the athletic programs a cushy tax write-off to go with their cushy luxury seats. The law states that, “If you make a payment to, or for the benefit of, a college or university and, as a result, you receive the right to buy tickets to an athletic event in the athletic stadium of the college or university, you can deduct 80% of the payment as a charitable contribution. If any part of your payment is for tickets (rather than the right to buy tickets), that part is not deductible. In that case, subtract the price of the tickets from your payment. 80% of the remaining amount is a charitable contribution.” (IRS Publication 526, Charitable Contributions).

Since luxury suite prices can run as high as $90,000 per year, the tax write-offs are very attractive. The Senate Finance Committee held hearings in December, listening to testimony from several people associated with higher education in an effort to collect information about the tax laws that favor the big deductions. The House Ways and Means Committee met earlier in 2006 on the same subject.

James Duderstadt, former president of University of Michigan, testified before the Senate Finance Committee referring to the “perverse treatment” of “mandatory fees” for the luxury boxes. He described the tax write-offs as “fueling an arms race in college sports, driving universities to debt-finance massive stadium expansion projects, exploit young student athletes, and tolerate multimillion-dollar coaches' salaries.” Duderstadt argued that this particular tax benefit has “drifted rather far from the tax-exempt purposes of education and scholarship.”

Some complainers argue that many college sporting events, particularly men's basketball and football, closely resemble professional sporting events and thus detract from the tax-exempt purpose of the school. Some critics claim that tax deductions for sports enthusiasts who fork over tens of thousands of dollars for the right to entertain in the luxury boxes might not actually trickle down to students and academics. After all, it might stand to reason that the luxury boxes attract big spenders, and the big spenders are necessary to fund the cost of the luxury boxes. There are those who argue that education might not fit into the equation.

Several schools have renovations underway or recently completed. For example, Michigan's planned $226 renovation of The Big House includes plans to build 83 luxury suites, the University of Maryland is sporting a $50 million stadium renovation with 60 luxury suites, the University of Texas is working on a $175 million football stadium reconstruction including 47 luxury suites, and the University of Illinois is moving forward with a $116 million renovation with 48 new suites.

The legislative committees are also examining tax laws that permit colleges to sell naming rights to stadiums and record that revenue as tax exempt. Duderstadt refers to what might be an unintended consequence of the donor program, resulting in what he calls the "edifice complex" wherein campuses attract tax-exempt money that is used to build "museums, theatres, or sports facilities only marginally related to the academic mission of the university, yet requiring massive additional investment in both construction and long-term maintenance."

Congress is expected to continue looking into these tax issues in 2007.

--by Gail Perry, CPA and the author of more than 20 books, including QuickBooks 2007 On Demand, Quicken All-in-One Desk Reference for Dummies, and Surviving Financial Downsizing: A Practical Guide to Living Well on Less Income


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