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Taxing college athletes' scholarships? How it could work

Brittany De Lea

Sen. Richard Burr plans to introduce a tax on student-athlete scholarships in the wake of the NCAA vote to allow athletes to profit from their names, images and likenesses this week.

In a tweet on Tuesday, Burr, a North Carolina Republican,  said if athletes are able to make money off their names and images while in school, “their scholarships should be treated like income.”

Further details were not immediately available.

The plan could work under the terms of the internal revenue code, Lou Vlahos, a partner at law firm Farrell Fritz, told FOX Business — even if it is a bit of a stretch. Scholarships are generally tax-exempt so long as they are not considered payment for teaching, research or other services. It would be a stretch in Burr's case since the payor would be a third party and not the school.

Bill Smith, managing director for CBIZ MHM’s National Tax Office, told FOX Business there is a “reasonable case to be made” for the tax if they’re going to allow athletes to make money from their image and likeness, but that doesn’t mean there aren’t a host of concerns, too.

TAXING SCHOLARSHIPS WILL CHANGE HOW COLLEGE ATHLETES ARE RECRUITED: JACK BREWER 

For example, Vlahos said it would be like a “double whammy” because athletes would be taxed on the income and then again on their scholarships. The question is then raised as to whether the entire scholarship would be taxable or whether the taxable value will be in proportion to the value of the service.

“Will $1 of the endorsement money taint the whole scholarship?” Vlahos asked.

If an entire $160,000 scholarship is subject to taxation at a 50 percent rate, Smith told FOX Business a student-athlete would need to make $120,000 to break even.

“The whole thing is going to need work,” Smith said.

NCAA VOTES TO LET STUDENT ATHLETES PROFIT FROM THEIR NAMES, IMAGES

There are other concerns, too. The scholarship money is provided for students who likely would be otherwise unable to afford to attend the school, and they are first and foremost attending the institution to get an education.

“This would be an instance of misuse of the [tax] code if they were to turn around and tax these kids,” Vlahos said. “They’ve got to remember what they’re paying them for to be there, they’re student-athletes.”

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The move would not be out of step with recent sentiment among lawmakers, some of whom are questioning whether colleges should even be tax-exempt at all. Meanwhile, the 2017 Tax Cuts and Jobs Act imposed an excise tax on the net investment income of some private institutions.

The NCAA Board of Governors voted unanimously on Tuesday to allow athletes to cash in on the use of their name image and likeness. California Gov. Gavin Newsom last month signed a law to allow athletes to sign endorsement deals and hire agents.

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