A year and a half ago I was attending a panel discussion on sports law issues at the Academy of Legal Studies in Business (ALSB) Conference in Philadelphia.  A meaningful discussion arose about the logistics of moving toward the pay-for-play model in college sports.  At one point somebody asked whether anyone has thought about the tax consequences of moving towards that model, to which my co-author Adam Epstein (who was one of the panelists) responded yes, and noted that our paper analyzing the state tax implications of paying student-athletes was our most downloaded article on SSRN.

Thus far the NCAA hasn’t evolved from the paradigm of amateurism, but every time the debate seems to quiet down about whether it should something new pops up that brings the idea of paying student-athletes back into the spotlight.  This week it was the headline, Could Fournette, McCaffrey Skipping Bowls Lead to NCAA Paying Players?  As long as there is a remote possibility of moving in that direction in the future, tax issues should be included in the overall discussion of the effects of pay-for-play on college sports.

This past November I presented a working paper at the Southeastern Academy of Legal Studies in Business (SEALSB) Conference on the topic, Analyzing the Applicability of IRC § 162 on the Pay-For-Play Model.  § 162 of the Internal Revenue Code provides rules for deducting business expenses for federal income tax purposes.  One of the three conditions that must be satisfied to properly deduct business expenses requires that such expenses be incurred while away from home.

Currently there is a split among circuits as to what the term tax home means under § 162, with the majority holding that home is the principal place of business while the minority allows that home means home in the ordinary sense.  With respect to professional sports, numerous cases have been published that analyze where various pro athletes’ tax homes are located.  However, because college athletics still maintains the principal of amateurism, neither the judicial system nor scholarly works have heartily examined all the various tax issues that could arise under pay-for-play, including the application of § 162 on paid student-athletes.

In this paper I explore a very intricate area of federal tax law that will undoubtedly require judicial guidance in the future should college athletics move towards a pay-for-play model, specifically focusing on what the potential effects of the application of the term tax home will be on paid student-athletes and college athletic programs. 

Analyzing the historical application of § 162 from both the majority and minority of circuits, I ultimately propose that depending on which circuit they live in certain paid student-athletes would likely be able to deduct the costs of travel and moving expenses between their family residences and the schools they play for, as well as other specified out-of-pocket expenses not covered by their institutions.  For those student-athletes who won’t be able to take advantage of the benefits of § 162 because of the circuit they reside in, there may be a reasonable opportunity to make the case that they are temporarily employed by their universities – a characterization which various courts, including the US Supreme Court, have narrowly analyzed in order to open the door for possible business expense deductions to be taken even if they reside in circuits that define home as the principal place of business.

Ultimately, the questions of (1) where would a paid student-athlete’s tax home be located, and (2) would paid student-athletes be considered living temporarily away from home when residing at their employer-institutions’ campuses will be important tax issues that the judicial system will need to consider should the pay-for-play model be effectuated in the future.  I attempt to analyze both of these issues quite thoroughly in this paper.

With visions of tax now dancing in your heads, I graciously wrap up this month’s Guest Blogger posts just in time for the College Football Bowl Game series to really ramp up (minus, of course, Fournette and McCaffrey).  As we all embark on new and yet unknown adventures in the coming year I once again wish to extend my sincere thanks to Haskell Murray and the Business Law Prof Blog editorial board for inviting me to share my research in the area of sports and tax as we close out 2016.  Happy holidays to all!