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1991 U. Ill. L. Rev. 581 (1991)
The Taxation of Athletic Scholarships: A Problem of Consistency

handle is hein.journals/unilllr1991 and id is 593 raw text is: THE TAXATION OF ATHLETIC SCHOLARSHIPS: A PROBLEM OF CONSISTENCY ADAM HOEFLICH I. INTRODUCTION Section 1171 of the Internal Revenue Code (Code) excludes scholar- ships and fellowship grants2 from gross income. The rationale of this section is that these are relatively disinterested, no strings attached ed- ucational grants with no requirement of any substantial quid pro quo from the recipients.' Accordingly, section 117 does not exclude from gross income any tuition reductions or stipends that schools provide stu- dents in exchange for services.4 Strangely enough, however, the Internal Revenue Service (Service) has never sought to tax athletic scholarships.5 The apparent reason for this treatment is that the Service does not view schools as requiring any labor from their student-athletes. This note ana- lyzes the weaknesses in this reasoning and asserts that student-athletes are actually underpaid university employees whose grants should be sub- ject to taxation under section 117. Initially, this note discusses the historical tax treatment of scholar- ships and fellowships.6 Then, in Part III, it focuses on the relationship between student-athletes and their schools and asserts that the Service ignores a contractual alliance that binds these two groups.7 Part III also discusses the inequities that result from the Service's varying treatment of similarly situated taxpayers and examines the constitutional and theo- retical arguments that a recipient of a different, nonexcludable tuition reduction or stipend might make in challenging the present enforcement of section 117.8 Finally, Part IV proposes that the Service should tax student-athletes, as it would similarly situated students, and suggests that the National Collegiate Athletic Association (NCAA) should change its rules if it wishes to eschew this treatment.9 1. I.R.C. § 117 (1988). 2. The Service classifies as scholarships and fellowships only excludable stipends and grants made by qualifying educational institutions. See infra note 35 and accompanying text. 3. Bingler v. Johnson, 394 U.S. 741, 751 (1969). 4. Id. at 748; I.R.C. § 117(c) (1988). 15. Lee, The Taxation of Athletic Scholarships: An Uneasy Tension Between Benevolence and Consistency, 37 U. FLA. L. REV. 591 (1985). 6. See infra notes 10-92 and accompanying text. 7. See infra notes 93-196 and accompanying text. 8. See infra notes 197-285 and accompanying text. 9. See infra notes 286-316 and accompanying text.

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