Tax reform may impact college-athletics event seating contributions and deductions

As part of tax reform, referred as the Tax Cuts and Jobs Act, the 80–20 charitable deduction rule for payments made in exchange for college-athletics event seating rights has been repealed.

Colleges and universities that are dependent on this income stream are understandably concerned. Taking a closer look at the law may alleviate some of this worry — as will taking the appropriate steps to preserve donors’ tax deductions.

Background

Prior to Jan. 1, 2018, donors could take a charitable deduction for 80% of a payment made to an institution of higher education that gave the taxpayer the right to purchase tickets for an athletic event at the institution’s stadium. The remaining 20% wasn’t deductible because it was treated as a quid pro quo for the value of the seating rights. This alleviated the college or university’s responsibility to value the return benefit received by the donor, reducing the burden on the school.

The new tax reform law repeals this 80–20 split. However, it doesn’t affect laws relating to charitable contributions and quid pro quo rules that allow a donor to take a tax deduction for payments made in excess of return benefits received — as long as there’s charitable intent.

For example, if a donor gives $1,000 to a qualifying organization and receives tickets to an event in return valued at $100, a charitable donation of $900 still applies.

Key criteria for tax deductions

For a donor to take a tax deduction, several factors must be in place:

Charitable intent

The donor must have charitable intent in making the gift. If the payment amount doesn’t exceed the fair market value of the benefits received by the donor, or if the institution has told the donor no portion of their payment is tax deductible, no charitable deduction will be allowed.

Valuing donor benefits

The institution must determine the value of the benefits it provides to the donor. The difficulty of valuing seating rights was the reason the 80–20 rule was added to the Internal Revenue Code (IRC).

Without this rule, an institution must use a reasonable basis for determining the value received, which can be substantial if events are regularly sold out and tickets aren’t generally available.

Donor receipt