The compensation paid to football and basketball coaches at several prominent National Collegiate Athletic Association (NCAA) universities has come under scrutiny from the chair of the US House Ways and Means Oversight Subcommittee.
The questions posed by the subcommittee chair could have potential implications for colleges and universities.
In March 2022, the subcommittee chair, Bill Pascrell, a Democrat from New Jersey, sent letters to the presidents of Duke, Villanova, and Auburn Universities with three pages of questions related to the compensation paid to their basketball coaches.
Since December 2021, Representative Pascrell has sent similar letters to the presidents of Louisiana State University, the University of Southern California, Michigan State University, the University of Miami, Stanford University, and Rutgers University.
In his March letters, Representative Pascrell expresses concerns about compensation to basketball coaches and whether these universities are operating consistently within their tax-exempt statuses.
He also states, “These contracts also present a stark contrast to the benefits received by the university’s student-athletes, whose grants-in-aid each semester pale in comparison to their coaches’ compensation.”
The US House of Representatives Committee on Ways and Means conducts oversight of organizations granted federal tax exemption, primarily through the Oversight Subcommittee.
Section 4960 Excise Tax
In part aimed at college coach compensation, Internal Revenue Code Section 4960 imposes an excise tax on applicable tax-exempt organizations for compensation over $1 million paid to a covered employee. Section 4960 was enacted as part of the 2017 tax reform legislation.
But some state colleges and universities not recognized as tax-exempt under Section 501(c)(3) don’t fall under the definition of an applicable tax-exempt organization, and therefore may not be subject to the tax.
The universities receiving letters from Representative Pascrell are either Section 501(c)(3) private universities or state universities that qualify for federal tax exemption as wholly owned state instrumentalities and have also requested status as organizations described in Section 501(c)(3). This means that the Section 4960 excise tax would apply to these universities.
In several of his letters, Representative Pascrell asks whether the universities take the position that the IRC 4960 excise tax applies to them. He also asks how much 4960 taxes the universities have paid.
Questions on Educational Missions
The questions in the letters go beyond the scope of Section 4960 in looking at coach compensations at colleges and universities.
Besides inquiries on compensation paid to current and former coaches and other university employees, the broad range of questions also covers grants and benefits to student-athletes, the revenue and expenses of athletic departments, governance of those departments, as well as athletic facilities.
The most pointed questions come under the heading, “Serving the university’s educational mission” and specifically include:
- How do the football and men’s basketball programs contribute to the university’s educational mission (other than the production of income)?
- Why should the federal government subsidize the university’s athletics programs and escalating coaches’ salaries and other non-cash benefits?
- With increasing commercialization of the university’s football and men’s basketball programs, how does the university distinguish its activities from professional sports leagues?
Concerning compensation, the questions seek information on how many university employees have compensation packages above $1 million a year and which departments employ the university employees who earn over $1 million a year.
Questions Regarding Student Athletes
Regarding student athletes, Representative Pascrell asked universities to provide information on the total annual cost over the last 10 years for scholarships and other aid given to football and men’s basketball team members.
He requested a 10-year comparison of the total cash and non-cash compensation received by the basketball team’s or football team’s coaches to the total aid student-athletes on those teams receive. His inquiry also asks about graduation rates of student-athletes with a degree over four, six, and 10 years.
Additional questions include:
- Does the men’s basketball or football program generate revenues in excess of program expenses? If so, are revenues used to support the non-athletic educational operations of the university?
- Are training and practice facilities and equipment available to the student body at-large?
- How do expensive state-of-the-art sports facilities contribute to the educational mission of the university?
Schools receiving these letters were given a month or less to respond to the subcommittee’s inquiries.
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