You made your annual “contribution” to your college booster club (such as Clemson’s IPTAY, Alabama’s Tide Pride, the Wolfpack Club, Gamecock Club) or any of the similar clubs of major college football schools that provide contributors the right to purchase tickets. You then bought your season tickets and were all set for football season. Then the pandemic comes along and now it looks like your favorite team may be playing in an empty or near-empty stadium, if at all. The school has announced that they will be offering refunds to for games that won’t be played – or where ticketholders choose not to attend because of COVID – and may also be offering refunds or credits for the seat “contributions” made by booster club members. Some athletic programs have indicated contributors can convert their seat contribution to a tax-deductible contribution. Is this possible?
Many colleges and universities have booster clubs that promote their sports teams, with particular emphasis on football. These clubs offer special privileges to alumni and fans who make “contributions” to the club. Typically, these clubs use the majority of these funds for charitable purposes such as providing scholarships. Because these clubs are set up as 501(c)(3) organizations, these contributions would potentially be tax-deductible charitable contributions. However, there are IRS rules that limit tax deductibility for such contributions. For tax years before 2018, there was a special rule where such contributions would be eligible for an 80% deduction. But with the passage of the Tax Cuts and Jobs Act (“TCJA”), a new rule came into play, new Internal Revenue Code Section 170(l). The language in Section 170(l) is quite clear:
No deduction shall be allowed for any amount paid to or for the benefit of an institution of higher education if the payer receives (directly or indirectly) as a result of that payment the right to purchase tickets to an athletic event at an athletic stadium at that institution.
The key issue is whether a contributor to a college or university or a related organization receives the right to purchase tickets at athletic events at that university. Often, a “contributor” would be given rights – whether in the form of points or some other recognition of status – that would allow that contributor to purchase season tickets or other preferred seating at football or basketball games.
Where the university is continuing to provide the right to purchase tickets – including the right to keep your designated seats from the 2019 season for the 2021 season that would not apply to those requesting refunds – there is little doubt that this would be considered non-deductible under Section 170(l). However, if the contributor receives no rights to purchase tickets but instead they give up any of the preferences they would otherwise be provided for tickets, then such payment would not meet the definition of a payment described in Section 170(l) and may be tax-deductible.
Section 170(l) is only a disallowance provision for payments that result in the receipt of seating rights, however; not meeting that definition does not automatically mean the payment becomes tax-deductible. Other than for very small contributions, the contributor would still need to obtain from the college or university a letter of acknowledgment. Per IRS rules, a donor can deduct a contribution of $250 or more only if the donor has a written acknowledgment from the charitable organization. The donor must get the acknowledgement by the earlier of the date the donor files their tax return or due date, including extensions, for filing the return. The donor is responsible for requesting and obtaining the written acknowledgement from the donee. The written acknowledgement must include, among other things, a description and good faith estimate of the value of goods or services, if any, that organization provided in return for the contribution.
The way that colleges and booster clubs are handling refunds of tickets and booster club contributions varies greatly. Most are providing some way to obtain a refund of seat contributions, as well as for tickets. Many are also permitting a donor to convert their seat contributions to what they suggest would be a tax-deductible contribution. However, in the case of some colleges, there is serious doubt as to whether these arrangements avoid the restrictions of Section 170(l) with respect to seating rights. This would include those programs which continue to award points in their priority seating program or seating rights for the following season that would not be extended to those requesting refunds.
The Clemson IPTAY program, for example, was permitting IPTAY donors options of either “continuing to invest in IPTAY in exchange for Priority Point Bonuses” or request a refund. The priority point bonuses would very likely be considered a right to purchase seating and would result in the donation being non-deductible. If the donor waived all rights to any seating preferences including the priority points, it would appear the donation would not be subject to the disallowance provision of Section 170(l).
Assuming the donor obtains the requisite acknowledgement letter from the charitable organization and is not obtaining any rights to purchase tickets as a result of that payment, it would appear that the payment would be treated as a tax-deductible contribution. However, what would happen if the contribution was made in 2019? Would you be able to deduct this on your 2019 tax return if you haven’t filed it already? The answer to this is not clear. The payment that was made in 2019 but was not converted until 2020 would appear to be effectively a refund and re-contribution in 2020. Also, there would appear to be an absence of donative intent in 2019 which is not the case for 2020. It may be the IRS will provide some guidance on this issue in the near future. Until that happens, there appears to be a reasonable basis for taking a deduction in 2019 assuming the donor obtains an acknowledgement letter from the charitable organization for that year.
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For more information on this and other tax-related issues, contact a member of our team at Elliott Davis.