New Schools Named in FBI Investigation

[Aargh]

All those guys who didn't take the witness stand might be a little more willing to talk to the NCAA than to the prosecuting attorneys.

The NCAA may have no choice but to make an example of Kansas to show UNC, UK, and Duke that they better not get caught. Take down one (of the blue bloods) for the good of all (of the blue bloods).

[ShockTalk]

All those guys who didn't take the witness stand might be a little more willing to talk to the NCAA than to the prosecuting attorneys.

The NCAA may have no choice but to make an example of Kansas to show UNC, UK, and Duke that they better not get caught. Take down one (of the blue bloods) for the good of all (of the blue bloods).

Nah. They'll let it slide, but see that we won't get Teddy this year.

[another shocker]

sad but true.

[Eric]

Crucify him!!!

[jcdshocker]

The Rug might have just been pulled out from under Toupee Bill!

[Aargh]

This one is harder for the NCAA to ignore than sham classes. Plausible deniability was the only straw holding up the illusion of college athletes as amateurs. The NCAA has been fighting for years to keep college athletes classified as amateurs. The moment athletes can demonstrate that they are actually employees, the entire reason for the NCAA's existence is shaken.

It doesn't really matter if they are employees of a shoe company or employees of a university. As employees, athletes have an entire universe of rights that are not afforded to amateur athletes who are voluntarily performing for the pure love of the sport. As employees, athletes could form their own governing body and eliminate the NCAA from college athletics.

[ShockingButTrue]

[im4wsu]

This one is harder for the NCAA to ignore than sham classes. Plausible deniability was the only straw holding up the illusion of college athletes as amateurs. The NCAA has been fighting for years to keep college athletes classified as amateurs. The moment athletes can demonstrate that they are actually employees, the entire reason for the NCAA's existence is shaken.

It doesn't really matter if they are employees of a shoe company or employees of a university. As employees, athletes have an entire universe of rights that are not afforded to amateur athletes who are voluntarily performing for the pure love of the sport. As employees, athletes could form their own governing body and eliminate the NCAA from college athletics.

Your use of the word "employee" stimulates the thought of taxes that should have been paid on these payments to players. Do the shoe companies owe a ton of back taxes; do the agents have that responsibility; does the recipient also owe taxes?

[shock]

Probably the recipients.

[1972Shocker]

Your use of the word "employee" stimulates the thought of taxes that should have been paid on these payments to players. Do the shoe companies owe a ton of back taxes; do the agents have that responsibility; does the recipient also owe taxes?

Employment status irrelevant. These payments would be taxable income which would be subject to income taxes and self-employment taxes (social security and medicare taxes at 15.3%). The penalties and interest are substantial as well, maybe more than the taxes. I doubt the IRS would pursue criminal fraud charges but I suppose they could.

If he payments were made to the parents instead of the player I would expect that the IRS would treat it as a step transaction where the player is constrively deemed to have earned the payment and then gifted it to his parents. There would not be any gift taxes due although the palyers lifetime exemption would be reduced and there are filing requirements so failure to file penalties woudl come into play.

Hard to believe the IRS won't eventually get involved by it is possible they won't. Most of the guys getting the big bucks shouldn't have any problem paying up if the made it to the NBA.

[Dan]

Al Capone was convicted of tax fraud. It’s an easy way to imprison shady business people.

[1972Shocker]

Comparing these guys to Al Capone is a bit of a stretch. Now comparing the NCAA to Al Capone might be more appropriate . Organized Slime.

[Dan]

comparison only in terms of large amounts of cash being transferred around and unaccounted for. The IRS frowns upon this.

[1972Shocker]

Exactly. In inflation adusted terms these Shoe company payments are nowhere near Capone's tansfgessions plus the payments may not even have been illegal. The amounts any individual recipient in the current case received and failed to report while significant are not particularly large assuming we are talking about $100k or so each. No doubt enough to get the attention of the IRS but not necessarily the IRS ciminal division.

As far as the Shoe companies are concerned maybe the IRS could penalize them for failure to provide and file 1099 forms to the recipients.

[Shockm]

Employment status irrelevant. These payments would be taxable income which would be subject to income taxes and self-employment taxes (social security and medicare taxes at 15.3%). The penalties and interest are substantial as well, maybe more than the taxes. I doubt the IRS would pursue criminal fraud charges but I suppose they could.

If he payments were made to the parents instead of the player I would expect that the IRS would treat it as a step transaction where the player is constrively deemed to have earned the payment and then gifted it to his parents. There would not be any gift taxes due although the palyers lifetime exemption would be reduced and there are filing requirements so failure to file penalties woudl come into play.

Hard to believe the IRS won't eventually get involved by it is possible they won't. Most of the guys getting the big bucks shouldn't have any problem paying up if the made it to the NBA.

If these athletes are considered professional collegiate athletes by the court and not amateurs, then theoretically, all athletes should pay taxes on their academic scholarships and other monies that they are given. While not a direct violation in this case, it would have extensive implications for all student athletes (in every sport) and universities going forward.

[Kung Wu]

Employment status irrelevant. These payments would be taxable income which would be subject to income taxes and self-employment taxes (social security and medicare taxes at 15.3%). The penalties and interest are substantial as well, maybe more than the taxes. I doubt the IRS would pursue criminal fraud charges but I suppose they could.

If he payments were made to the parents instead of the player I would expect that the IRS would treat it as a step transaction where the player is constrively deemed to have earned the payment and then gifted it to his parents. There would not be any gift taxes due although the palyers lifetime exemption would be reduced and there are filing requirements so failure to file penalties woudl come into play.

Hard to believe the IRS won't eventually get involved by it is possible they won't. Most of the guys getting the big bucks shouldn't have any problem paying up if the made it to the NBA.

I think they would look at the transaction as a gift. Definitely to the student-athlete in my mind, with the parents being legal guardians just sort of managing the money (except for where the shoe consultant is on record for claiming otherwise). There are exemptions in the code on gifts for the purposes of paying tuition, books, etc as being unearned income -- I have no idea what the cap on that portion of the gift would qualify for, if any -- do you have any insight on that? e.g. kids receiving less than, say, $14k wouldn't have to pay taxes on the gift if they can show it was for education expenses? Since these were one time gifts, it's arguable that the $100,000 was for 4 years of college (tuition and living expenses for $25k for 4 years which wouldn't be out of line with reality)?

Assuming it's considered a gift (because it really is a gift), aren't the _donors_ liable for paying taxes on those gifts unless the donee agrees to cover it? That would put the shoe company and/or consultant in hot water with the IRS, if correct. Potentially fraud right there if they claim it as an ordinary expense and didn't cover the gift tax?

I don't know what I am talking about but it sounds like you do ... more thoughts on this?

[1972Shocker]

I suppose the focus would have to be on the substance of these transactions. Clearly the shoe/apparel companies are making these payments because they believe it will help them sell more shoes and apparel in the future. Having the best teams that are on television the most wearing their shoes and apparel and eventually having NBA talent endorsing there products is highly valued.

So at the collegiate level how do you make sure the team you are providing apparel to is one of the best teams and thus one of the teams that will have the greatest visibility on TV and all forms of media with that visibility and ype carried over to the NBA. You buy the best talent you can to attend the high profile program you are supporting by providing apparel. How you can do this an not be classified as a booster is hard for me to understand.

So these [ayments are either the purchase of advertising and promotional materials (a highly rated player for a highly visible program) or they are donations to the basketball programs of the players are purchased for. The former is probably the most logical since the shoe companies are not doing this altruistically. So they are acquiring the services of the young men to market their products through one of their marketing channels (secured by donating shoes and apparel). That is a taxable transaction in my view.

More technically:

A gift is a transfer that (1) is voluntary, and (2) is motivated by a "detached and disinterested generosity." Commissioner v. Duberstein, 363 U.S. 278, 285 (1960). "Where consideration in the form of substantial privileges or benefits is received in exchange for the payment there is a presumption that the payments are not gifts." Rev. Rul. 86-63.

[rrshock]

How could it be written off as a gift, considering they have a full ride scholly to play ball? They would have a real hard time proving they had education expenses that high, ove the cost of what is paid for.

[Kung Wu]

How could it be written off as a gift, considering they have a full ride scholly to play ball? They would have a real hard time proving they had education expenses that high, ove the cost of what is paid for.

There are two things in play here: 1) a gift (has nothing to do with what the money is for -- it's an IRS ruling that says you received "one off" money [one off is my term not the IRS']), and 2) gifts used for education _and necessary expenses_. It's easy to show this money is a gift. But whether a portion or all of it can be exempt from social security tax, they would need to show that the money went to education and necessary expenses. Even kids on full rides often have to pay some fees and some of their book expenses. The question is then do living expenses count as "necessary expenses"? Keep in mind this is only regarding social security tax, not general gift taxes -- someone (donor or donee) is on the hook for that. Who paid it?

[1972Shocker]

It is only a gift if it is made 1) voluntarily and 2) is motivated by a "detached and disinterested generosity. While these payments are made voluntarily they clearly do not meet the motivation standard. So it really doesn't matter what they are used for.

There are gift tax rules that apply to certain education and medical expenses. Education expenses for this purpose is limited to tuition. There is an unlimited gift tax exlusion if these payments are made directly to the educational organization or to the health care provider. The payments in question here were not paid to the school in payment for tuition. Of course, I don't think these are gifts anyway so this point is somewhat moot.

Nor for income taxes purposes does what the recipient spends the money on make any difference.

[Kung Wu]

I see, because the shoe company is willing to take a risk on betting on seeing a future financial benefit, they aren't "disinterested". That makes sense. So if it's not a gift and it's not a loan, how do you classify this income? Or is it even relevant?

[1972Shocker]

Seems to me that the purpose of the payment is to induce the player to agree to attend an Adidas school (in htis case) and as a result promote the shoes and apparel that Adidas is providing to the school. I guess the closest it would come to would be endorsement income which to an indvidual would be ordinary earned income subject to income taxes and self-employment taxes.

Not sure what laws Adidas has broken but they obviously had to break a boatload of NCAA rules to implement this marketing program and it is very hard to believe that the coaches and programs involved did not know what was going on.

I suspect part of the pitch Adidas and its competitors make to the "bluebloods" in order to induce them to sign on with them is that they can deliver the goods. And by goods I don't mean just shoes and apparel. Obviously, what Adidas and their competitors want is the TV and media expsoure for the products worn by the most successful players and teams. It becomes a self-perpetuating cylce with the rich getting richer. I don't see the schools as being victims at all.

[Dan]

You can gift anyone up to $15k per year tax free and can gift as many people as you want. People do this all the time but it’s all documented on their tax returns so as to lower their tax burden and transfer their wealth to the heirs or others over time.

[1972Shocker]

Yes and you can exceed the $15k if you make payments for tuition and medical expenses directly to the service provider. Any gifts less than $15k per year per recipient are not documented on tax returns. They do potentially lower future gift and estate tax burdens if hey have a large enough estate. There is no reporting requirements for gifts under $15k. Married personal can split gifts if they elect so they can give $30k per year per donee but have tor report this on gift tax returns in order to make the gift splitting election. However, gifts in excess of $15k per year per donee or gifts of a future interest (as opposed to gifts of a present interest) in any amount must be reported on gift tax returns. Still unlikely to result in gift tax with the current lifetime gift and estate tax exclusion in excess of $11 million ($22 million+ for married couples). However, these are individual tax provisions. If you are dealing with these issues you probably have very, very good seating in Koch Arena.

Payments made by a corporate enitty such as Adidas would be sujbect to corporate tax provisions. Business gifts are gifts to a taxpayer's clients or other business associates made in the course of the taxpayer's trade or business. They must be ordinary and necessary to the taxpayer's business. The cost of qualified business gifts is deductible to a maximum of $25 per year per client or customer. Big whoop, huh!

But again I don't think the payments are gifts in any way, shape or form and I wouldn't want to have to make that argument in a tax case. With the IRS they will usually argue the substance of a transaction over the form of a transaction unless arguing form over substance yields them a bigger take