Under general income tax rules, if a donor receives any substantial benefit in exchange for a charitable contribution, the donor’s charitable contribution is reduced by the value of what is received in return. Prior to TCJA, a taxpayer who made a charitable contribution to a college or university in exchange for the “right to purchase” tickets to a sporting event could claim a charitable contribution deduction equal to 80% of the payment. The taxpayer was deemed to receive a benefit equal to the remaining 20% of the payment, making that portion nondeductible.
Under TCJA, that 80% deduction is now eliminated, making the full amount of such a payment nondeductible for income tax purposes. This change is likely to cost top college athletic departments millions in charitable donations from alumni — a significant percentage of their revenue stream.
Note that payments made for the “actual purchase” of those tickets have never been deductible as charitable contributions. However, they could have potentially been deductible as a business expense if certain requirements were satisfied. But TCJA also eliminated the business deduction for entertainment expenses, including activities such as taking a client or a prospect to sporting events (or the theater, concerts, golf courses, etc.). TCJA also eliminates deductions for expenses incurred for entertainment facilities (for example, a stadium suite or skybox).
Also under TCJA, colleges and universities, like other nonprofit organizations, will be charged a 21% excise tax on employee compensation over $1 million for any of their five highest-paid employees. At least 78 college football head coaches made at least $1 million in 2017, according to USA Today’s annual survey. The tax would also be levied on “parachute payments,” which includes buyouts to fired employees, such as coaches. More than 100 schools would owe their coach a buyout of more than $1 million if he were fired, according to USA Today.
I guess if the contributions to college athletic departments decrease as a result of the elimination of charitable deductions for payments made for the right to purchase tickets, the resulting decrease in cash inflows might reduce the cash outflows for head coach salaries, making the new excise tax less of a concern? Not exactly a win for the home team.