Main Menu

Tax Treatment of College Athletic Scholarships


Player EightThe IRS, in a just-released "information letter," described the tax treatment of college athletic scholarships. The IRS reiterated that whether an individual is treated as an employee for labor law purposes is not controlling for purposes of determining if an individual is an employee for federal taxation.

The information letter responded to an inquiry from Sen. Richard Burr, R-N.C., for clarification about the federal tax treatment of college athletic scholarships following a decision by a regional office of the National Labor Relations Board (NLRB) concerning student athletes and collective bargaining. The decision by the regional office is now being reviewed by the NLRB.


In March, the NLRB Region 13 Office determined that college football players receiving grant-in-aid scholarships were "employees" within the meaning of the National Labor Relations Act. The regional office found that the players were not "primarily students." The regional office concluded that the players were entitled to choose whether or not to be represented for purposes of collective bargaining.

The NLRB regional office found that the players spent 50 to 60 hours per week on their football duties during a one-month training camp before the start of the academic year and an additional 40 to 50 hours per week on football during the three or four month football season.

IRS analysis

The IRS first noted that treatment of scholarships for federal income tax purposes is governed by Internal Revenue Code Sec. 117, which allows a taxpayer to exclude a qualified scholarship from gross income. A qualified scholarship, the IRS explained, means any amount received by an individual as a scholarship to the extent the individual establishes that, in accordance with the conditions of the grant, the amount was used for qualified tuition and related expenses. Scholarship funds used for nonqualified expenses are included in the recipient's taxable income.

The IRS also noted that Rev. Rul. 77-263 addresses scholarships. The IRS concluded in Rev. Rul. 77-263 that the athletic scholarships were awarded by the university primarily to aid the taxpayers in pursuing their studies. As a result, the value of the scholarships would be excluded from the taxpayers' gross incomes under Code Sec. 117.

More to Come

On July 3, Burr and five Congressional colleagues filed a brief with the NLRB urging it to reverse the decision by the regional office. "Congress never intended for college athletes to be considered employees under the National Labor Relations Act, and doing so is incompatible with the student-university relationship," the lawmakers wrote.

Heilich_DaveFor more information, please contact your Brown Smith Wallace Tax Advisor, or Dave Heilich, at 314.983.1273 or

Schedule A Meeting



Back to Page