There’s no denying that amateur sports, especially college football, are big business. Together, the 15 top-grossing teams score over $1 billion in revenue, with the University of Texas Longhorns alone generating $71.2 million in profit.

Numbers like that would normally make the “receivers” at the IRS smile. But college football is different. The big Division I schools that sponsor the most competitive teams are all tax-exempt. And the IRS loses again on a juicy revenue stream that’s unique to college sports — required donations, sometimes totaling twice the cost of a season ticket, that fans make to the school to secure those seats.

Back in 1986, boosters couldn’t deduct the contributions they made specifically to secure sports tickets. But Louisiana Senator Russell Long, who sat on the Finance Committee, met with lobbyists who argued that his home state Louisiana State University needed tax-deductible contributions to add seats to Tiger Stadium. Long agreed, but didn’t want to be seen showing favoritism to his own constituent. So he approached Texas Representative Jake Pickle, whose Austin district included the Longhorns’ campus. Together, the two lawmakers cobbled together the sort of backroom deal that makes the rest of us proud to be Americans. They added a provision to the 1986 Tax Reform Act which preserved a 100% deduction — for just those two schools! Here’s how the legislation describes one of them to limit its reach:

“Such institution was mandated by a State constitution in 1876; such institution was established by a State legislature in March 1881; is located in a State capital pursuant to a statewide election in Sept. 1881; the campus of such institution formally opened on Sept. 15, 1883; such institution is operated under the authority of a 9-member board of regents appointed by the governor.”

Naturally, every other school in the country complained. So — did the lawmakers turn red in embarrassment at getting caught with their hands in the cookie jar and shut down the offending provision? Noooooooo . . . two years later, they voted to trim the deduction to 80% of the donation, but extend it to everyone.

How much does this all cost the IRS? Well, nobody really knows. But Ohio State University is the leader in seat-related donations, with $38.7 million. LSU is next with $38 million, and Texas is third with $33.9 million. (In fact, LSU is about to spend $80 million to add 70 more luxury boxes and 6,900 more seats, which should bring in another $15 million in donations.) If the average donor pays 25% in federal tax, that means $22 million in lost tax dollars. And that’s just three schools out of 1,000 eligible to collect such donations. Of course, defenders of the deduction argue that it’s worth the hit to the Treasury. They note that donations go to support scholarships, facilities, and other university expenses.

This Saturday, it will be hard to turn on a television without hearing about the upcoming election or “Frankenstorm” Sandy. College football will provide a welcome respite to millions of fans across the country. So next time you sit down to watch your favorite team, hoist a cold one to the tax code that helps make their success possible!

A regular form of fundraising by charitable organizations consists of sales or auctions of property or services at a price in excess of value. These are referred to as “quid pro quo” contributions or dual payments made that consist partly of a charitable gift and partly of consideration for goods or services provided to the donor.

Quid pro quo contributions typically include the purchase of tickets for sightseeing tours, all-expense-paid trips, theatrical or concert performances, books or subscriptions to magazines, stationery, candy, etc., and are sold with a generous mark-up that is designed to help the charity in performing its functions. In these cases, the charitable deduction is the excess of the payment over the value received by the purchaser-contributor. For instance, when tickets to a show are purchased from a charity at a price in excess of the normal admission charge, the excess over the latter (plus tax) is a charitable contribution.

Determining and documenting the amount of the purchase that represents the charitable portion is the key to being able to take a charitable tax deduction for quid pro quo purchases. Tax law requires charitable organizations that receive a quid pro quo contribution in excess of $75 to provide a written statement, in connection with soliciting or receiving the contribution, that informs the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the amount of the purchase that is in excess of the value of the property or service purchased and a good-faith estimate of the value of the good or services purchased.

Example #1—A taxpayer purchases a cookbook from a charity for $100. The charity provides the taxpayer with a good faith estimate of $20 for the value of the book in a written disclosure statement. Thus, the taxpayer’s charitable deduction is $80 ($100 minus the $20 value of the book).

Example #2—A taxpayer attends a charity auction. The charity provides a catalog of the items for auction and a good-faith estimate of the value of each item. The taxpayer is the successful bidder for a vase valued at $100 in the catalog, for which the taxpayer bid and paid $500. The taxpayer’s charitable deduction is $400 ($500 minus the good-faith valuation of $100).

Example #3—A taxpayer pays $40 to see a special showing of a movie for the benefit of a qualified charity. The ticket read “Contribution $40”. If the regular price for the movie is $10, the contribution would be $30 ($40 minus the regular $10 ticket price).

If you made or are considering making a quid pro quo purchase from a charitable organization and have questions relating to the amount that will represent a charitable contribution, please give this office a call.

A few days ago, I posted that the House approved the Haiti Relief Bill.  On Thursday, the bill was unanimously approved by the Senate and was signed by President Obama on Friday.

In short, the bill makes most charitable contributions for Haiti Relief to be deducted on qualifying taxpayers 2009 tax return, instead of requiring that they wait until they file their 2010 return in order to obtain the tax benefit.

From the Joint Committee on Taxation Technical Explanation:

The provision permits taxpayers to treat charitable contributions of cash made after January 11, 2010, and before March 1, 2010, as contributions made on December 31, 2009, if such contributions were for the purpose of providing relief to victims in areas affected by the earthquake in Haiti that occurred on January 12, 2010. Thus, the effect of the provision is to give calendar-year taxpayers who make Haitian earthquake-related charitable contributions of cash after January 11, 2010, and before March 1, 2010, the opportunity to accelerate their tax benefit. Under the provision, such taxpayers may realize the tax benefit of such contributions by taking a deduction on their 2009 tax return.

The provision also clarifies the recordkeeping requirement for monetary contributions eligible for the accelerated income tax benefits described above. With respect to such contributions, a telephone bill will also satisfy the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution, and the amount of the contribution. Thus, for example, in the case of a charitable contribution made by text message and chargeable to a telephone or wireless account, a bill from the telecommunications company containing the relevant information will satisfy the recordkeeping requirement.

One thing to note on this bill is that in an extremely rare act of bipartisanship, the bill was passed unanimously in the House and the Senate.  I think that Joe Kristan from the Roth & Company’s Tax Update Blog put it best in Haiti Earthquake Rattles the Tax Law:

“As bad as Haiti is, it’s not the first disaster ever, and one more change to the tax law isn’t going to solve that sad country’s problems. Of course, the proposed changes are more about politicians making a show of concern than actually accomplishing anything.”

The law is going to do very little, if anything, to help the people in Haiti.  I doubt to many people are going to read this and say, “Gee, I wasn’t really going to donate, but since I can deduct it off my taxes for 2009 instead of 2010, here’s a check.”  As Joe put it, it is a “feel good” thing that the politicians are going to make it look like they care.

The House of Representatives voted unanimously to approve a bill that will allow taxpayers to claim charitable donations made related to Haiti relief efforts on their 2009 tax returns rather than waiting until they filed their 2010 returns to claim the deduction.    It also allows taxpayers who sent their donation in via text message to use their phone bill as proof of the contribution.  

These deductions are considered an itemized charitable deduction just as any other charitable deduction is.  It will not be treated differently other than the year that you are allowed to deduct it.

I have not seen details of the actual bill yet, but it is supposed to apply to contributions made between January 12, 2010 and February 28, 2010. 

Keep in mind that this is not a requirement to claim the contribution in 2009.  It is only an option.  Be sure to assess your individual tax situation or discuss with your tax planner to make sure it will not work out better to claim your deduction in 2010.

The Senate has promised that they will pass the bill swiftly as well, and it is expected that President Obama will sign the legislation into law quickly.