This is not news. The IRS issued this opinion in April and released it publicly on June 27. (I likely missed it because June 27 was also the last day of the O’Bannon trial, so I was a tad busy.) But the IRS was kind enough to put a spike into the heart of all of the concern-trolling about how the Northwestern Union vote was going to create a change in the tax treatment of athletic scholarships. In short, it won’t.
My evidence is the following IRS advisory letter (sent to the Senate), which is available publicly on the web at http://www.irs.gov/pub/irs-wd/14-0016.pdf
Regarding the NLRB decision, whether an individual is treated as an employee for labor law purposes is not controlling of whether the individual is an employee for federal tax purposes. Accordingly, the NLRB decision does not control the tax treatment of athletic scholarships. The treatment of scholarships for federal income tax purposes is governed by the Internal Revenue Code (Code)….
Section 117 of the Code allows a taxpayer to exclude a qualified scholarship from gross income. …
It has long been the position of the Internal Revenue Service that athletic scholarships can qualify for exclusion from income under section 117. Revenue Ruling 77-263,1977-2 C.B. 47, addresses the tax treatment of athletic scholarships where the studentathlete is expected to participate in the sport, and the scholarship is not cancelled in event the student cannot participate and the student is not required to engage in any other activities in lieu of participating in the sport. The ruling holds that the athletic scholarship awarded by the university is primarily to aid the recipients in pursuing their studies and, therefore, is excludable under section 117….