In a reversal of a decision by a local agent in Iowa, the Internal Revenue Service has notified a Des Moines businessman that it will allow tax deductions for contributions to college athletic departments for luxury boxes in college football stadiums and basketball arenas.
In the memorandum, the IRS concluded that, based on the law's legislative history, Congress intended for a sizable part of donations for luxury seats in college venues to be tax deductible, even though another IRS regulation otherwise forbids even a business deduction for luxury suites.
Although the IRS action pertains specifically to facts surrounding the taxpayer, R.L. "Rod" French, college athletic officials greeted the ruling with relief.
"We're all comforted by that," said Chris Plonsky, a senior associate athletics director at the University of Texas, which has opened 64 suites in its football stadium the past two seasons as part of $95 million in athletic improvements. "It's good news for all of us who are in the suite business."
These types of contributions often involve more than $100,000 -- sometimes much more -- and have an enormous impact not only on facility improvement projects but also on annual operating budgets. French, through his truck sales company, donated $200,000 to Iowa State for luxury boxes in its football stadium and claimed a deduction of $143,584. That amounted to 80 percent of his donation after the value of tickets and parking for 10 years were deducted. Iowa State determined the value of the tickets and the parking.
Congress passed a law in 1988 allowing taxpayers to take an 80 percent deduction on gifts to athletic foundations, even though the value of benefits such as the right to buy season tickets may exceed 20 percent of the total donation.
"It was a long process," said Bob Johnson, chief financial officer for French's company. "The IRS told us it could be a test case and set a precedent. That is why we decided to fight their decision, because of the effect it would have not only on Iowa State donors but donors around the country."
University of Arkansas Athletic Director Frank Broyles and a lawyer for the Division I-A Athletic Directors Association met with top IRS officials on June 4. At that time, according to sources familiar with the meeting, those IRS officials indicated they agreed with the athletic directors' position. The session did not include any discussion of French's case specifically. The athletic directors requested and are awaiting guidelines from the IRS "confirming a uniform approach to be used by agents in the field and by institutions and their donors."
French, who said he would not have made the donation without the tax deduction, said he talked to Broyles after receiving the IRS ruling Tuesday afternoon. He said Broyles told him that decision was exactly what the IRS had told him its policy would be. An IRS spokesman said the agency could not discuss matters pertaining to specific taxpayers.