Tax on universities for wagering-linked athletes

Summary#

The Fair Play Enforcement Act would amend the Internal Revenue Code of 1986 by adding an excise tax (a tax on a specific activity) for eligible educational institutions that knowingly allow certain people to compete in intercollegiate athletics. Its stated goal is to impose that tax; the bill does not itself ban those people from competing. Introduced in the House and referred to the Ways and Means Committee, it is not law, and whether it will pass is uncertain.

  • The tax would apply when an eligible institution knowingly allows active competition by someone who has placed any wager on an intercollegiate event, or who was employed as an athlete by and appeared on a professional sports franchise’s roster for a similar event.
  • The tax would be based on the institution’s gross athletic receipts for the year of the violation—not all of its receipts. The rate would be 5% for one violation, 10% for two, and 20% for more than two over that year and the previous five tax years.
  • For wager-related violations, the Secretary of the Treasury must count violations involving the same facts and circumstances as one if the Secretary determines they are derived from the same facts and circumstances.
  • The tax would not apply to participation in practice, being listed on a roster without actively competing, or competing under a court order. The Secretary must issue regulations or other guidance as needed or appropriate.

What it means for you#

  • Eligible educational institutions: If an institution knowingly allows a specified individual to actively compete, it would owe the tax for that tax year. The bill does not require the institution to exclude the individual; it imposes a financial consequence.
  • Athletes and other individuals: The bill does not directly impose a tax on you or make participation itself illegal. It does not require you to apply for permission or create a process for deciding whether you may compete.
  • Taxpayers and the public: The bill creates a potential source of federal tax revenue, but the amount is not estimated.

Money#

No estimate of federal revenue or institutions’ tax bills is provided.

  • The tax would be a percentage of an institution’s gross athletic receipts for the year of a violation, with the rate increasing based on violations in the current and previous five tax years.
  • The Secretary of the Treasury must issue regulations or guidance as needed or appropriate. The bill gives no estimate of the administrative cost or staffing involved.
  • The bill does not appropriate money.

What is unclear#

  • The bill uses the definition of “eligible educational institution” in another part of the Internal Revenue Code. That Code text was not supplied, so its exact coverage and how the bill changes current law could not be verified.
  • “Active participation,” “similar athletic event,” and “knowingly allows” are not defined in the bill.
  • The bill does not specify how violations would be investigated, determined, or challenged. It directs the Secretary to issue regulations or guidance, but does not set out those details.
  • The bill does not say how the tax would interact with any existing rules or programs. The current Code was not supplied, so whether similar taxes or restrictions already exist could not be verified.

Case for#

  • The bill appears intended to discourage institutions from knowingly allowing people with a connection to wagering or professional sports to compete.
  • A possible argument for the tax is that it rises with the institution’s number of violations, rather than imposing the same rate in every case.
  • The exceptions mean that practice, roster listing without competition, and participation under a court order would not trigger this tax.

Case against#

  • The tax is based on gross athletic receipts, not on money gained from a violation. A violation could therefore lead to a tax calculated on a much larger amount.
  • The bill does not set a minimum wager, limit when a wager counts, or explain what makes a professional event “similar.” The scope of who counts as a specified individual may therefore be broad.
  • The bill leaves key terms and the process for deciding whether a violation occurred to regulations or other guidance, without spelling out those details in the bill.