No Tax Deduction If Donor Gets Preferred Seat?

College administrators and athletic directors pleaded with the Internal Revenue Service Monday to allow a tax deduction for scholarship-fund gifts even if the donor receives preferential seating at football games in return.

To do otherwise, said representatives of the American Council on Education and the National Collegiate Athletic Assn., would have a chilling effect on contributions for education and force schools to seek more money from tax revenues.

The educators asked the IRS to kill a 1984 ruling that denied a charity deduction for a contribution to an athletic scholarship fund because the giver was put on a waiting list to buy preferred seats for the college’s home football games. The tax agency held simply that the privilege of buying preferred seats was worth more than the $300 donation.

The ruling caused such an outcry from colleges and alumni fund administrators that the Treasury Department, under pressure from key members of Congress, suspended the order until a public hearing could be held.

At that hearing Monday, the IRS insisted the ruling simply restated a longstanding principle: that a contribution is a contribution only if nothing is received in return.

However, Charles M. Morgan III, associate chief counsel, said the IRS may need to consider how the ruling would affect various types of college-giving programs as well as how to value such benefits as prerferred seating and free stadium parking.

“The law is still what the law was” before the ruling was issued and suspended, Morgan said. He said the agency will act quickly in determining whether to amend or reimpose the ruling. He noted that a “revenue ruling,” the technical name for the holding, applies only to a strictly limited set of circumstances, and that a change in circumstances might bring a different result.

The disputed rule referred to a person who gave $300 a year to a college athletic scholarship fund, and the only thing received in return was the right to purchase a season ticket between the 40-yard lines for the school’s home games.

The waiting list for those preferred seats contained 2,000 names; a person on the list could buy the ticket only when one became available and only by paying an additional $120.

“The preferred seating has significant value; therefore, the taxpayer cannot deduct any part of the $300 payment to the athletic scholarship program as a charitable contribution . . . unless the taxpayer can establish that the $300 payment exceeds the monetary value of the right to purchase a season ticket for $120,” the ruling held.

“How can we value the benefit in the absence of a market” for preferred seating, Farris W. Womack, vice chancellor of the University of North Carolina and a representative of the American Council on Education, asked at the hearing. “What if there is no waiting list? . . . Is the ruling limited to athletic programs?”

Those questions must be answered quickly because “the ruling already has had a chilling effect on giving” by causing “fear on the part of donors that their gifts may be disallowed,” Womack said. He added that a reduction in giving will force colleges to turn to governments for more money.