Northwestern, O'Bannon and The Future: Cultivating a New Era for Taxing Qualified Scholarships

On March 26, 2014, the National Labor Relations Board (NLRB) ruled that Northwestern University’s scholarship football players were employees of the institution and could unionize and bargain collectively. From a federal income tax perspective, the significance of the NLRB decision—at that time—was that it could redefine the principle that select student-athletes are no longer unpaid amateurs receiving qualified scholarships, but instead are employees of their institutions, earning scholarship funds in exchange for services rendered as college athletes. Accordingly, a crucial question arising from the NLRB holding was whether the Internal Revenue Service could logically continue to treat qualified scholarships received by student-athletes as excludable from gross income. To analyze the potential effects of federal income tax on qualified scholarships in the future, this Article provides a brief judicial history of the pay-for-play model, analyzes the language of the Internal Revenue Code as it applies to qualified scholarships, evaluates the potential characterization of student-athletes as employees, and concludes that defining student-athletes as employees of their institutions could cultivate a new era in taxing qualified scholarships from a federal income tax perspective.