Coaches Are Now More Expensive for Universities with the New Excise Tax

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By: D. Larry Crumbley, Contributor to the South-Western Federal Taxation series


An excise tax at the Federal corporate tax rate (21 percent) is applied to the five highest-paid covered employees of tax-exempt organizations where such employees’ remuneration exceeds $1 million or the employee receives excess parachute payments.  This excise tax applies to universities and their athletic associations (e.g., coaches). 

IRC §4960(a) states that a 21 percent excise tax is applied to so much of remuneration paid  for the tax year to a covered employee more than $1 million.  Remunerations include wages as well as nonqualified, unfunded deferred compensation plans or arrangements established by state and local governments and tax-exempt entities (both university and athletic associations).  There are at least 240 coaches and athletic directors earning more than $1 million (e.g., Alabama and Florida State).  Of course, presidents and other highly paid university employees may fall under this excise tax. 

In this context, a parachute payment might include a coachs payout clause to receive any compensation through the end of the contract after a termination. 

For example, a coach has compensation of $500,000 per year and is terminated without just cause with 4 years remaining in his contract.  According to Robert Lattinville and Roger Denny, the excise tax would be applied to approximately $500,000 (the present value of the amount more than 3 times his base amount, or $105,000 payable by the university). 

There is some controversy as to whether the new excise tax applies to public universities.  Public universities owe their tax-exempt status to the implied statutory immunity, and Ellen Aprill suggests that nothing in the Code language states that the new excise tax applies to an organization exempt from tax by reason of implied statutory immunity. 

Ideas for Discussion and Assignments 

  1. How may this excise tax translate to more job security and tenure for coaches at major universities? 
  2. Find the contract for the football or basketball coach at your university.  How much excise tax might your university have to pay?   
  3. Will this excise tax slow down the escalating salaries paid to coaches? 
  4. How may universities offload compensation obligations to vendors and right holders? 
  5. Go to’s website and find John J. Fisher, Jr. (Jimbo Fisher) 14-page, 10-year, $75 million football contract with Texas A&M University.  See especially clauses 2.9, 5.3, and 5.4. 
  6. If Texas A&M fires Fisher without just cause after 6 years, what will they owe him? When? 
  7. Calculate the excise tax Texas A&M University may have to pay each year. 
  8.   As currently written, does the new excise tax apply to public universities? Defend your answer. 


  1. IRC §§4960 and 457(f). 
  2. Robert Lattinville and Roger Denny, How the New Excise Tax Impacts Coach Compensation. 
  3. website (College Station, TX), John J. Fisher, Jr. Texas A&M University football contract. 
  4. Ellen Aprill, Congress Fumbles the Ball on Section 4960,, December 26, 2017. 
  5. R. Schmalbeck and L. Zelenak, The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax, Southern California Law Review, forthcoming, 




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