You can blame the NCAA for a lot but the tax code isn't one of them. Its been a little while since i've looked, but I thought most scholarships for full time students, applied to school costs aren't taxed. And anyway no students at Stanford are paying any tuition unless their parents make more than 130K per year. Even if athletes end up getting paid and taxed above the scholarship amount, that still gives them more money than not being paid at all.
EDIT: Why would the parent get the students scholarship? if it is treated as income it would be the students not the parents, and any tax bill on it is lower than the amount of the scholarship. plus the 28% rate doesn't kick in below 90k, and tax rates are marginal only applying to values over the threshold. 60K would have the amount over 37K taxed at 25%
No, scholarships are not taxable as far as I know, but why not? Why should a parent have pay tax on the income that goes to pay for his/her child's education while a scholarship athlete's parent has no tax obligation. The fair thing is to tax both or else make the cost of college tax deductible.
If a student had to pay income tax on the value of their scholarship, most would be tax delinquents. So as a matter of practicality let's agree that any tax would be paid by their parents. And yes, the value of the scholarship is a lot more than the tax on it and many parents would still be happy with a scholarship. But what about a poor family? How do they come up with the tax payment?
My point is simply that those who want to see college athletes treated like employees are opening up a huge can of worms.
And as far as Stanford not charging tuition to many of the students, the fact that they do charge tuition makes any reduction a "gift" in my opinion and as such should be taxable for any amount over, I believe, 13K/yr. Of course the IRS doesn't see it that way but that is merely a political decision. If someone gave me 50K/yr as a gift in order to attend college, most of that gift would be taxable. It's only when the gift comes from the politically powerful higher education system that it becomes tax free.