Kentucky athletics now an LLC

[HuskyNan]

For those who don’t know what an LLC is, it’s a Limited Liability Company, in other words, a business. This seems inevitable

Kentucky planning overhaul of college athletics department into new school corporate entity

With an estimated $50 million rise in expenses due to NCAA antitrust settlement, Kentucky plans corporate overhaul of athletics department.

www.usatoday.com

 

[pvdoggy]

Will they pay tax?

 

[Bone Dog]

Will they pay tax?

Good question. Also, will they be expected to turn a profit? The primary meaning of an LLC, or any corporation for that matter, is to protect the owners from liability for damages. Litigation against an LLC cannot touch the personal assets of the shareholders. But it also means that profits are distributed to those same shareholders. Who will the shareholders of this LLC be?

 

[Sifaka]

Will they pay tax?

The shareholder(s) will probably be the Trustees of the University, not as individuals but as an entity acting on behalf of the university. If not that, then whatever not for profit entity “owns” the university will likely own the LLC.

As to taxes, whatever profits or losses—more likely—may accrue will pass through to the owning entity, which in turn is a non-profit. So, short answer, no taxes will be paid, unless, of course, some nameless individual should most illegally direct the IRS to remove the non profit status of the University.

 

[HuskyNan]

Good question. Also, will they be expected to turn a profit? The primary meaning of an LLC, or any corporation for that matter, is to protect the owners from liability for damages. Litigation against an LLC cannot touch the personal assets of the shareholders. But it also means that profits are distributed to those same shareholders. Who will the shareholders of this LLC be?

There are no shareholders in an LLC. The profit passes through to the owners which I assume is the University.

 

[HuskyNan]

The shareholder(s) will probably be the Trustees of the University, not as individuals but as an entity acting on behalf of the university. If not that, then whatever not for profit entity “owns” the university will likely own the LLC.

As to taxes, whatever profits or losses—more likely—may accrue will pass through to the owning entity, which in turn is a non-profit. So, short answer, no taxes will be paid, unless, of course, some nameless individual should most illegally direct the IRS to remove the non profit status of the University.

Beat me to it

 

[TAK]

There are no shareholders in an LLC. The profit passes through to the owners which I assume is the University.

The owners are called members. If there is more than one owner, the LLC files a pass-through income tax return. Income flows through to the members as you stated.

Tax exempt entities can have “unrelated business income” which is taxable. I’m sure UK consulted its tax advisor. Everything about NIL and revenue sharing is complicated.

 

[Skeets]

The shareholder(s) will probably be the Trustees of the University, not as individuals but as an entity acting on behalf of the university. If not that, then whatever not for profit entity “owns” the university will likely own the LLC.

As to taxes, whatever profits or losses—more likely—may accrue will pass through to the owning entity, which in turn is a non-profit. So, short answer, no taxes will be paid, unless, of course, some nameless individual should most illegally direct the IRS to remove the non profit status of the University.

With or without non-profit status I doubt Kentucky's athletic dept. would ever turn a profit. The university, maybe, depending on how their endowment, if any, is treated. But the university is not the LLC, the athletic dept. is. But I understand your post was intended as a political statement. On the BY? Nice.

 

[Dogdude]

So the University may not pay tax, but they'll have to 1099 or W2 every student athlete, even those in the fringe sports. It depends on whether for not the athletes are considered employees or independent contractors. It's going to get interesting, but also a little depressing, as the fringe sports will suffer being demoted to club status as it's too expensive to support them. I see a lot of smaller colleges dropping athletics altogether down to club status.
I'm sure they'll go for non-profit status, otherwise there will be no tax write-off for the donors, which is a significant bonus for the bigger ones. As for turning a profit, forget about it. The medical research labs are the only department in any university that make money, and that's because the universities take a cut of the grant money that the labs get. I'd be curious to see what one of the top-five football schools make on their A.D. after all the other sport's expenses are factored in. There might be one or two in the plus column, but I bet that tv money gets blown pretty quickly.

 

[Lafayette]

Tax pro here (side job, but I run a tax nonprofit for inner city tax payers)...

LLCs are state business entities that have the following characteristics:
1. Are setup as Member or Manager (e.g., equity is as a % owner member or manager).
2. Is a pass-thru entity like S-Corps, Sole Proprietors are - meaning the LLC does not pay taxes, just files a return and members/manager pay taxes personally
3. If 1 person in the LLC, the IRS will tax like a sole proprietorship (Schedule C) and disregard the LLC; if there are > 1 members/managers the default is partnership taxation whereby the members/managers get a K-1 at year end (similar to W-2 employee year end).

Some interesting aspect as it relates to college athletics (e.g., Kentucky at the moment)
1. Like most public universities, donations without strings are 100% deducible to donors (meaning if someone gives $10k to Kentucky's LLC it's a charitable donation of $10k on their personal taxes - if they get some seating rights, it becomes deductible to the amount left after the value they got back (they would be told). This is only because the LLC would fall under the public university structure.
2. More likely if one wanted to entice more donors, they form a non-profit for the donors and have the LLC administer the payouts from the donations to members who could be players while staff are salaried workers. A player could get 1%, 2%, etc of the LLC and still not be considered an employee which fits the NCAA model for non-employee student athletes.
3. the LLC would also likely maintain the ties to the NIL collectives as donors to the non-profit might want donations directed to NIL vs. athletic facilities vs generalized donations.