Tax Insights

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Wait – what? My college life may be a fraud?

college admissions scandal, charitable contribution, tax, deductionI woke up to a text from my youngest daughter on Wednesday morning (yes, I know it is tax season, but she is living on the East Coast and with Daylight Saving Time, so she is three hours ahead of me!) jokingly asking if I had purchased her way into the University of Arizona.

After reassuring her that her achievements and scholarship were all based upon her actual abilities, I began pondering the tax ramifications of the college admissions scandal that has rocked the country in a most titillating fashion.

Because based upon my conversations with clients – none of whom are in the ultra <1% stratosphere – for everything they pay out, they want a tax deduction!

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So, how do you take money that you pay out for someone taking the ACT or SAT exams for your child, or the money you pay to have their face photoshopped as if to appear they were on a crew team or played football and get a tax break? How does that work? Well, you call it a charitable contribution of course! Thereby not only working to buy your child a place at an elite university but getting a charitable deduction for the payment.

It gets better – the employees of said tax-exempt foundation referenced in the college admissions scandal actually sent the required letters with the requisite “no goods or services” language on it to the taxpayers allegedly making the bribes.

And I am sure the FBI is already looking at the tax returns for the coaches and test takers suspected in this scheme to make sure that they paid income tax on that ill-gotten money they allegedly received. Because even money received in the conduct of an illegal activity is taxable income. I mean, I am not sure what NAICS code you would use on your tax return (I checked the website and put in a key word of “bribe” and had no hits.), but it is taxable.

Which brings us back to the question of the day – does the income qualify for the 20% deduction under Code Section 199A?

Donna H. Laubscher, CPA