Alert: IRS considers paid youth coaches as employees, not contractors

Originally Published in May 2014

When the Internal Revenue Service contacted the Fredericksburg Area Soccer Association in the spring of 2013 about an impending audit, its general manager Pete Cinalli admitted to feeling a little anxious.

“Anytime the IRS is involved you get a little nervous,” he said. “We were confident in our accounting principles, but you never know what can happen.”

“Youth soccer is no longer a volunteer sport.” – Louise Waxler

The IRS determined that FASA should consider its coaches as employees and not independent contractors, forcing the association to pay them as it does a full-time administrator or executive. FASA’s federal payroll tax payments increased and the coaches now have federal taxes withdrawn from payments.

As a result of the audit, FASA has been forced to raise its fees charged to its members.

“They looked at it as if we are controlling them,” said Cinalli. “It was a critical issue. We felt what we were doing was considered best practices for a youth sports nonprofit group We weren’t hiding anything.”

FASA is just one youth soccer club in the Washington, D.C. area that is adjusting to a new reality of paying coaches as employees rather than contractors. The Arlington Soccer Association started paying its coaches as employees in January 2008 and McLean Youth Soccer started doing the same in November 2010. Many clubs are considering the best way to adapt to the IRS regulation, which is addressed in section 530 of Revenue Act of 1978.

The topic appears to make some in youth soccer uneasy. Emails and phone messages requesting comments from a few Washington, D.C. area clubs went unanswered, while another club requested clarification from its president, but did not respond with a comment in time for the release of this story. Cinali estimates that a vast majority of clubs still pay their coaches as contractors.

“That’s why so many are nervous about the process,” he said.

Jim Cosgrove, the executive director of US Youth Soccer, calls the issue a “continuing concern. It’s one of those regulations that we all have to operate within.”

USYSA in 2008 compiled a position paper on independent contract labor to guide its member clubs through the IRS process. The document in part lists nine points related to its position when dealing with the IRS. They include a suggestion that a local business attorney review the clubs contracts for provisions as well as legal advice on state law.

Cinalli consulted a tax attorney after he received a letter from the IRS in May 2013 stating that FASA’s accounting records would be audited. The IRS contacted FASA after another club that was being audited by the agency told them that FASA was paying its coaches as contractors.

An IRS auditor spent a week in the FASA offices, reviewing the club’s financial records, bylaws, meeting minutes and coaches contracts. The IRS handed its decision to FASA in November last year.

“It was harder (than expected),” said Cinali. “I don’t think we would have been on their radar if they had not been alerted by the club.”

As a result of the change, FASA estimates it will pay between 30 and 50 thousand more dollars in federal tax payments this year and will raise player fees between 50 to 100 dollars.

The IRS did not demand that the Arlington Soccer Association’s (ASA) pay its coaches as employees. Instead, the ASA board acted proactively, voting to approve the change starting in January 2008 before the IRS could approach them on the matter. ASA reacted in part to the IRS’s agreement in 2007 with the Fairfield (Connecticut) United Soccer Association that called for the club to pay more than $10,000 in back taxes. The club then started paying its coaches as employees.

“We probably could have pushed the contractor situation,” said Diane Oden, the ASA’s finance manager. “But we define what the coaches are doing, and put more controls on them. [The ASA board] decided it’s better and more prudent to pay the coaches as employees.”

The ASA also offers a 401k retirement plan for all coaches, even those who coach just one team per season. For the last three years Oden has led discussions about club finances at the Virginia Youth Soccer Association annual convention. She suggests clubs take a conservative approach. “I’ve yet to see any [youth soccer] organization convince the IRS that they should not be employees,” she said.

McLean Youth Soccer endured an IRS audit before it chose to pay its coaches as employees. MYS pays 3.5 percent of the federal taxes for its coaches. Louise Waxler, the executive director of McLean Youth Soccer who has worked as a soccer administrator for more than two decades, stressed that a club could lose its nonprofit status if it does not comply with IRS regulations.

“Youth soccer is no longer a volunteer sport,” she said. “Who would have thought coaches would have been compensated today they way they are? But it’s a reality. We as a club have a responsibility to adhere to guidelines.”