NCAA Football: IRS set to come after NIL collectives

NCAA football was changed forever with the introduction of NIL (Name, Image, and Likeness) rules. Players now have an opportunity to earn compensation as part of an enterprise that wouldn’t make money without them, but money has become one of the central factors in recruiting, roster retention, and even NFL decisions.

Because of its growing importance, NIL has become centralized. NIL collectives have sprouted up around almost every major Division-1 athletic department.

These collectives have offered donors and sponsors the opportunity to contribute to their favorite teams and players by allowing them to pay the collective so that the collective can facilitate deals with the players for the use of their names, images, and likenesses.

Many of these collectives have offered tax-exempt or tax-deductible paperwork to donors after giving money. The non-profit organizations could be heading into dicey legal waters for presenting themselves as charitable organizations.

The Internal Revenue Service released a memo recently that seems to imply that these types of donations should not be viewed as tax-deductible giving. Up to this point, millions and millions of dollars have been donated to these collectives with the idea in mind that they would receive tax breaks.

The major issue with the non-profit collectives seems to be that they are not only helping student-athletes in need or helping less-than-full-scholarship athletes to pay for school: they also provide top-level athletes with benefits that extend well beyond “charitable giving.”

501c3 non-profit status has been granted to many of these collectives, but those statuses appear to largely be in jeopardy. To be eligible for long-term status as a 501c3  non-profit, an organization must be, according to the IRS, “explicitly” be at least one of the following:

• Charitable
• Religious
• Scientific
• Literary
• Testing for public safety
• Fostering national/international amateur sports competition
• Preventing cruelty to animals or children

Based on the memo sent out by the IRS, it is the view of the government that non-profit NIL collectives do not fall under any of these categories.

“Charitable” and “fostering national/international amateur sports competition” would be the closest these collectives could get to these requirements, but the Internal Revenue Service’s view is that most, if not all, of these collectives fall short both “qualitatively” and “quantitatively” as the agreements resemble contracts more than charity, especially around NCAA football.

Some for-profit collectives exist and seem to be more “in the clear” with the government as tax deductions have not been promised.

What this means for NIL moving forward is unclear. One thing is for sure: there are about to be some extremely unhappy boosters who won’t be getting any tax breaks.