Tax Reform

IRS Cracks Down on Donations to NIL Collectives, Not Tax Exempt

6/12/2023

For decades, college athletes -- even those who were extremely well-known -- were prohibited from benefitting monetarily from the use of their name, image, or likeness (NIL).

Then, in 2021, everything changes. The NCAA revamped its NIL policy, allowing college athletes to receive compensation for the use of their face, name, or other identifying features for the first time. This led to the development of university collectives, groups that receive donations used to pay student-athletes.

Photographer: Ed Zurga/Stringer/Getty Images

These collectives, as explained by an article published last year, are "typically organized and designed as charitable organizations...[freeing up] additional funds from boosters and alums to players, providing that players contribute some time to the collective’s charitable work."

Numerous schools in Power Five conferences now have such collectives, and they have already generated tens of millions of dollars to support NIL activities for eligible students.

The University of Texas's Horns With Heart organization, for example, is guaranteeing scholarships of $50,000 to each offensive lineman on the Texas Longhorns football team. This nonprofit is funded by the Clark Field Collective, and has over $10 million in its reserves alone.

Indiana University's Hoosiers For Good has followed a similar 501(c)(3) model.

However, questions have existed from the start about whether or not donations made to NIL collectives are actually tax exempt at the federal level.

Photographer: Carly Mackler/Stringer/Getty Images

Now, the IRS is speaking out. On Friday, June 9, the tax agency issued a 12-page memo that states, emphatically, that NIL donations are subject to federal taxation. In the document, the Office of the IRS Chief Counsel notes that donations to non-profit NIL collectives “are not tax exempt” because they provide benefits that are “not incidental both qualitatively and quantitatively to any exempt purpose" and they serve "the private interests of student-athletes."

Sports Illustrated recently spoke to Jason Belzer, a co-founder of Student Athlete NIL, a management firm that oversees multiple for-profit collectives.

Belzer told the popular sports news outlet that he does not agree with the non-profit collective setup, “I think it’s a bad business model. I’ve been long on the record to say the majority of collectives are doing it as [sic: in] a way that is disingenuous. They are using it to get a tax write-off to pay student athletes."

“The IRS may grant it [501(c)(3) status] and then come back a year later and say, ‘Wait, what...is going on? The kid promoting the charity is driving around the Mercedes and tweeting about how great this charity is!?’”

Photographer: Tim Warner/Stringer/Getty Images

At this time, it is unknown what the future of non-profit NIL collectives will be but, for now, the IRS has granted 501(c)(3) status to dozens of collectives across the 131 total FBS schools in the United States.

What do you think about the IRS cracking down on NIL donations?

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Feature Image Credit: Douglas P. DeFelice/Stringer/Getty Images

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Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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