Breaking News: IRS memo deems nonprofit NIL collectives as not tax exempt
Since NIL collectives started populating the college athletics landscape in the summer of 2021, there has been ongoing debate if collectives that have received 501(c)(3) status from the Internal Revenue Service can accept tax-deductible donations.
The IRS appears to have taken a stance.
In a 12-page memo released from the office of the IRS Chief Counsel on Friday, the revenue service believes donations made to nonprofit NIL collectives are not tax-exempt. Sports Illustrated was the first to report the news.
Dated May 23, the memo has started to make its rounds through NIL collective circles.
“It is the view of this Office that many organizations that develop paid NIL opportunities for student-athletes are not tax-exempt and described in section 501(c)(3) because the private benefits they provide to student-athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity,” the memo states.
Collectives are groups of boosters that pool funds from a wide swath of donations to help create NIL deals for student-athletes. There are more than 200 collectives across the nation, with roughly 80 claiming nonprofit status. Accepting tax-deductible donations can make a significant difference when dealing with top-level donors, who would prefer to write off any contributions come tax season.
Some of the most aggressive collectives have applied and been deemed as 501(c)(3) organizations by the IRS. That does not mean, however, that the IRS has to sign off on their activity. Many of the nonprofit collectives in the space pay athletes for their work with charities, whether that is through civic work or promotion on social media.
“Step one is getting approval from the IRS,” Katie Davis, a practice lead for higher education and collegiate athletics at CPA firm James Moore & Co., previously told On3 said. “But then, they’re watching and monitoring. You have to go through annual reporting to say, ‘Yes, Ok, I am actually operating with a charitable intent.'”
Speaking with a few anonymous Power 5 collectives on Friday night, the reaction was mixed. One organization immediately dubbed it as bad news, while another was unfazed. The third collective said it was waiting to chat with its attorney.
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Author: David Keech
David Keech is a retired teacher and works as a sportswriter, sports official and as an educational consultant. He has reported on amateur sports since 2011, known as 'KeechDaVoice.' David can be reached at [email protected]
