One of the perceived benefits of giving money to one of the many NIL collectives that have emerged in recent years is that the donation possibly becomes a write off. Unless it doesn’t.
Via Ross Dellenger of SI.com, a memorandum released Friday by the Internal Revenue Service’s Chief Counsel explains that donations made to non-profit NIL collectives “are not tax exempt.” The key factual distinction comes from the reality that the NIL collectives provide benefits that are “not incidental both qualitatively and quantitatively to any exempt purpose.”
Here’s the full memo. In something closer to English, the IRS believes that these NIL collectives provide greater private benefit than public benefit, making them not exempt from taxation.
This has two potential impacts, given my own fairly limited nature of the tax laws. First, it would seem to make the money received by the supposedly tax-exempt collectives subject to some form of taxation. Second, it would seem to prohibit the people who make donations from taking the kind of tax deduction that would be available to a truly nonprofit charitable organization.
NIL collectives definitely aren’t charitable, not in the classic sense. This development will force some collectives to scramble -- and perhaps to disband.
The development isn’t surprising. The opening of the NIL floodgates in 2021 changed the world of college sports quickly, with football and basketball programs mired in the chaos that the NCAA and its member institutions deserved, after years of exploiting the athletes in the name of amateurism, or whatever. There were bound to be things that were overlooked or not taken seriously as people started throwing money at players, in order to get them to stay at a given school or to lure them to a new one.
The ruling will only impact the NIL collectives that tried to set themselves up as so-called 501(c)(3) charitable organizations. Those specific NIL collectives will have a problem, to say the least. Those that realized from the get-go that trying to wedge the square peg of paying players into the round hole of charity will be able to sit back and chuckle at those that didn’t.