The advent of Name, Image, and Likeness (NIL) rights for college athletes has completely changed college sports, especially football and basketball. With the ability for players to accept sponsorships, endorsement deals, and even money directly from boosters, how players are recruited and why they make the choices they make have changed.
And, NIL collectives associated with schools have played a big part in the landscape. Basically, these collectives are third party organizations dedicated to a specific school that collect money from fans and distribute it to players under the guise of endorsements. Money can be given to high school recruits, current players, or players in the transfer portal. And, most of the contributions to the NIL collectives are not tax-deductible, but there have been ways for some donations to these to have tax-exempt status.
That will be no longer, as the Internal Revenue Service has laid down a ruling that says these donations to collectives cannot be tax-deductible. Here’s Sports Illustrated with more information.
According to a memo released from the office of the IRS Chief Counsel, donations made to nonprofit NIL collectives “are not tax exempt” because the benefits they provide college athletes are “not incidental both qualitatively and quantitatively to any exempt purpose.”
The 12-page memo was posted publicly Friday on the IRS website. The memo, actually written May 23, is filtering through the college athletics world as well as those working in the collective space.
The news could have a resounding impact in the collective space, where booster-led groups are pooling donations to distribute to college athletes through NIL deals. More than 200 collectives exist among the 131 FBS schools, dozens of which have been granted 501(c)(3) status and are receiving millions in donations from boosters who are under the impression that their gifts fall under tax deduction.
That’s news for people looking to pay college athletes for a tax write-off through an NIL collective.