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On June 29, 2021, the United States Supreme Court handed down a ruling that would forever change the world of college athletics.
The court ruled, in unanimous fashion, that NCAA restrictions on “education-related benefits” for college athletes violated antitrust law.
Thus the world of NIL began.
The decision meant that college athletes were free to profit off their name, image, and likeness without risking their college eligibility.
Since that point, universities and fan bases have found a number of creative ways to pump money into their favorite programs.
One of those ways includes creating NIL “collectives” that operate as 501(c)(3) nonprofit charities. Meaning that donations can then be used at tax writeoffs in the future.
Now that is no more.
IRS Makes Major Ruling Regarding NIL Collectives Nonprofit Status
Sports Illustrated’s Ross Dellenger reports that the 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.” IRS has informed NIL collectives that they could be breaking the law by advertising tax deductions for donations.
“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,'” Dellenger writes.
That’s bad news for a number of Division I FBS programs.
“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,” Dellenger says. “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.”
Michael McCann, a legal expert for Sportico, says the ruling should turns heads at a number of collectives.
The IRS chief counsel says the obvious — these non-profit NIL collectives really aren't non-profit — a point tax experts have been saying for some time. But the fact that it is the chief counsel saying it makes all the difference. These collectives should hire tax experts ASAP. https://t.co/or6JIRA5tZ
— Michael McCann (@McCannSportsLaw) June 10, 2023
Others said the collectives should have seen the news coming.
This is major news in the #NIL world, and is something that experts have warned about for some time. Here’s a link to the memo: https://t.co/UFG4XCUn3X https://t.co/k5fCSL3NM5
— Daniel S. Greene, Esq. (@DanGreene15) June 10, 2023
oh look, its the thing that I've been saying was going to happen for like, an entire freakin' yearhttps://t.co/gzyWdJYdcY
— Matt Brown (@MattBrownEP) June 10, 2023
Either way, the decision marks a turning point in the NIL landscape. And schools, as well as donors, must pivot as quickly as possible.