IRS Memorandum on Donations Made to Nonprofit NIL Collectives

On June 9th, the Office of the Chief Counsel of the IRS released a memorandum that specifically noted that it should not to be cited or used as precedent, stating that any donations made to nonprofit NIL collectives do not qualify for tax exemption. The memo explains that for organizations that provide both public and private benefits, the latter must be “incidental, both qualitatively and quantitatively, to the overriding public interest” in order for donations to said organizations to be tax exempt. The memo continues, saying 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.”

This doesn’t come to a surprise to many, as they were already critical of nonprofit NIL collectives before the IRS released their memo. According to Sports Illustrated, Jason Belzer, co-founder of Student Athlete NIL, said that nonprofit NIL collectives are “bad business models” as they are using the donations as a tax writeoff to pay student-athletes and implies that there is money laundering involved in this process. An anonymous athletic director also told Sports Illustrated that they were happy their school and donors did not try to use the 501(c)(3)model because they believed it was simply “a way to get around tax laws.” CEO of Fowler Ave Collective (USF) Corey Staniscia also clarified that there is a difference between partnering with a 501(c)(3) and claiming to be one and that it was too risky to do the latter.

This memo could have huge implications for schools and collectives that heavily rely on these donors to help recruit highly touted high school athletes. It’s certainly possible that some schools will lose donors because of this, and this may cause recruits to decommit or not even entertain the possibility of signing with a school in the first place.