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Senators Push IRS for Formal Guidance on NIL Tax-Exempt Status

Laura L. Brownfield
General Counsel

In a recent letter to the IRS, Senators John Thune (R-S.D.) and Ben Cardin (D-Md.), who introduced the Athlete Opportunity and Taxpayer Integrity Act last year, want formal guidance that echoes a recent IRS advice memo providing organizations created to fund name, image, and likeness (“NIL”) deals for college student-athletes will not be considered tax-exempt.

In 2021, the NCAA began to allow student-athletes and recruits to benefit from use of their NIL without impacting their eligibility. NIL collectives were established to help facilitate or fund NIL deals which are paid opportunities for student-athletes to promote the collective or a partner charity through a social media post, attending a fundraising event, participating in a sports camp, or autographing memorabilia for the partner charity to sell; which ultimately supports the mission of the nonprofit collective or its charitable partner.

The IRS memo suggests that an organization that develops paid NIL opportunities for student-athletes will not, in many cases, qualify for tax-exempt status because the private benefits (e.g. compensation paid to the athlete for use of his NIL, financial planning, tax assistance, legal advice, and assistance in personal brand development) to student-athletes are not incidental to the exempt purpose of the organization and the benefit to the private interests is substantial.

Note: This material was developed by Community Foundation for Southeast Michigan. It is published with the understanding that neither the publisher nor the author is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a professional advisor should be sought.