College Athlete Collectives on Alert After Tax Exemption Warning

Printed By:DJONES520 on Wed, 14 Jun 2023 14:26:08 -0400

Bloomberg Law News 2023-06-14T14:26:0892919076-04:00
College Athlete Collectives on Alert After Tax Exemption Warning
By Erin Slowey 2023-06-14T12:27:35000-04:00
•	 Tax-exempt status isn’t guaranteed year to year
•	 Donations to be impacted if NIL collective loses status
The IRS disrupted the name, image, and likeness industry by releasing a memo saying many organizations that fund college athletes no longer will be considered charitable.
NIL collectives will need to decide if they want to put operations on hold, change their structure, or wait for more information from the IRS.
Name, image, and likeness collectives swept across college athletics after the NCAA adopted an interim policy in 2021 that allowed student-athletes to receive compensation for use of their NIL without hindering their eligibility. 
The status and structure of NIL collectives aren’t universal. For example, The Foundation—a collective partnered with The Ohio State University—is registered as a charitable organization within the state. The 1890 Initiative, a collective for University of Nebraska athletes, said on its website that providing donations to NIL activities isn’t deductible for charitable contributions but could be tax-deductible as business marketing expenses.
Organizations that want to be considered tax-exempt are required to submit an application to the IRS to be granted tax-exempt status. If an organization receives a favorable letter of determination, donors should be able to rest easy that they made a genuine charitable contribution, according to Phil Hackney, a law professor at the University of Pittsburgh and a former IRS attorney.
But an NIL collective that is considered tax-exempt one year may not be tax-exempt the next because the IRS can revoke that status after examining whether an organization meets the requirements of Section 501(c)(3).
Exams could take significant time, said Hackney, who expects NIL collectives won’t realistically see revocations for a couple years—maybe even longer. If the IRS already has opened examinations, it could be sped up, he said.
If tax-exempt status is revoked, the NIL collective will be required to pay corporate taxes on its annual earnings, but for donors, the impact is more ambiguous depending on how the organization restructures.
For NIL collectives that have yet to be granted tax-exempt status, it may be unlikely that large donors will contribute unless they are loyal supporters, academics said. 
The 2017 tax law changed the landscape for charitable giving by raising the standard deduction—further discouraging filers from taking the charitable contribution deduction.
The filing status of the NIL collective shouldn’t impact what student athletes owe, said Sam Brunson, a law professor and associate dean at Loyola University Chicago. Athletes will still owe taxes on the money they receive because they are getting paid for the use of their NIL, he said.
The IRS didn’t respond to a request for comment on whether the agency plans to issue formal rules on the issue.
Academics said the June 9 IRS memo could be just the beginning if NIL collectives don’t heed the warning of the message. 
“I definitely think it will spawn more formal rules,” said Darryll Jones, a law professor at Florida A&M University.
To contact the reporter on this story: Erin Slowey in Washington at eslowey@bloombergindustry.com
To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Butch Maier at bmaier@bloombergindustry.com

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