IRS is Going After NIL Collectives’ Tax-Exempt Donations

By Nathan Baird, cleveland.com (TNS)

The national landscape surrounding name, image, and likeness laws continues to evolve—with the latest development potentially impacting the operations of NIL collectives associated with The Ohio State University.

Last Friday, the IRS’s Chief Counsel’s office released a memo stating that donations made to nonprofit NIL collectives are not tax exempt. The memo argues, in many cases, the benefits provided to college athletes serve those players’ private interests, not the interests of the public.

The memo’s conclusion reads: “An organization that develops paid NIL opportunities for student-athletes will, in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity.”

Sports Illustrated first reported the development. The memo is essentially an opinion, which the author said “may not be used or cited as precedent.”

Collectives are typically booster-founded and/or led groups which take in donations and disperse them to athletes through NIL deals. Many across the country were founded as 501(c)3 nonprofit organizations. That includes the two longest-running and so far most prominent collectives associated with Ohio State—THE Foundation and Cohesion Foundation.

Donors could write off their contributions, which the collectives took in then dispersed to athletes in exchange for their work with local charities.

This IRS position does not challenge the collectives’ ability to pool money and disperse it for NIL purposes—only the tax-exempt nature of the donations.

THE Foundation tweeted in response to the IRS ruling, saying all donations through its website “remain tax deductible.”

“Our Student Athlete partners do great work in the community,” one tweet read.

Gary Marcinick, founder and present of Cohesion Foundation, called the memo a “game-changer.” He said he believed the collective had followed the “letter of the law, but unfortunately, there are many bad actors in the space.”

The development was not completely unexpected. Some people in and around college sports have questioned whether the tax-exempt nature of the contributions would last. Last month, U.S. Senators Ben Cardin (D-MD) and John Thune (R-SD) reintroduced a bill to prohibit take write-offs for donations to collectives.

While many collectives across the nation were founded as nonprofits, some were not. The latest entity around OSU athletics—The 1870 Society—was founded as a for-profit corporation. It states on its website that it was formed to “complement and supplement” the work of the nonprofit collectives.

“We believe that the current nonprofit initiatives have limitations in terms of their scale and scope, not due to the intentions or efforts of those running them, but rather because of their legal, tax, and operational structures,” 1870 Society’s website reads. “Therefore, a for-profit presence is needed to accelerate our community’s pursuit of opportunity and excellence, benefiting fans, businesses, and student-athletes alike.”

Ohio State coach Ryan Day expressed frustration about the program’s NIL situation in the final weeks before national signing day last December. A small handful of high-profile Buckeye targets either flipped their commitments or signed elsewhere.

Day vowed that OSU’s arrangement would eventually be the “best in the country.”

It remains to be seen what interruption, if any, this IRS stance will have on that goal. But dozens of collectives associated with other major programs are in the same position.

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