June 16, 2023
IRS Ends Tax Break for Certain College Sports Booster Groups
In a memo from the Internal Revenue Service’s Office of Chief Counsel, the agency announced that it will no longer allow Name, Image and Likeness (NIL) collectives to be organized as charities. While these collectives can continue to be organized for their intended purpose, donations to them will now be subject to taxation.
NIL collectives function to facilitate endorsement deals for athletes and some have been granted charitable tax status by the IRS. The IRS stated in its ruling that collectives often provide too much private benefit to individuals, are not advancing education, and should not be recognized as charitable organizations.
This decision will likely disrupt the plans many colleges have developed for paying top athletes for their NIL and will affect the many collectives that have organized since the NCAA changed its rules in 2021 to allow college athletes to sign endorsement deals. The IRS has previously granted tax-exempt status to several booster groups, allowing a generous tax break for donations.
The IRS will likely deny any future applications for charitable tax status from these collectives and will also revoke previous awards through an audit process. It won’t be an easy process for the IRS to determine the exact relationship of booster groups with colleges and universities, or which groups do have true charitable missions.
NIL collectives function to facilitate endorsement deals for athletes and some have been granted charitable tax status by the IRS. The IRS stated in its ruling that collectives often provide too much private benefit to individuals, are not advancing education, and should not be recognized as charitable organizations.
This decision will likely disrupt the plans many colleges have developed for paying top athletes for their NIL and will affect the many collectives that have organized since the NCAA changed its rules in 2021 to allow college athletes to sign endorsement deals. The IRS has previously granted tax-exempt status to several booster groups, allowing a generous tax break for donations.
The IRS will likely deny any future applications for charitable tax status from these collectives and will also revoke previous awards through an audit process. It won’t be an easy process for the IRS to determine the exact relationship of booster groups with colleges and universities, or which groups do have true charitable missions.
For more information, please contact:
Karin Johns