Student athletes representing different sports within collegiate athletics

The tax-exempt entity: NIL collectives are getting creative in pursuing college athletes

As we approach the one-year anniversary of name, image and likeness (NIL) in collegiate athletics, institutions face the latest hurdle to maintain National Collegiate Athletic Association (NCAA) compliance and support student athlete success: collectives. An NIL collective is an entity affiliated with (yet independent from) a college or university that generates funding to support NIL opportunities for student athletes. Dozens of NIL collectives of all shapes and sizes are emerging, immediately impacting the playing field for colleges and universities.

One of the more creative types of NIL collectives is the establishment of a tax-exempt NIL collective, which operates as a 501(c)(3) public charity. This entity type allows for a greater outreach to alumni and donors who want to participate in the NIL process, but do not have the individual financial resources to hire a student athlete for their business marketing campaign or brand promotion. The tax-exempt organization provides a charitable contribution tax deduction to individuals or companies that would like to support the NIL collective’s efforts. 

A mutually beneficial – or risky – approach

The tax-exempt collective will have a charitable mission and will contract with student athletes to help further that mission. This allows boosters of the college or university to support student athletes and get a charitable contribution tax deduction at the same time.

However, donors and student athletes should be careful when working with these not-for-profit NIL collectives. While many obtain tax-exempt status from the Internal Revenue Service (IRS), numerous state attorneys general (AGs) are looking into the entities due to skepticism that the organization’s primary purpose is charitable. Since AGs generally have authority over public charities operating in their state, they have great latitude to require the collective to change how it functions, take over its operations or simply change or revoke the tax-exempt status. If the tax-exempt status of a not-for-profit collective is revoked, this may negatively impact the donors’ charitable contribution tax deduction. It will also limit the NIL collective’s ability to honor its commitments to the student athletes as funding would likely be greatly reduced.

Continuous monitoring is key to compliance and student success

Higher education institutions should continue to oversee their student athletes’ NIL activities for compliance. This includes any limitations on student athletes’ use of the institution’s uniforms, logos and insignia, trademarks and/or any other contractual restrictions that may be in place limiting student athlete activities as they pursue NIL payments.

Colleges and universities will also need to monitor the activities of these tax-exempt collectives. Working with a tax-exempt organization instead of a for-profit business does not change the general issues related to NIL payments. Student athletes will still need to educate themselves or obtain education about how they can leverage tools and trends like social media, make the best use of their time given busy practice, play and class schedules and ensure they do not violate any NCAA, state or institutional rules or regulations that would jeopardize their eligibility. Further, these student athletes will need a dependable avenue to access NIL opportunities and a trusted advisor to assist with the financial and tax impact of NIL payments.

Baker Tilly can help

Baker Tilly’s not-for-profit tax specialists can help your institution take a proactive approach to evaluate the current state of your policies and processes related to managing NIL compliance that supports your student athletes and institutional mission. Our team can also assist your student athletes with the tax and financial impact of the NIL payments they receive.

For more information, or to learn more about how Baker Tilly can help, contact our team.

Larry Mohr
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