Name, Image And Likeness: Tax-Exempt NIL Collectives

When the NCAA issued its “interim” policy statement in June 2021 suspending rules that had prevented college athletes from monetizing their rights of publicity – and despite the fact that the “interim” statement and more recent supplemental guidance both emphasized that “pay-for-play and improper recruitment” incentives were still prohibited – it was perhaps inevitable that boosters would organize “collectives” to pool funds to maximize the leverage of NIL opportunities for player recruitment and retention. These began to appear immediately.

There are now well over a hundred collectives in operation, many of them overtly geared toward recruiting and retaining the best players for a specific school. It remains to be seen whether and/or how the NCAA will attempt to intervene, particularly given the patchwork of state statutes that have been enacted in recent months, many of which purport to overrule the NCAA’s authority in this matter.

The tax-exempt collective

Quite a number of collectives have sought, and several have secured, tax exempt status as 501(c)(3) charities, including some classified as “publicly supported.”

It should be obvious that creating and managing opportunities for student athletes to monetize their “name, image, and likeness” (“NIL”) is not in itself an exempt charitable purpose. Nor is pooling money to recruit and retain players for a particular athletic program.

So what is the charitable purpose these collectives are articulating to justify their claim to tax-exempt status?

In the typical case, it looks something like this: funds contributed to the collective will be used to pay stipends to student athletes to compensate them for public appearances, social media posts, etc. that are geared to raising funds for specified charities, usually local to the community in which the college is located.

While this may appear to be entirely different from the nonexempt collectives that are arranging six and seven figure endorsement deals for star athletes to promote commercial products and services, there are at least a handful of tax-exempt collectives that are proposing to pay “base salaries” to entire teams in exchange for some minimum commitment to publicizing local charitable efforts.

These arrangements arguably run afoul of the May 2022 NCAA guidance, which requires that compensation be based on “an independent, case-by-case analysis of the value each athlete brings” to the table, “as opposed to,” for example, merely “being on [the] roster.”

But it remains to be seen whether the NCAA will pursue enforcement on this issue. They may have their plate full with nonexempt booster-sponsored collectives that are actively engaged in recruiting transfers, in some cases with at least the tacit cooperation of the affected athletic programs.

In any event, there are some issues specific to tax-exempt collectives, apart from compliance with state law and NCAA rules. These have to do with securing and maintaining exempt status.

As a threshold matter, of course, the collective must state an exempt purpose, and must conduct its affairs consistently with the assumptions under which exempt status is granted. A stated purpose to recruit athletes to play for a particular school or to connect athletes with commercial opportunities will not qualify a collective for exempt status.

Private inurement

The fundamental difference between a for-profit and a not-for-profit entity is that the latter does not have identifiable equity stakeholders.

Section 501(c)(3) of the federal tax code literally requires that “no part of the net earnings of [the tax exempt organization] inures to the benefit of any private shareholder or individual.” But, in fact, this so-called “private inurement” or “private benefit” doctrine applies more broadly, not only to “net earnings,” but to any assets of the exempt organization, and not only to insiders or “disqualified persons,” but to anyone who is not a member of a charitable class, selected by objective criteria.

However, there is an exception for arm’s-length transactions at fair market value.

In the particular context of the tax exempt NIL collective, a useful analogy might be to a scholarship fund. The IRS and courts have made it clear that a scholarship fund established for a specific individual(s), or for a narrowly defined class, or for recipients to be selected by the donor, will not qualify as a tax exempt fund (nor will gifts to it be tax deductible).

Similarly, if a booster contributes to a tax-exempt NIL collective with the expectation that she will be able to direct distributions to particular athletes, or to pay stipends out of proportion to services the athletes actually render, the directors of the collective should clearly and consistently communicate that this is not allowed.

Quid pro quo

Among tax-exempt NIL collectives established to date, it is quite common to see perquisites attached to various membership “levels” offered to boosters who contribute — such as invitations to private events at which the member can meet face to face with the supported athletes, limited edition paraphernalia, etc.

While it may be possible for a tax-exempt NIL collective to offer “token” perks of nominal value to booster donors, anything provided over that minimal value would reduce the charitable contribution deduction dollar for dollar, and the collective’s written acknowledgment of the gift would be required to reflect that fact. The IRS updates the value for token gifts that will not reduce the donor’s tax deduction under the “quid pro quo” rules each year. For 2023, the limit is the lesser of 2% of the gift or $125.


In short, there are difficulties to be navigated to secure and preserve tax exempt status for an NIL collective. Many smaller collectives will likely seek to place their operations under the administration of a larger exempt organization which has the expertise and administrative capacity to manage costs (initial and annual) and compliance, not only with state law and NCAA rules, but also with state and federal tax law.

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