NIL Collective at OSU may shut down

A recent IRS ruling that payments to athletes are not ‘charitable works’ puts the tax-exempt status of collectives and the donations they receive in jeopardy.

One collective at Ohio State says it might shut down within months.

Roger Lohr

I’m all for endorsement deals, because that’s product marketing, a valid expense for the company. And it can work both ways. You might choose to look at a car because Joe Linebacker endorses it, or you might decide it isn’t your kind of ride for the same reason. (Either way, you won’t find very many major college football players driving a 15 year old Chevy.)

But the NFP donation deals always struck me as iffy.

I am not usually one to take the side of the IRS but I don’t see how these payments could be considered charitable contributions. Typically to be a charitable contribution the payment has to be to a non profit organization. I don’t think these athletes would be considered non profit.

Having been on the board of several tax-exempt NFP organizations, the tax exempt NFP status belongs to the organization, not the clientele it serves, in this case the athletes.

Giving money to the local food bank to provide food to people in need has never been questioned, for example.

But there are a lot of grey lines here. For example, a tax exempt NFP organization can pay an honorarium to someone in return for some action, for example, paying the World Chess Champion a 5 digit appearance fee to give a chess lecture to some group of chess players.

But paying an athlete just to be an athlete always looked a bit dodgy to me, and as I understand it (being neither a lawyer nor an accountant) that’s where the IRS says the cooperatives fail the ‘charitable purpose’ requirement that justifies their tax-exempt status.

So, what the IRS appears to have said is that they’re not necessarily going back to review the tax exempt NFP status of existing cooperatives, but they may be subject to audits to prove that they are meeting that ‘charitable purpose’ requirement, and future applications for tax exempt NFP status will be reviewed more closely and critically. (There are many NFP organizations without tax exempt status.)