IRS rules that donations to NIL collectives can no longer be Tax exempt
This seems like a pretty significant shake up to the NIL landscape. A majority of collectives were given tax exempt status and were selling themselves to boosters as such. The article even claims that the IRS may go further and deem already donated money to the collectives must retroactively pay tax.
From a Michigan perspective the main collective (Champions Circle) is not 501c3 status but an offshoot that just started up a few months ago (Hail!Impact) is.
https://www.si.com/college/2023/06/10/irs-name-image-likeness-collectives-not-tax-exempt
Should have not been tax exempt to begin with. I’m sure this will hurt some collectives but let’s be honest, they’re not what you would typically think of when you hear “non profit”
Yeah, it should never have been a tax-exempt thing. If someone has to pay taxes if they gift their kids a certain amount of money, why on Earth shouldn't it be taxed if they're giving it to a football player for a team they like.
In many cases, our student athletes are doing actual charitable work and getting paid for THAT.
This introduces a grey area, I think. If we're going to start debating salaries of charitable workers, there are many people who work for various NGOs whose compensation would need to bear the same scrutiny.
As for the amount paid, what they have accomplished in other parts of their life is not incidental to the value of the encouragement or the endorsement that their participation in the service brings.
Charity work is by definition unpaid. If the players are getting paid to do it, it isn't charitable work.
That's not remotely true.
Exactly. There are executives of NGO charities that make eight figures.
Working for a charity <> charity work. Charity work by definition is unpaid. Working for a charity means you get paid.
Who’s that?
The issue isn't whether the amount that is paid to private persons is reasonable. That CAN be an issue for a charity and the amounts paid to private persons (i.e., salaries, etc) do have to be reasonable rather than excessive. But that its not the issue here. The issue here is that enriching private persons (i.e., paying football players) is more that merely incidental to serving the organization's charitable purposes. Rather, paying student athletes is in and of itself a substantial--and if we are being honest it is the most important--purpose of the organization. Benefiting private persons (i.e., football players) is not a permissible purpose for a 501c3 organization.
I agree but why should Ishbia’s gift to cover Tuck’s salary be considered a donation?
In tax parlance, I think that’s pretty clearly a business loss. Like when a storm destroys your warehouse.
Or when your tire collection catches fire?
When your couch catches fire.
And in turn catches a nearby dumpster on fire.
Just tip over your cooler and put out the fire.
Exactly this is income and it should be taxed
Parties over. Well back to only southern schools and ...ahem NIL. Parity must have been too nerve wracking for Nick and lobbying restored the status quo so heartily earned by Saint Saban.
There really needs to be more rules and laws in place for NIL. We need a level playing field.
We had rules before, they were ignored and created an uneven playing field.
Unless all universities come together and create something like the NFLPA, in essence unionizing and I have no idea how that would work in right-to-work states, it will be the wild west unless congress passes legislation which comes with its own set of problems.
My personal belief is that if a player is getting paid to play a sport, (anything beyond tuition, room and board) it is income and taxable. There have been more than a few articles showing how much, and it is typically hundreds of thousands per year per athlete, is being spent for facilities, coaching, etc. So far this has not been taxable but it is a benefit that at some point might be reconsidered.
For players being paid considerable NIL money, there will be advantages playing for schools with no state income tax, i.e., Texas, Florida, Tennessee, Washington, etc.
There's no doubt that athletes have to pay tax on the money received.
The IRS ruling boils down to the fact that the money paid to the athletes isn't based on need and doesn't go toward a public purpose, like education. Instead, the money serves a private purpose, i.e. benefiting the athlete, and therefore contributions toward the collectives aren't tax deductible. At least that's the analysis of the IRS.
The pivot from this action (specifically from southern schools) may be to move away from NIL collectives and pay the players through the official university foundation fundraising component. Some schools are already exploring that with the state of Texas changing state laws to allow this (tho I am no expert in how the heck all of that would work)
My understanding is that schools want to stay as a far away as possible from direct University connections to NIL payments. Otherwise the athletes will officially be university employees and eligible for benefits and the opportunity to unionize. (Obviously this is all semantics at this point, of course the athletes are employees, but the current arrangement allows the falsehood that they are not employees to retain at least a thin legal standing.)
That fiction, however, is the only thing that makes college sports possible. If players are employees, then employment cannot be conditional on being a student (since that requirement would be restraint of trade) and most universities (like UM) do not have it in their charter to run professional sports teams.
So, those programs which perfected brown bagging prior to NIL will take advantage of this change.
Just because there are always going to be people looking to find loopholes to rules, doesn’t mean we shouldn’t have those rules. It’s like deciding the only way to decrease crime is to make more things legal.
I completely agree that rules would be very welcome. And, this is an example of Emmert being asleep at the wheel.
NIL - and what it initially reflected - players names, image, or likeness - on video games, in corporate advertising, jerseys, etc - with fair compensation - is something I completely support.
The thought of this being a charitable, tax deductible contribution seemed ludicrous. But, the various entities / collectives will certainly try to push the extremes of the law.
What a coincidence, Nick Saban and the SEC Commissioner are in Washington DC. I'm sure it's in the best interest of everyone that this stops. Now if only the IRS could find a way to go back and tax the bags of cash that were handed over tax free.
Ex post facto laws are unconstitutional, for many very good reasons.
It's not like it matters much, anyway. The SOP these days is to drastically underfund the IRS so there isn't enough staff to bust tax evaders. Everything's legal if nothing's enforced. Because no federal institution is more consistently demonized, it's a very popular move, even though it's not in the interest of any "honest" citizen to allow others to cheat with impunity.
Edit: Apparently not?! The SCotUS ruled way back in 1798 (!!!) to apply the Constitutional ban on ex post facto laws selectively, which blows my mind. Nice going, dipshits!
This isn't creating a law anyway. It is clarification of existing tax laws. If the NIL donations are not now tax deductible, they never have been. I would suspect that some previous payments will be grandfathered, depending on what the collectives told the donors at the time.
This isn’t ex post facto. Taxpayers are responsible for making sure that the entities to which they contribute are tax-exempt if they wish to take a donation. Contributing to charities before they’ve received official designation has always been a risk to the taxpayer.
Not sure how they were considered tax exempt in the first place.
Though NIL roughly approximated donations to a university or its athletic booster club—if a 501 (c)(3) outfit—that's still not the same.
I’m not sure how it all works but I don’t know that I’m even on board with donations to universities being “charitable” tax exemptions. Mat Ishbia certainly shouldn’t be getting any tax breaks for his donation to the “Tom Izzo football building”.
While there are MANY and MAJOR problems with tax exemptions, as things stand now, they're important for universities, arts institutions, and—what ERdoc might value—hospitals.
While a strong case could be made that hospitals are more worthy of tax exemptions than universities, attempts at reform usually break down in the details.
For a strong case could also be made that universities, which serve students with inadequately paid teachers, deserve tax exemption more than hospitals run by huge corporations and helping rich doctors.
Nice to see the IRS still manages to make a sensible regulation occasionally.
Not to mention the income tax implications for these players. I really hope they have a great accountant/advisor for the team.
My assumption all along has been that the players are claiming this as regular income themselves. If so, this makes these dollars taxed twice. Love the IRS.
If they haven't been then obviously that goes out the window.
The payments to players were already taxable. This memo argues that the organizations running the NIL collectives do not qualify for tax-exempt status, so the people making "donations" can't receive a tax-deduction. The money's only taxed twice in the same sense as any other exchange for goods and services.
I get that’s what this was about. Im merely stating that these kids are taking in 6-figures and may not know what withholding is. Just musing on the other end.
The players' receipts have always been personal income and taxable as such. The entities paying the players have always been able to take an expense write off for payments for services rendered and/or NIL usage(s).
The "cheat" in here was trying to claim that an intermediary entity would collect the funds for charitable purposes, hence making the contributions charitable donations, and then funnel a portion, as taxable income, back out to the players. Clever attempt, yes, but not allowed for charitable deductions purposes by donors.
It's not really any different than going to a concert and spending your after-tax dollars on a performer for entertainment. That performer pays income tax on revenue from the performance. Nothing terribly different when you pay a collective to pay a player.
"It's not really any different than going to a concert and spending your after-tax dollars on a performer for entertainment."
I seriously doubt she claimed one cent of that cash I gave her...
Good. The last thing this country needs is another ridiculous tax shelter for one-percenters.
If they want to pay a teenager who's already getting a free $250,000+ college education, let them, but those payments shouldn't be offsetting taxable income.
Just need to form a religious NIL collective. Cash for Christians or something.
Your federal government hard at work.
Full memo: https://www.irs.gov/pub/lanoa/am-2023-004.pdf
tl;dr: NIL collectives primarily exist to provide private benefits to student-athletes (duh) in a way that goes beyond the incidental benefit allowed for tax-exempt orgs under 501c3.
IANAL, caveat emptor, etc.
As long as I can still use them to launder money I'm good.
The bag wasn't tax deductible before NIL! Of course it shouldn't be tax deductible now, these weren't charitable foundations.
I mean, good.