NIL collective donations tax exempt?

NIL is by definition paying a player for a service. I cannot fathom how that would be tax exempt. 

Why should they be?  These are neither charities nor other non-profits.

I am also not a tax lawyer, accountant, or anything of that ilk, but this seems like a major stretch. I can't see how this would be charitable in any way. It's not like a fund-raiser to send kids to band camp. This looks, feels, and smells like BS. 

Yeah, that's an emerging issue.

Here is a different, non-paywalled article discussing the issue.  (And here is an article about how to post in-line links on MGoBlog, if that's of interest.)

Basically, the idea is:

(1) Theoretically, NIL payments are for the kids to use their name, image and likeness for someone else to advertise or make video games or whatever.

(2) So you start a fund that hires the kids to make "stop vaping" ads or do meet and greets at the local children's hospital.

Therefore, theoretically, you the donor are spending your money to help the anti-vaping campaign or children's hospital, which is a charitable purpose and therefore potentially tax deductable. We'll have to see whether the IRS buys it.

Note that one more question is whether you the donor are getting anything of value back. Even with a normal charity, if you donate $100 and get a tote bag, you're only eligible to deduct ($100 - value of tote bag.)  So even donations directly to the athletic department can be tax deductible, but only if you don't get special seat rights or other perks in return.

Here, the key questions are likely to be (1) is donating to a fund that pays players to make charitable appearances charitable, and (2) what are the donors getting back if anything?

I'm not the IRS, but I can see the argument - a donation straight to the athletic department could be tax deductible, and so could a donation to the children's hospital, and this is sort of mixing the two.

Didn't read the article because of paywall... 

... but the non attorney in me wonders if since NIL is essentially wages (pay for performance), so Federal applies but varies by state.

^ which may give Florida and Texas an edge over other states (say California) just like for free agents in professional sports.

If the organization that the donation is paid to is a charity and the charity chooses to hire the student athlete as a spokesperson.....  I don't see why the donation wouldn't be tax deductible..  

The trick would be in creating an NIL entity that falls under the IRS guidelines as a charity of non-profit.

As others point out - IF there are actions taken by a student athlete that result in direct support to a recognized 501 (c) 3 organization, then there's probably merit.

On the other hand, let's say you're a QB for a college team and a car dealer gives you, or provides you with the use of a Mercedes AMG G63.  I don't see how this can be remotely defined as a charitable donation.   I could see the auto dealer describing it as a marketing expense - but, it's certainly not charitable.

Nearby - Michigan has at least three athletes who have directed some of their NIL monies to charitable efforts.   Those athletes are Blake, JJ, and Moody.   Blake has conducted activities where holiday meals and school supplies are provided to specific communities (which I would define as "in need"), JJ supports health care related entities, and Moody had an agreement for donations to be made to Mott.   

My "guess" is - the players can deduct monies from their tax liability for appropriate donations to those organizations - and, that would be recognized / noted when the player files their taxes.    In the above cases, it seems like Blake and JJ made direct contributions to 501 (c) 3 entities, while Moody may have had an "NIL Partner" donate directly to Mott's on his behalf.  In Moody's case - my gut says the charitable donation would be recognized by Moody's NIL Partner, and not by Moody himself.

Are the universities not officially allowed to be involved with the collectives so that the IRS can get their pound of flesh out of this?  If they aren't involved then you're not making a donation to the University by definition.  

I am not a tax attorney, or any kind of attorney actually, but I have seen every episode of Law & Order, including all of the ones with UofD High alum Michael Moriarty.

My spouse is a tax attorney who used to work in the tax exempt entities division in the IRS.  This topic came up between us a few months ago, and her answer was that they could be c3s if they went about it correctly.  The concept abhorred her, but there was certainly room in the law for it.

Since college football is like a religion to most people, I think it should qualify under that exemption. 

If you make this tax exempt, it’s essentially introducing napalm into an already out of control forest fire.

NIL is already the Wild West. This would make it so much worse. As others here have said, you use NIL to pay a player for a service. I don’t see how that can possibly be advocated for tax exempt status.

Shit, if you do that, you might as well make political donations tax exempt as well and really send us all to hell.

I declared myself tax exempt once. the goddamn IRS didn't get the memo, though, apparently. Buncha jerks.

There are several bills that have been submitted in Congress to eliminate tax deductions for NIL deals.  NIL Collectives are filing for Non Profit status and getting around the required taxable income issues.  If Congress does pass some of these bills, NIL Collectives will be required to 1099 all contributors.  This will most likely reduce NIL deals.  Just what the NCAA wanted.

I find this thread very interesting. A couple weeks ago, Warde was getting lambasted because he wouldn’t go along with Harbaugh’s friend’s plan to start a 501c3 NIL collective. Take Warde out of the equation and 90% of the people here think tax deductible NIL contributions are a bad idea.

The text of Section 501(c)(3) of the Internal Revenue Code is below:

"Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."

As said above certain NIL payments could fit within this purpose.  For example, a church could pay Blake Corum to sign autographs at its fundraiser and donations to the church could be deductible.  However, it would not be deductible if the donation was being made to the church with the purpose of the church giving to Blake Corum so he stays at Michigan another year.

I probably only think this because I live in Sweden, but the simple solution to the problem you guys are seeing is to end all of this nonsense by eliminating tax deductions entirely so as to increase taxes so that the government has sufficient revenue to fund all desirable social programs that actually deserve taxpayer support at appropriate levels. Voilà! Problem solved.

Of course, very few of you would actually go for this, but presumably only for reasons I will think are very bad.

A good way to avoid expert responses is to post during the period when tax accountants are all busy with client work and don't spend time on message boards. 

In any case, as Team 101 posted, the text of Sec. 501(c)(3) does include the phrase "to foster national...amateur sports competition" which is helpful to building a case that a collective is for a charitable purpose. The workaround mentioned in the Stinson article (posted by LSA91) was also instructive. It involves a third party charity to essentially act as a launderer for the money. 

To repeat my understanding, the flow of cash is:

Donor gives $$$ to 501(c)(3) NIL Collective (deductible). NIL Collective then gives $$$ to "real" charity (normal inter-charity transfers). Charity then hires Student-Athlete to appear on behalf of charity, paid for by Donor/Collective money. And they get the positive vibes of the athlete NIL on top.

I'm a CPA, and I think this generally would stand up to scrutiny (assuming the NIL comp amount is reasonable given the service, which is not a case the IRS is likely to make as it's such a nebulous area). Functionally, it's no different than a donor hiring the S-A to do commercials and billboards for their company, like the Mike Morse law firm relationship. In both cases, the donors deduct the cost and the athlete has taxable compensation on the payment. While initially it feels icky, I think it can generally be done in a legal way. 

I consider myself strongly libertarian and I think NIL being pitched as charitable is gross.

To be tax deductible, it has to be a charitable gift. If you pay $500 a plate for a fundraiser dinner, only the amount above the amount of the cost of the dinner is deductible. 
 

If the donation to the charity is then paid to the player, that’s really what you’re paying for: a good product on the field. I don’t see this holding up ever.