NCAA President Sides With IRS on ‘Ruling’ About NIL Collectives

NIL collectives were dealt a potentially massive blow by the IRS last week, and Charlie Baker warns stricter guidelines for the nonprofits could be forthcoming.

NCAA president Charlie Baker agrees with the IRS’s assessment that donations to nonprofit NIL collectives are not tax deductible, while he also emphasized that stricter NIL rules could be on the way.

On Friday, the IRS Office of the Chief Counsel published a memo suggesting that donations made to nonprofit NIL collectives “are not tax exempt” because the benefits they provide college athletes are “not incidental both qualitatively and quantitatively to any exempt purpose.”

After his address Tuesday to thousands of college administrators here at the annual National Association of Collegiate Directors of Athletics event, Baker agreed with what he termed a “ruling” from the IRS.

“In the context of what NIL is supposed to be about and how it is supposed to work and what it is supposed to provide, which is a service for an entity that is basically making what we’d describe as a business expense … yeah, it should be treated as a taxable event,” Baker told Sports Illustrated in an interview.

In a somewhat long-awaited ruling, the 12-page IRS memo released Friday could have a resounding impact in the collective space, where booster-led groups are pooling donations to distribute to college athletes through NIL deals. More than 200 collectives exist among the 131 FBS schools, dozens of which have been granted 501(c)(3) status and are receiving millions in donations from boosters who are under the impression that their gifts fall under tax deduction.

NCAA president Baker wants to work with Congress to create clearer guidelines for NIL collectives, which have created a chaotic environment around athlete compensation :: Tom Gorman/USA TODAY NETWORK

Baker has more news for collectives: The NCAA NIL working group continues its exploration into creating a more strict framework around rules governing athlete compensation. For now, the association has released guidelines only around a temporary NIL policy.

In the latest evolution of NIL collectives, a school’s foundation arm—a nonprofit entity—is growing more involved in athlete compensation. Mostly within the SEC footprint, state legislatures are amending their laws to give their schools an advantage in allowing such a model, which Texas A&M announced earlier this spring. SI published a recent story diving into the issue.

Asked about his message to schools that incorporate their fundraising arm into NIL, he said, “We have what I would describe as high-level guidelines out there, and one of the things I believe we need to do on our own, while we continue our discussions with Congress, is to create a much clearer framework around NIL.”

In interviews last week, Baker declined to reveal specifics of what he called an “alternative” if college leaders’ push for a federal mandate from Congress fails. Meanwhile, SEC leaders have a Plan B for themselves. The league believes it can oversee and possibly police NIL from the conference level if the laws in each of its 12 states mirror one another.

Friday’s news from the IRS lorded over NIL conversations at this college athletics event, which annually draws more than 6,000 administrators. Though the IRS has approved 501(c)(3) nonprofit status for many collectives, those within the college industry have warned for more than a year now that the government entity would eventually investigate and likely put a stop to tax deductions for NIL-related donations.

Many nonprofit collectives have paused or slowed operations since the memo, several college administrators and those inside the NIL space tell SI. Others aren’t as worried. They believe their charitable outfit qualifies for tax deductions. Some await more information from attorneys.