It is a truism that agencies required to publicly release documents sometimes hold off on releasing those documents until a Friday afternoon, in the hopes it will be overlooked.  The IRS lived up to that truism in releasing a memorandum regarding NIL deals on the first day of the NCAA baseball Super Regionals. https://www.irs.gov/pub/lanoa/am-2023-004-508v.pdf

Every college sports fan remembers the NCAA commercials from 2007 announcing “There are over 380,000 student athletes, and most of us go pro in something other than sports.” http://fs.ncaa.org/Docs/PressArchive/2007/Announcements/NCAA%2BLaunches%2BLatest%2BPublic%2BService%2BAnnouncements%2BIntroduces%2BNew%2BStudent-Focused%2BWebsite.html

When the NCAA altered their longstanding amateur eligibility rule to allow the individual athletes to participate in Name, Image, and Likeness (NIL) deals while in college, this shifted earnings to the individual athletes. This also led to the creation of groups such as NIL collectives, that develop these deals.  Now, the IRS is looking for their slice of the NIL pie.

On June 9th, the IRS announced it will likely either not grant tax-exempt status to NIL collectives or potentially revoke that status.  The IRS specifically stated that even expansion of the NIL collective’s scope to include developing deals for all student athletes at a university would not shield the collective from revocation. Worse still is the possibility of retroactive revocation of the tax-exempt status, which may treat the collective as a for-profit entity retroactively to the date of its creation—plus penalties and interest.

If you or your client has a role in an NIL collective, we recommend you seek legal advice to review your formation documents, your tax-exempt status filings, and prepare for the coming audit.