A lately released IRS document appears to be more firmly challenging the non-profit status of the majority of NIL collectives than they did the first time.
A denial notice the IRS sent to a group of individuals seeking tax-exempt position was obtained and published by the guardian publication Tax Notes on Friday. It largely complies with past guidance that was issued last summertime by a senior IRS Office of Chief Counsel official.
In light of the new document’s revelation, Phil Hackney, a former IRS lawyer and nonprofit organization expert, suggests NIL collectives should get out—or stay out—of the 501 ( c ) ( 3 ) world.
According to Hackney, who teaches at the University of Pittsburgh School of Law,” this seems to be an indictment against ] the tax-exempt status of ] all the collectives,” as well as the other collectives ‘ status, according to Sportico.

A 12-page advice memo from the IRS’s Deputy Associate Chief Counsel, Lynne A. Camillo, in May, questioned whether organizations that seek to facilitate NIL opportunities for college athletes “furthers an exempt purpose pursuant to section 501 ( c ) ( 3 ).”
NIL cooperatives had already submitted numerous tax-exempt application to the IRS, with the majority of them proposing to pay college athletes NIL money in exchange for support work with other registered organizations. According to Camillo’s study, most of these collectives does not qualify as free organizations because their personal interest—paying university athletes Negligible money so they’ll go certain schools —”is not a byproduct but is rather a basic part” of their purpose.
However, Camillo’s memo was not, itself, precedential, and dozens of NIL collectives have received 501 ( c ) ( 3 ) status, enabling them to receive tax- deductible contributions. However, since Camillo’s letter, the IRS has not provided any more public guidance or official position statements, leaving it an empty question as to whether her analysis was standard policy.
On Jan. 11, Camillo spoke at the D. C. Bar Tax Conference, where, according to Bloomberg Tax, she said that the IRS was” considering all options” in how it would deal with the tax- exempt status of NIL collectives, but added that it was n’t a top agency priority.
The IRS’s Cincinnati office’s tax exempt and government entities office sent a final determination letter the day before, disclosing a collective request for 501 ( c ) ( 3 ) status. The collective, whose name and identifying features are redacted, appeared to make the same, general case for its exempt status as a number of already exempt collectives. This collective proposed that it would work with college athletes as independent contractors and give them NIL for their efforts in promoting other charitable and educational organizations in the determination letter. The athletes ‘ NIL funds would be combined with “fans, alumni, and generous private donors.”

Nevertheless, the IRS determined, in this case, that the organization failed the two main tests for it to be recognized as exempt under federal law and Treasury Department regulations.
According to the information provided in your application, you serve a private interest rather than a public interest because you primarily grant benefits to university athletes who compete for their NIL, the IRS wrote. You have not shown that these student athletes are deserving of any kind donations.
Furthermore, the letter stated, the group’s proposed activities would result in a direct benefit” to a limited group of individuals”, a group of college athletes, irrespective of their “demonstrated need”. The collective suggested that NIL rights be purchased from a significant portion of its gross income, which would not be considered “incidental” for its exempt purpose, according to the letter.
The determination letter cites, as precedent, much of the same case law that Camilla referenced in her memo, including Better Business Bureau of Washington D. C., Inc. v. United States, in which the Supreme Court held that if an organization’s non- exempt purpose was substantial enough, it would preclude exemption despite its potentially other charitable activities.
To the extent that a number of collectives have received 501 ( c ) ( 3 ) determination, Hackney thinks that likely owes to administrative error.
” If you got status, it just means you got it through an overwhelmed process”, Hackney said.
Hackney notes that the IRS’s gutting in the wake of the 2010 Tea Party targeting scandal, when the agency, then under President Barack Obama’s administration, was found to have targeted conservative organizations seeking tax- exempt status. A report from the Treasury Inspector General for Tax Administration in May 2013 revealed that IRS officials had been “using inappropriate criteria” to identify organizations seeking 501( c )( 3 ) status, including their search for applicants with” Tea Party” in their names.
Conservatives successfully fought back against Congress’s political debacle, cutting the IRS’s budget from$ 102 million in 2011 to$ 82 million in 2016 while the number of tax-exempt status applications were increasing exponentially. According to the IRS, it now receives more than 95, 000 applications each year.
Now that this determination letter has been made public, Hackney claims that NIL collectives ‘ non-profit tax preparation and signature pose a risk.
” It puts a real burden upon the professionals who are advising these organizations”, Hackney said. Can they provide legal or auditing advice that the organization continues to qualify in good faith? In my own, personal opinion, I would n’t sign off on one”.
A number of collectives planning to form as charities quickly switched to for-profit status as a result of Camillo’s memo last summer, either because they wanted to quell any unease for their donors.
In the meanwhile, a growing number of for- profit collectives have partnered with the company Blueprint Sports, which utilizes a companion charity, the BPS Foundation, so its collective clients can still receive tax- deductible contributions from donors. The nexus between the two entities has raised a number of conflict-of-interest concerns, according to Sportico’s earlier reporting.
As a practical matter, most collectives likely have little to worry about, at least in the near term.
Although it’s unusual, the IRS has n’t previously conducted a thorough analysis of a large number of organizations that had previously been granted exempt status. In the early 1990s, the IRS had approved the status of around 200 credit counseling agencies, which were organized as nonprofits.
The organizations made the promise to assist people who were struggling with debt with financial literacy and other educational services. However, after a number of media reports and public complaints about the activities—accusing the organizations of merely selling commercial, debt- reduction plans—and changes to federal and state laws, the IRS commenced a compliance initiative, in which it revoked, terminated or proposed terminating dozens of organizations ‘ tax status.