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Tuesday, November 22, 2022

As Published In The Daily Business Review: Tax Law Considerations for Charitable NIL Collectives in College Sports

By: Todd Kesterson of Kaufman Rossin and Alyssa R. Wan of Fowler White

As Published In The Daily Business Review

The NCAA’s adoption of an Interim Name, Image and Likeness (NIL) Policy opened the door for donors, alumni and fans to effectively pay college athletes, either directly or through NIL “collectives.” With a growing number of donor groups forming NIL collectives as not-for-profit entities, there are questions about whether or not these collectives truly qualify as charitable organizations for tax purposes.

On June 21, 2021, the U.S. Supreme Court turned college athletics on its head by ruling that players have the right to accept money for his or her name, image, and likeness (NIL), and effective July 1, 2021, the NCAA adopted an Interim Name, Image, and Likeness Policy. Therefore, amateur athletes can be paid to promote products, services and businesses.

While colleges and universities will continue to award valuable scholarships, now there is an opportunity for donors, alumni and fans to effectively pay NCAA athletes. SMU, which in 1987 received the NCAA death penalty for paying players, recently reported that each athlete will earn $36,000 per year. NIL experts predict that Power Five conference player compensation will be a minimum of $50,000. Specific laws regarding NIL compensation of collegiate athletes are on a state-by-state basis.

This new policy has even affected athletes at high schools and possibly other secondary schools. Quinn Ewers, current University of Texas starting quarterback, left Southlake Carroll High School after his junior year with $1.4 million in NIL payments without ever having thrown a pass at the collegiate level.

In some cases, donors are hiring players to promote their businesses. In other cases, donors are forming NIL “collectives.” An NIL collective is an entity that receives contributions from donors and then uses those contributions to pay athletes. The activities of the athletes in turn raise the profile of the collective, and, as the reputation of the collective increases, contributions increase and there are more funds to pay the athletes.

Collectives have already been established to benefit players from the top-three NCAA football programs in Florida (UM, UF, and FSU). Collectives can be established as for-profit or not-for-profit (NFP) entities. If formed as an NFP that qualifies as a charitable organization, donors’ payments to the collectives may be tax deductible. While the Internal Revenue Service has approved certain NFPs as charitable organizations thus far, there are questions as to whether or not these collectives satisfy the tax law requirements applicable to charitable organizations. Will these approvals be upheld? Or, will they eventually be challenged and disallowed years later?

The key requirement for an NFP to be considered a charitable organization under the tax law is that it be organized and operated exclusively for one or more charitable purposes, which, broadly defined, includes educational, scientific, health, religious and relief of the poor among other exempt purposes. Overall, the charitable organization must be operated for the public benefit, and not the private benefit, and the net earnings of the charitable organization cannot inure to the benefit of any private shareholder or individual (insiders).

If the charitable organization is dissolved, all of its property remaining after the payment of any debts and liabilities must be paid to another charitable organization. There are also some outright restrictions on the activities of a charitable organization—it cannot engage in any political campaign activity and must limit any lobbying activities. The charitable organization must operate in this way and also have proper governance documents that reflect these purposes and restrictions.

The above requirements, although straightforward and logical on their face, leave much room for interpretation. Does operating exclusively for charitable purposes mean that the charitable organization can never engage in any activity that might benefit a private individual? And, isn’t it the case that charitable organizations inevitably provide some benefit to private individuals? For example, a charitable organization that awards scholarships results in a private benefit for the recipient of the scholarship.

These questions have been considered in the tax law and addressed with varying levels of certainty. In general, it is permissible for the charitable organization to engage in some noncharitable activities, so long as the noncharitable activities are considered to be insubstantial or incidental. A substantial non-exempt purpose or activity will destroy the tax qualification, even if the charitable organization engages in other truly charitable activities. Whether or not a noncharitable activity is insubstantial or incidental is a question of fact. This means that we do not have a bright line rule to determine the outcome in all cases. Whether or not the charitable organization is providing an impermissible private benefit can be murky … a scholarship awarded based upon approved procedures is permissible. But, what about the case of an NIL collective that states a charitable purpose and engages in charitable activities, but engaging in those charitable activities directly benefits a designated class of individuals, such as current or former athletes of a certain college?

In the case of these collectives formed as charitable organizations, the athletes or the university may be totally uninvolved with their formation and operation. The collective may operate as follows: The collective is formed for charitable and educational purposes and seeks to carry out these purposes by hiring current or former college athletes to promote and support the work of other charitable organizations. The collective fundraises, offering an opportunity for fans to make tax-deductible contributions. Then, the collective arranges for certain athletes to attend events, sign autographs, and so forth for other charitable organizations, and pays the athlete for his or her time as an independent contractor.

The operation of an NIL collective as described above likely raises two overlapping but legally distinct questions. First, is this collective operating for the public benefit (supporting the partner charity’s activities) or the private benefit (providing payments to the athletes)? And second, in carrying out its charitable activities, is the collective providing an impermissible benefit to private persons (payments to the athletes)? Although the answers to these questions are based on all facts and circumstances, general factors include:

  • Is the private benefit inextricably linked to the public benefit or an incidental consequence of the exempt activity, that is, must these private persons benefit in order for the charitable organization to carry out its purpose;
  • Is the private benefit substantial in nature (which may involve, but not be limited to, review of the percentage of overall time and revenues directed to that benefit);
  • Is the charitable organization operating with a substantial commercial purpose;
  • What is the relationship of the founders of the charitable organization to those who are benefitting from its activities; 
  • Are the private persons benefiting a definite or clearly identifiable group and does this group constitute a charitable class; and
  • What is the overall purpose for which the charitable organization was formed?

The application of these factors in any particular case are subject to interpretation, and, as a result, may be argued by the IRS and the taxpayer drawing opposite conclusions. Therefore, if one is considering forming a charitable organization that may engage in activities resulting in a private benefit, the proposed purpose and the activities of the charitable organization should be carefully analyzed in light of the available tax rulings to form an operational plan that complies with the tax law.

If you have questions regarding forming and operating charitable organizations or are considering making charitable gifts to an NIL collective or other organization, consider reaching out to professional advisors with expertise in tax law and accounting.


Disclaimer: This article is for educational and informational purposes only and does not constitute tax or other legal advice. The tax law imposes strict requirements that must be satisfied in order to permit an income tax charitable deduction when a charitable gift is made, and also limitations in certain cases, all of which are outside the scope of this article.

Todd Kesterson is a principal in the Miami office of Kaufman Rossin, one of the top CPA and advisory firms in the United States. He leads the firm’s family office services practice, with a focus on providing sophisticated accounting, tax, and business consulting services to high-net-worth individuals, family offices, and their closely held businesses. He can be reached at and 305-646-6157.

Alyssa R. Wan is a shareholder in the Miami office of Fowler White Burnett. She practices in the tax and trust & estates groups and serves as a co-vice chair of the Florida Bar Charitable Planning and Exempt Organizations Committee (Real Property, Probate and Trust Law "RPPTL" Section). Wan can be reached at and 305-789-9272.

Reprinted with permission from the November 22, 2022 online edition of the Daily Business Review© 2022 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or

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