IRS weighs in on “nonprofit” NIL (Name, Image, and Likeness) collectives

Blog reader Ellen Aprill alerted us to a recent IRS General Counsel Memorandum weighing in on the propriety of using nonprofit entities to develop name, image, and likeness opportunities for student athletes. The short version is “an organization that develops paid NIL opportunities for student-athletes will, in many cases, be operating for a substantial nonexempt purpose—serving the private interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity.”

This was all catalyzed by the Supreme Court’s 2021 decision in Alston, which held that the NCAA’s restrictions on student-athlete compensation violated federal law. Shortly thereafter, the NCAA modified its rules to permit student athletes to receive certain compensation for the “name, image, and likeness.” The upshot is that student-athletes are now permitted to receive money for their NIL activities and while maintaining their NCAA eligibility.

It seems (according to this Sports Illustrated article) that boosters have created 501(c)(3) organizations for the purpose of providing student-athletes NIL compensation (imagine if Happy from Blue Chips was able to deduct the bag of cash he gave Ricky Roe). The IRS has understandably taken a hard stance on these NIL collectives, and has essentially warned them via this GCM that absent extenuating circumstances, their 501(c)(3) status will not be sustained.