Hirsch, The Tax Treatment of College Sports in the NIL Era

Despite the transformation of college sports during the twentieth century into a multi-billion-dollar business, the Internal Revenue Service (IRS) and Congress have historically treated the NCAA, athletic conferences, and universities with lenity, exempting athletic revenues from taxation. However, the advent of Name, Image, and Likeness in 2021 fundamentally altered the college sports landscape. This paper argues that the IRS’ response to collectives represents a rare instance of the agency attempting to regulate an entity within college athletics without Congress intervening to preserve favorable tax treatment. It suggests that the IRS’ initial response to NIL collectives, as well as the House settlement, Trump’s second term, and Congressional zeitgeist signals an opportune moment for broader reform of collegiate athletics’ taxation. This paper offers three reforms that the IRS and Congress could pursue: 1) make explicit that NIL collectives should not be tax-exempt, 2) revoke the NCAA’s (and conferences’) § 501(c)(3) exempt status, and 3) make the NCAA, conferences, and universities pay unrelated business income tax (UBIT) on income from collegiate athletics. The first suggestion is a new addition to the literature. The final two reforms are not novel; however, by situating them in the context of the history of collegiate athletics, as well as explicating the uniqueness of the current moment, this paper argues it is an unusually good time to reconsider them. This paper concludes that taxing NIL collectives and making the NCAA, conferences, and universities pay UBIT on income from collegiate athletics are the most worthwhile reforms.