Tax Deductible? We Shall See!
If you know me at all, then you are more than aware that I love college athletics. And while I will spend an afternoon watching the national championship for both men's and women's golf, my favorite is found on fall afternoons each Saturday…. college football.
The landscape of college football has changed a great deal in the last several years. With the Supreme Court decision that allowed athletes to be paid like any other individual in the United States, the NIL (name image and likeness) era has begun. What it means is that athletes can be paid for their name image or likeness in commercial ventures and other avenues. To create some consistency, and to be advantageous to a university, nonprofit “collectives” have been formed that take dollars from donors and share them with athletes. The athletes have to do “something” (camps, autographs, appearances, etc.) for the dollars they receive and have to pay taxes appropriately, but the payments from collectives are ABOVE the long-standing tuition, room, and board paid by universities over the years.
One small problem. The IRS is concerned with the idea of a donation to the collectives. Yes, the collectives are registered as nonprofits with the IRS. Yes, they're out soliciting donations from prospects and donors. The problem is that the IRS is asking about the idea of community benefit. How does a “gift” to the collective and paid to individual and limited numbers of student-athletes actually provide a positive to the overall community? Obviously, that question has to be answered if they are allowed to be tax-free and provide tax relief to donors.
As with most things, when something happens very quickly the largest concern is unforeseen consequences. And this is an example of that to perfection. Nonprofits are founded and approved in record numbers each year. There are nearly two million of them throughout the United States. I don't think anybody thought, as little as two or three years ago, that having a nonprofit collect money from donors and share it with athletes would be a problem. But with most things that move quickly, the unforeseen consequences can be more than damaging. And the IRS has questions in that vein.
From a legal perspective, I think there's a legitimate question here. Is their community good when you're paying a limited number of individuals? And what is that benefit? Only time will tell.
And for me, as a spectator on Saturday afternoons, I think this question will have an effect on a lot of the college football I love to watch each week. Not tomorrow, but over the next decade the sport that I have grown up loving I think we'll see radical changes in the near future.
