It’s NCAA March Madness season again, and everyone’s excited! Teams are fighting hard, boosters are cheering louder, and nonprofit organizations—or NIL collectives—are sprouting faster than weeds on an unkept baseball diamond. But let’s pump the brakes just a bit. Winning a championship might be glorious, but it isn’t exactly a free ticket to nonprofit paradise.
When the NCAA relaxed rules around Name, Image, and Likeness (NIL) compensation in July 2021, NIL collectives popped up overnight, many racing to secure that sweet 501(c)(3) tax-exempt status. The logic? If you help student-athletes financially, it must surely count as “charity,” right?
Not so fast, says our diligent friends at the IRS. As exciting as championships are, winning alone isn’t a charitable mission—no matter how many die-hard fans insist otherwise.
What Makes a True 501(c)(3)?
A legit 501(c)(3) must meet strict IRS requirements:
- Exempt Purpose: Think education, charity, or fostering amateur sports competition—not direct payments to your favorite college quarterback.
- Public vs. Private Benefit: The public must primarily benefit from the organization’s actions—not just a select group of star athletes.
- Incidental Benefits Only: Any benefits to individuals (like student-athletes) should be merely incidental. Handing your entire budget to a championship-winning roster? Probably not incidental.
In 2023, the IRS reminded everyone (in Generic Legal Advice Memorandum AM 2023-004, if you enjoy legalese) that NIL collectives primarily paying athletes for their name, image, and likeness don’t fit neatly into the tax-exempt box. Why? because the primary beneficiaries are the athletes, not the general public.
Risks of Chasing Championships as Charities
- Losing Tax-Exempt Status: The IRS is watching closely. If your collective’s main purpose is athlete compensation, you risk losing that precious 501(c)(3) status.
- Private Benefit Pitfalls: High payments, free tax advice, and financial planning services targeted only at athletes won’t pass muster.
- Increased IRS Scrutiny: Regulatory agencies and lawmakers are starting to look more closely at NIL organizations.
Opportunities for NIL Collectives
Don’t despair; it’s not all doom and gloom. Here’s how collectives can stay compliant and beneficial:
- Pivot Toward Genuine Public Benefit: Engage athletes in charitable community activities, public education programs, and broader public outreach.
- Keep Clear Documentation: Transparency in your mission, operations, and financial distributions is key.
- Advocate and Participate: Engage with policymakers to shape practical NIL regulations that align your mission with IRS expectations.
Bottom Line:
Winning a championship is thrilling. But from a nonprofit perspective, it’s essential to understand that success on the field doesn’t automatically qualify your organization for a tax break. Championships create heroes, legends, and great stories—but charitable status? Not so much.
Stay informed, stay compliant, and remember—winning trophies is great, but winning compliance audits with flying colors feels even better!
Need help navigating the complexities of NIL collectives and tax compliance? Inter CPA LLC is here to help your team stay on top—on and off the field.
Reference or additional reading:
NCAA (June 2021). NCAA adopts interim name, image, and likeness policy. Retrieve from https://www.ncaa.org/news/2021/6/30/ncaa-adopts-interim-name-image-and-likeness-policy.aspx
IRS (May 2023). Whether Operation of an NIL Collective Furthers and Exempt Purpose Section 501(c)(3). Retrieve from https://www.irs.gov/pub/lanoa/am-2023-004-508v.pdf
Journal of Accountancy (September 2023). Most NIL collectives likely ineligible for tax-exempt status, IRS advises. Retrieve from https://www.journalofaccountancy.com/issues/2023/sep/most-nil-collectives-likely-ineligible-for-tax-exempt-status-iea-advises/
American Institute of Certified Tax Planners (2025). From Brand Deals to NIL Agreements: The Tax Planning Playbook for Digital Earners. CPE
Other:
- IRS 501(c)(3)
- IRS Publication 557, “Tax-Exempt Status for Your Organization”
- IRS Publication 4221-NC, “Compliance Guide for Tax-Exempt Organizations”
#NCAA #Nonprofit #IRS #SportBusiness #TaxPlanning
