Thune: ‘No tax write-offs for NIL contributions’

A recent bipartisan request from U.S. Sen. John Thune (R-SD) seeks to ensure that many name, image, and likeness (NIL) collectives are not tax-exempt through the issuance of formal guidance from the Internal Revenue Service and the U.S. Treasury Department.

The Internal Revenue Service (IRS) Office of Chief Counsel on June 9 released general legal advice memorandum (GLAM) AM 2023-004, which concludes that certain organizations that make payments to college or incoming college student athletes for rights to their NIL are, in many cases, not eligible to have tax-exempt status, according to a July 31 letter that Sen. Thune and U.S. Sen. Ben Cardin (D-MD) sent to the heads of the IRS and Treasury. 

“We appreciate the IRS’s attention to this important issue through the GLAM and urge your agencies to take the next step by adapting the GLAM’s conclusions into more formal guidance, such as a revenue ruling,” the lawmakers wrote.

Their letter coincides with the senators’ bipartisan Athlete Opportunity and Taxpayer Integrity Act, S. 1454, which Sen. Thune sponsored on May 4 alongside lead original cosponsor Sen. Cardin to deny a tax deduction for contributions used to compensate one or more secondary or post-secondary school athletes for the use of their NIL by reason of their status as athletes, according to the congressional record bill summary. S. 1454 is under consideration by the U.S. Senate Finance Committee.

“We introduced the Athlete Opportunity and Taxpayer Integrity Act to protect student athletes, uphold the integrity of college athletics, and prevent the abuse of the tax code,” Sen. Thune and Sen. Cardin wrote in their letter. “This bill would achieve these objectives by denying charitable deductions for donations used to compensate college or incoming college student athletes for the use of their NIL, which would include donations to NIL collectives.”

They pointed out that a fundamental requirement for tax-exempt status under section 501(c)(3) is that an organization must operate exclusively for a public benefit, such as a religious, charitable, scientific, or educational purpose.

The GLAM concludes that ‘many organizations that develop paid NIL opportunities for student athletes are not tax-exempt as described in section 501(c)(3) because the private benefits they provide to student athletes are not incidental both qualitatively and quantitatively to any exempt purpose furthered by that activity,’ according to their letter. 

“We agree with this conclusion that many NIL collectives should not be granted tax exempt status,” the senators wrote. “The GLAM is an encouraging step forward and more should be done. We respectfully request that your agencies take the next step by adapting the GLAM’s conclusions into more formal guidance, such as a revenue ruling.”