Phoenix, Ariz./Akron, Ohio (July 25, 2023) – Phoenix Partner and Chair of Lewis Brisbois' Collegiate & Professional Sports Law Practice Gregg E. Clifton, with Akron Managing Partner and Chair of Lewis Brisbois' Tax Practice David Kern, recently authored an article for the July-August 2023 issue of LEAD1 Association's Name, Image, and Likeness (NIL) Institutional Report. Titled "NIL 501(c)(3) Collectives Beware: The IRS Is Watching You," the article discusses recent developments in the IRS' treatment of donations made to non-profit NIL collectives.
The authors open the article by describing that "The world of NIL continues to change with forces beyond federal law, state law or NCAA Bylaws: enter the IRS." They explain that the Office of the IRS' Chief Counsel announced in a non-precedent-setting memorandum that donations made to non-profit NIL collectives are not tax exempt, reasoning that these donations fail to satisfy IRS regulations that require benefits that student-athletes receive from a non-profit collective to be indirect and incidental both qualitatively and quantitatively from any private interest or purpose.
Messrs. Clifton and Kern next review the recent history of NIL collectives and the NCAA's NIL policy, noting that many of the collectives "have been formed as nonprofit entities under state law and have applied for and received preliminary recognition of tax exemption under section 501(c)(3) of the IRS Code." The authors also review the IRS' treasury rulings related to these tax exemptions.
Finally, the authors observe that the impact of the most recent IRS announcement "could be substantial," as collectives have already received millions of dollars from donors who believe that their contributions are tax-deductible. The authors point out that "the end result of the status of these contributions is yet to be determined," ultimately concluding that "each collective must convince the IRS that they are eligible for and should be granted 501(c)(3) status."
Mr. Clifton is chair of Lewis Brisbois' Collegiate & Professional Sports Law Practice, and a member of the firm's Entertainment, Media & Sports and Labor & Employment Practices. He has extensive experience in the collegiate and professional sports world and has advised numerous professional franchises on a range of labor and employment issues, including Title III ADA regulatory compliance and wage and hour issues. Mr. Clifton is also an editor of The Official Review, Lewis Brisbois' sports law blog.
Mr. Kern serves as chair of Lewis Brisbois' Tax Practice and as a member of the Corporate Practice. He works with clients to develop and execute business savvy legal and tax strategies for businesses from early stage through maturity and sale or merger, with a view toward maximizing benefit to their owners and investors. Mr. Kern often acts as primary outside counsel to middle market companies owned by private individuals, investment and private equity firms, and public companies.
Read the full NIL Institutional Report article here.
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