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The IRS published a generic legal advice memorandum (GLAM) on June 9 that addresses whether developing paid name, image, and likeness (NIL) opportunities for collegiate student athletes furthers an exempt purpose under section 501(c)(3)and states that they generally do not. The memo is internal IRS legal advice by the Office of Chief Counsel to IRS staff.

Following the NCAA’s 2021 adoption of a policy permitting student athletes to be compensated for use of their name, image, and likeness, some university boosters and fans created NIL collectives to fund and facilitate NIL arrangements for their institution’s athletes. At the outset, some collectives obtained tax-exempt status under state and federal law, and some received tax benefits as an activity or a program of an existing 501(c)(3) organization.

 The new IRS memorandum explains that an organization that develops paid NIL opportunities for student athletes will generally be operating for a substantial nonexempt purpose—serving the private financial interests of student-athletes—which is more than incidental to any exempt purpose furthered by the activity. Operating for a substantial nonexempt purpose is inconsistent with exempt status under section 501(c)(3).

The memorandum states—

When an organization serves both public and private interests, the private benefit must be clearly incidental, both qualitatively and quantitatively, to the overriding public interest. Because the private benefit from a nonprofit NIL collective’s activity, in most cases, will not be incidental in a qualitative sense, and because a single nonexempt purpose, if substantial in nature, precludes exemption, we believe such collectives are not organized and operated exclusively for exempt purposes.

While the memorandum is not binding law and cannot be cited as precedent, it provides a clear view of the position the IRS is inclined to take in the review process for new applications for exemption and in audits of recently formed NIL collectives.


Mary Bachinger

Director, Tax Policy


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