NIL Collectives and Teenage Trick or Treaters

Remember when we were teenagers facing adulthood but still trying to hold on to the freedom and privileges of childhood for just one more year?  Like when we were 15 or 16 and pretty clearly beyond the recommended age for trick or treating.  We longed for more than just the candy so we threw on half-hearted costumes and went anyway, ignoring silent scorn from neighbors as they escorted their toddlers and little kids with real costumes.  We wore maybe just a wig or a hat.  We might have carried a broom so we could call ourselves witches, still eligible for candy and the fleeting childhood experience.  

I don't know why but that is what I thought about as I read the latest NIL collective letter ruling.  The charitable costumes collectives wear -- disguises really -- are becoming so thin as to be nonexistent, like all the disguises before and after Chief Counsel insisted that there ain't no damn way an NIL collective is supposed to be tax exempt.  One glance at the facts will tell any tax grown up that the particular NIL collective is like a teenager who has no business going trick or treating anymore.  NIL Collectives are just here for the candy. Like teenage trick or treaters, they hardly even make the effort to don a costume:    

You are a non-profit organization that connects sponsors and college athletes with school groups to deliver compelling messages that last a lifetime. These presentations are provided to the school at no charge. You raise donations from corporations and individuals to cover professional speaking fees for B student athletes. The B student athlete speakers will travel to elementary, middle school, and high schools to speak in classes, meetings, and assemblies. The B student athletes could also speak at other non-profit or community events on subjects such as compassion, goals, leadership, coping skills, friendships, health and wellness, study habits, teamwork, bullying, dangers of drugs, disability awareness, diversity, equity and inclusion, poverty, and suicide prevention.

The majority of your time will be spent raising donations and coordinating with schools and other nonprofit organizations who want to provide B student athlete speakers to their students or audience. Any expenses you incur arc related to this activity. You are not staffed or equipped to handle the logistics of getting the right speaker to the right school at the right time. For this reason, you contract with D, (the "logistics coordinator") who has the skills and staff needed to execute the presentations you initiate. D is a for-profit entity and has a separate facility than you. One of your officers serving as board secretary, E, has an executive role with D as their president. You are free to engage other parties as logistics coordinators and the logistics coordinator is free to perform the same or similar services for other organizations.

So the NIL collective collects donations and then uses those donations to pay student athletes ridiculous amounts of money to say a few words and maybe pass out T-shirts at elementary, middle or high schools.  The collective wants to be tax exempt and they want donors to get tax deductions.   

The Service rightly rejected the effort on the basis of private benefit.  I didn't do a close comparison of the authorities cited in this PLR to the authorities cited by Chief Counsel or in prior PLRs denying tax exempt status to NIL collectives.  But whoever wrote it cited the authority that best exposes the collective's true teenaged existence:

Rev. Rul. 6l-170, 1961-2 C.B. 112, held that an association of professional nurses that operated a nurses' registry to provide greater employment opportunities to its members and to organize an adequate and available nursing placement service for the community did not qualify for exemption under IRC Section 50l(c)(3). By operating an employment service principally for the benefit of its members, the organization served private interests more than insubstantially and consequently was not organized and operated exclusively for charitable or other exempt purposes.

That's all these NIL collectives really are, celebrity talent agencies with half-hearted charitable disguises.  They are sixteen year old trick or treaters, I'm telling you. The Service went through its normal list of other statutes, regulations and tangentially relevant case law. The ruling cites American Campaign Academy and Better Business Bureau but Revenue Ruling 61-170 is enough.  The Service also repeated the unfortunate dicta that student-athletes do not compose a charitable class.  Of course they do; students and amateur athletes compose a charitable class because study and amateur competition are charitable activities.  But the charitable need is study and sport, not signing bonuses disguised as fees for speaking engagements.  Hence, an employment agency limited to students and amateur athletes serves only to convey a private benefit on an otherwise charitable class.  The unnecessary and intellectually lazy insistence that student-athletes do not compose a charitable class will cause doctrinal problems later on if we don't get this straight.  Particularly in an era of NIL contracts, unlimited transfers facilitating the free flow labor, and unionized student athletes.     

darryll k. jones