IRS Now Routinely Rejects NIL Collectives, but Routinely for The Wrong Reason

After an initial period during which the IRS routinely granted tax exemption for NIL Collectives, the Service  is now routinely denying tax exemption to NIL Collectives.  But routinely for the wrong reason.  The reason routinely given is that student-athletes do not a charitable class make.  But if that is true, why is it ok to give students scholarships to study and play football? Even wealthy students like Archibald "Arch" Manning, grandson of Archie and nephew of Eli and Peyton.  If Arch is not part of a charitable class, shouldn't it be private benefit to give him a scholarship to play football?  Anyway, here is an excerpt from the latest denial letter released last week:

Based on the facts presented in your application and supporting documentation, the primary beneficiary of your activities will be the Y athletes. Your funds will be used to pay the Y athletes for their NIL and NIL services after the terms of the agreement are met. These athletes are not themselves a recognized charitable class. You would be serving a private rather than a public interest because your benefits and resources would primarily flow to the Y athletes for their NIL and NIL services. Paying for the services is not clearly incidental to the overriding public benefit. To qualify for exemption under Section 501(c)(3), you must serve a public, rather than private interest, as described in Section l.50l(c)(3)-l(d)(l)(ii). Because your primary expense is for the use of the NIL of IC athletes from Y with whom you contract, you operate substantially for a substantial private interest, rather than a public interest.

I tell my students that its not enough, certainly not on a multiple choice bar exam, to select an answer with the correct outcome. To pass, students have to select the answer with the correct outcome and the right reason.  By the way, it's not private benefit for the University of Texas to give Arch a football scholarship because the UT is not a 501(c)(3).

Right outcome, right reason.  

darryll k. jones