IRS Calls Out Non-Profit NIL Collectives in Letter Outlining 2025 Priorities

On Monday, the IRS released a letter outlining priorities for 2025 and NIL collectives were at the top of that list. Currently, NIL collectives claim 501c()3) status, meaning they are tax-exempt organizations. All of that could change starting in the new year.

According to Sports Business Journal, the IRS wrote in the letter that its priorities would include, “examinations of tax-exempt hospitals, tax-exempt collectives utilizing NIL, and elective payment for certain clean energy credits.”

At the center of the debate for whether or not NIL collectives can operate as non-profits or for-profit entities, explained Katie Davis, CPA, is, “do they truly operate under a charitable purpose or in the public interest. The concern was the fact that there were donors that were contributing a lot of money and taking a tax write-off as a charitable contribution just to pay athletes. That really is the crux of the issue and what got them on the radar.”

Even if some universities dismantle NIL collectives, and move toward a model of directly paying athletes, the IRS could still audit the previous collective. “What the penalty would be if something found was wrong, if they're already winding down, it's probably not a big deal, because they're already winding down, but there could still be something that can come from that.”

Back in 2023, the deputy associate chief counsel of the IRS, Lynne Camillo, had already started laying the ground work for taxing NIL collectives when she said, “collectives have a primary purpose to pay college athletes, which outweighs the secondary purpose of any tax-exempt charitable work.”

However, some of the current NIL collectives are not established as non-profits. Mississippi’s Grove Collective, Minnesota’s Dinkytown Athletes and UCLA’s Champion of Westwood are not 501c(3) organizations. These organizations would see little if any change to their business model if the IRS were to complete an audit.

If the IRS is successful in its attempts to reject NIL collectives as non-profit organizations, then collectives from all schools are likely to see a decrease in donations as donors could no longer classify those payments as tax-deductible charity contributions. Those singular donations far outweigh brand deals at the moment.