The Federal Government Already Guides Important Elements of NIL
Read time: 4 minutes
The May 23rd IRS memo that declares that donations made to nonprofit NIL collectives are not tax exempt is sure to add fuel to the debate of whether there ought to be Federal legislation guiding NIL.
What’s often missed amidst the usual NIL noise is the fact that the Federal Government already has a major role in guiding several important elements of NIL.
Why is this worth considering? While Federal legislation might clear the decks of the various state laws, any Federal bill (like what’s currently being proposed) would eventually be implemented.
So I think it’s worth taking a look at how the Federal Government’s various agencies already impact student-athletes, institutions, brands, and private citizens in the form of Collectives.
Internal Revenue Service (IRS)
First, let’s start with the breaking news from one of the Federal Government’s most powerful agencies - the IRS.
According to a memo released by the IRS Chief Counsel's office, donations made to nonprofit NIL collectives are not eligible for tax exemption because the benefits they provide to college athletes are not considered incidental to any exempt purpose. The IRS suggests that such practices may be in violation of the law.
The memo goes on to say that paid NIL opportunities to collegiate student-athletes do not align with an exempt purpose under section 501(c)(3) and are inconsistent with the treatment of similar taxpayers and sound tax administration.
Among the 131 FBS schools, there are over 200 collectives, many of which have obtained 501(c)(3) status and have been receiving substantial donations from boosters who believed their gifts would be tax-deductible.
Despite the IRS having previously approved 501(c)(3) nonprofit status for these organizations, there have been warnings across the college sports landscape that the IRS would eventually scrutinize and likely disallow tax deductions for NIL-related donations.
While the implications of this memo are unclear, nonprofit collectives are likely to cease offering tax-deductible donations. In addition, the IRS could take further action, potentially including retroactively taxing prior donations and imposing penalties on both donors and collectives.
Federal Trade Commission (FTC)
On the spectrum of the most powerful government agencies, the Federal Trade Commission is not the IRS…but it’s not the National Park Service either (sorry NPS.) The FTC is an independent federal agency responsible for enforcing laws related to consumer protection. The FTC's main mission is to protect consumers from deceptive and unfair business practices by investigating and bringing legal actions against companies or individuals who engage in fraudulent or misleading activities that harm consumers.
What’s its relevance to NIL? On any given day, nearly half of the sponsored social media content posted by student-athletes fails to meet the FTC’s Social Media Influencer Guidelines.
As I’ve discussed before, about 70% of student-athletes don’t know what the FTC is or how the agency is relevant to them. About 80% have never heard of the FTC’s Social Media Influencer Guidelines.
The agency has issued guidelines that require influencers and brands to disclose any material connections. The FTC's role in enforcing these guidelines is to ensure that consumers have access to accurate and transparent information when making purchasing decisions.
FTC Social Media Influencer Guidelines are a set of rules and regulations that were created to regulate the behavior of social media influencers and marketers. The guidelines require that influencers disclose any material connection they have with a brand or company when endorsing their products on social media. This includes any financial incentives, gifts, or other perks that they may have received in exchange for their endorsement. These disclosures are required to be clear, conspicuous, and easy to understand.
Recent FTC crackdowns on influencers have included: in 2017, settlements with 90 celebrity influencers, in 2018, the FTC fining music mogul DJ Khaled and boxer Floyd Mayweather Jr. for promoting cryptocurrency, and in 2016, Lord & Taylor being fined for violating influencer guidelines.
While the NCAA may not punish student-athletes for unethical advertising practices, that will not stop the FTC from doing so.
State Department
Students (and student-athletes) from foreign countries who intend to enroll in American universities must have a visa. The specific program of study and the type of educational institution they plan to attend will determine the type of visa required. Most student-athletes obtain an F-1 visa.
The oversight of international students' arrival and status is divided between two government entities. The U.S. Department of State handles the initial application and issuance of visas. Once a visa holder arrives in the country, the U.S. Department of Homeland Security assumes responsibility for granting entry and enforcing immigration regulations that pertain to international students during their stay in the United States.
What’s the importance of this to NIL? F-1 student visa holders are only permitted to be employed under specific circumstances (on-campus positions and off-campus work for training in their field), neither of which seem to fit any NIL activity scenarios.
So the goal for many international student-athletes who intend to participate in NIL is to demonstrate that their NIL income is passive (versus active.) An example of an NIL activity that might be considered passive is an NIL Collective selling t-shirts with an existing image of an international athlete and giving the athlete a percentage of sales... with the student-athlete doing none of the promotion.
Other types of visas that may be available to international student-athletes include the Extraordinary Ability Visa (O-1) and the Professional Athlete Visa (P-1.)
NIL for international student-athletes continues to be a risky endeavor. Red flags include:
No student-athlete is guaranteed a visa
If the State Department believes a student-athlete worked without authorization, they can decide to not renew a student visa
There is no appeals process for an international student-athlete who is denied a visa
Interested in NIL? There are 3 ways I can help you:
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3. If you are interested in NIL consulting, please email me at bill@studentathleteinsights.com.
Bill Carter is an NIL Consultant, Educator, and Speaker. He is a NIL Columnist for Sports Business Journal and teaches NIL in College Sports at the University of Vermont’s Grossman School of Business. Click here to read about Bill’s NIL Consulting and NIL Education for sports organizations, universities, and brands.