501(c)(3) exemption denied to a college-athlete NIL collective

Plain-English summary

An organization applied for charitable exemption under Section 501(c)(3), but the IRS denied it. The group is a "name, image, and likeness" (NIL) collective tied to one school: it raises money to pay college athletes for the use of their NIL in exchange for the athletes doing community service and promotional activities (autographs, social media posts, youth camps) for local charities, all under NCAA rules. The organization argued this furthers charitable and educational purposes and helps athletes stay in school. The IRS disagreed. Its entire activity was paying designated individuals, the student-athletes at one school, for their services and NIL, which is a direct economic benefit to private individuals. The athletes are not a "charitable class," and the payments are compensatory rather than educational, so the activity does not further charitable or educational purposes. Because this was the organization's sole activity and it served substantial private interests, it failed the operational test. This is the final adverse determination: no protest was filed within 30 days, so the denial became final, and donors generally cannot deduct contributions under § 170. The document reproduces both the final adverse letter (Letter 4038) and the enclosed proposed adverse letter (Letter 4034).

Ruling snapshot

• Question: Does an NIL collective that pays college athletes for their name, image, and likeness qualify for exemption under § 501(c)(3)?
• Outcome: Denied (sole activity serves private interests of designated student-athletes, not a charitable class; fails the operational test); final adverse determination.
• Key authorities: IRC § 501(c)(3); IRC §§ 170 and 117; Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d)(1)(ii), (d)(2), and (d)(3)(i); Rev. Rul. 61-170; Rev. Rul. 75-286; Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945); Miss Georgia Scholarship Fund, Inc. v. Commissioner, 72 T.C. 267 (1979).

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 11/13/2025
IRS Tax Exempt and Government Entities Employer ID number:

Form you must file:

Person to contact:

Release Number: 202606003
Release Date: 2/6/2026
UIL Code: 501.03-00, 501.30-00

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't
deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by
sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Letter 4038 (Rev. 11-2021)
Catalog Number 476328

We sent a copy of this letter to your representative as indicated in your power of attorney.

Enclosures:

Letter 437

Redacted Letter 4034
Letter 4038

cc:

Sincerely,

Stephen A. Martin

Director, Exempt Organizations

Rulings and Agreements

Letter 4038 (Rev. 11-2021)
Catalog Number 476328

Department of the Treasury
Internal Revenue Service

Date:
09/26/2025

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
X = Date 501.03-00
Y = State 501.30-00
Z = School
Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts

You were incorporated on X, in the State of Y. Your articles of incorporation reference charitable, educational,
and religious purposes defined as receiving and maintaining a fund. You have a notwithstanding clause
forbidding you from activities not allowed under IRC Sections 170(c)(2) or 501(c)(3), and a compliant
dissolution clause.

Your Bylaws indicated your purpose is to assist Z in raising money to provide funds to collegiate athletes for
their name, image, and likeness (NIL) in exchange for community service to non-profit organizations, all in
compliance with NCAA rules and regulations.

Your application stated that your exempt purposes will be furthered by donating the time and inherent benefits
of celebrity through the NIL of the student-athletes to local charities, which you assert should be able to
increase publicity and attendance at their events and thus enhance their fundraising activities. You further stated
you empower the student-athletes to stay in school and support themselves financially. This NIL activity uses
all of your time.

You characterized your activities as sponsorships, which include one-time or monthly payments with other
terms and criteria determined by your board. You provided a sample agreement which requires student-athletes
to provide autographs, a minimum twice per month social media post, and attend a youth camp related to their

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

2

sport. All of your funds go to student-athletes in return for accepting the sponsorships. Student-athletes are
selected based upon willingness, notoriety, and alliance with the values of other organizations that will receive
the benefit of appearances at their events and programs by the student-athletes.

You stated that student-athletes must sign up at a third-party website and can request an offer directly on the
site. To receive an offer, they must be a student at Z, and your board selects a recipient among the few hundred
student-athletes on the third-party website.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of
the purposes specified in such section. If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of
such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively
for exempt purposes unless it serves a public rather than private benefit. Thus, the organization must establish
that it is not organized or operated for the benefit of private interests, such as designated individuals.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term "charitable" as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, to defend human and civil rights secured by
law, or to combat community deterioration. The term "charitable" also includes the advancement of religion,
education, or science.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) provides that the term "educational," as used in IRC Section
501(c)(3), relates to the instruction or training of individuals for the purpose of improving or developing their
capabilities, or the instruction of the public on subjects useful to the individual and beneficial to the community.

Revenue Ruling 61-170, 1961-2 C.B. 112, held that an organization with bylaws specifically providing for the
employment of designated individuals, member-nurses, was operating an employment service. Therefore, it was
not free from consideration of substantial private benefit and was not exempt under IRC Section 501(c)(3).

Rev. Rul. 75-286, 1975-2 C.B. 210, held that an organization formed to beautify a city block was not exempt
under IRC Section 501(c)(3) due to the restricted nature of its membership and the limited area of focus. This
was deemed to serve the private interests of its members by enhancing the value of its property rights.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

3

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), held that the
presence of a single nonexempt purpose, if substantial in nature, will preclude exemption, regardless of the
number or importance of truly exempt purposes.

Miss Georgia Scholarship Fund, Inc. v. Commissioner, 72 T.C. 267, 271 (1979), considered an organization
whose only activity was providing funds in the form of scholarships to individuals which were conditional on
performance of obligations assumed by the participants. The Court held these scholarships were compensatory
in nature and, therefore, did not qualify as educational grants under IRC Section 117, and since this was the
organization's only activity, it did not qualify for exemption under IRC Section 501(c)(3).

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
IRC Section 501(c)(3).

As described in your Bylaws, your purpose is to give money to individuals for services and using their NIL.
This serves to benefit designated individuals, the student-athletes at Z, by providing a direct economic benefit,
which is your only activity. This violates Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you have not
established that the student-athletes are a charitable class. None of the criteria you list for selecting student-
athletes, such as willingness, notoriety, and alliance with the values of other organizations, indicates this group
represents a charitable class benefited by activities that further charitable purposes defined in Treas. Reg.
Section 1.501(c)(3)-1(d)(2). Therefore, you are not operated for exempt purposes, which precludes exemption
under IRC Section 501(c)(3).

Your primary activity is compensating student-athletes in compliance with NCAA rules and regulations. While
you assert your activities further exempt purposes by donating the services and NIL to local charity partners,
this compensation doesn't further educational purposes by providing for instruction which is useful to
individuals or the community as described in Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) and Miss Georgia
Scholarship Fund, Inc. Furthermore, the student-athletes do not represent a charitable class within the meaning
of Treas. Reg. Section 1.501(c)(3)-1(d)(2), making this activity one which furthers a non-exempt purpose. Since
this is your only activity and it substantially furthers a non-exempt purpose, exemption under IRC Section
501(c)(3) is precluded (see Treas. Reg. Section 1.501(c)(3)-1(c)(1), Better Business Bureau of Washington,
D.C., Inc., and Miss Georgia Scholarship Fund, Inc.).

Similar to the organization in Rev. Rul. 61-170, you increase the employment opportunities for a limited group
of individuals. In your case, you finance the exchange of the student-athletes for their services and NIL, serving
their private interests, not public interests; therefore, you are not exempt under IRC Section 501(c)(3).

Similar to the organization in Rev. Rul. 75-286, your activities limit your beneficiaries to a specific group and
provide a direct benefit to that group, which serves private interests, not public interests. Therefore, you are not
exempt under IRC Section 501(c)(3).

Conclusion

Your only activity is creating opportunities for designated individuals to sell their NIL property in exchange for
services. This means you serve private interests and are operated for a substantial non-exempt purpose.
Therefore, you are not exempt under IRC Section 501(c)(3).

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position

• A statement indicating whether you are requesting an Appeals Office conference

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
  organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven't given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403

PO Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

5

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

cc:

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K