Collectives getting audited
- Thread starter NYShoreGuy
- Start date
She's a freaking genius. I've been saying this would happen for a year and a half or more. I'm curious when they knock these fake 501c3's out what will happen to all those "donors" who took $20,000+ of charitable deductions on their tax returns to an organization that was an illegitimate 501c3. People could start taking these founders to court for the interest and penalties they face.
There are issues with every one of these organizations. IRS has a term called reasonable compensation. I’ll bet every one of these organizations is paying at least one player well over what they are worth NIL wise. These organzations are paying players the value of their NIL. 99.99% of these players at this point in their life do not have the 5% of the brand power of Patrick Mahomes, yet they’re making 5% of what Mahomes makes in endorsement deals. The lady on the podcast even mentions the values be given out as an issue. In order to make 5% of what Mahomes makes in endorsements, these players would have to be promoting things day and night. The system is a joke and if Congress won’t fix it, the IRS will.
I’ve read Mahomes makes 20 mil in endorsements. I would love to know who in their right mind thinks Dre Davis is worth 5% of Mahomes. Or is Dre just going to be putting in 100 times the amount of time endorsing things than Mahomes. The system is a joke.
They are skirting the system. I’m ok with people giving away money. If you earned it, spend it however you choose. But what they’re doing is not within reasonable compensation. Let’s call it what it is. It’s not compensation. It’s not NIL. It’s a gift, which should require a gift tax return.
I served as a board member of several organizations that had 501C3's. And non of them were allowed to pay any recipient directly. Or benefit any individual directly.
But going forward it may get easier as schools will now be able to pay players directly. They have different rules with donations
But going forward it may get easier as schools will now be able to pay players directly. They have different rules with donations
Agreed. But even that won’t stop its impact on the sport. This chaos is here to stay and once the tax man is involved who knows what loopholes some will find.
I think I want the players to get the money more than our reckless govt spending, lol!
Always good to have groups taking money with no transparency around spending. That usually doesn’t lead to fraud.
That part is clear. But if they’re paying player X $150,000.00 they better be able to justify why player X is worth that. Nobody in the real world is working a month of sports camps and making $150,000.00. That’s where a lot of these organizations will run into problems as the woman in the podcast mentioned talking about the value of the player.
Reasonable compensation is a term that's generally applied to payments made to officers or shareholders. Have you ever seen the IRS apply it to someone without ownership or control?
Payments made in anticipation of future services (or in recognition of past services) are not gifts.
Owners overpaying their kids has been looked at. But that’s not done in the public eye. So they have to search to find it. This is in your face out in the open for all the world to see. No brainer for them to look into. They can turn on the tv daily and find a case per day.
Payments for future services would require these young people to give the money back when they transfer the next year. In what alternate universe will that happen lol
If that becomes an issue, it would really only be applicable for the non-profit collectives.
Would be nice, but they're not structured as a multi year contract. We're basically getting 1 year deals and have to renegotiate each year.
Disagree completely. Hope I’m wrong but I don’t think I am. Pretty sure it doesn’t matter if you’re a non profit or an LLC the payments can be looked at. Just think rich people who wanted to gift money to non family members would have them set up an LLC and pay them $250,000 to put one nail in the wall. That would never be allowed. This is the same principle.
Agreed, which makes the idea of future services so ridiculous to begin with.
The rule is specific to non-profits so the donations they receive are used primarily for the purpose of the non profit. If a non-profit uses too much for salaries instead of what allowed them to qualify to be a non-profit, then they would lose their non-profit status.
Any non-profit NIL collective has to have a stated purpose other than paying athletes to qualify for non-profit status. They could offer payment to athletes in exchange for promoting charities for example but those payments could be viewed as excessive. There is no similar requirement by the IRS for the non exempt organizations.
"Unlike nonprofits, for-profit LLCs are not subject to a cap on what’s considered reasonable compensation. They may therefore offer student-athletes NIL work at any compensation structure. They are also not subject to limitations on the type of activities they can facilitate. Therefore, for-profit LLCs may facilitate NIL arrangements for student-athletes such as merchandising or endorsement deals that promote commercial activities."
Sure, so have spouses but those are related parties. Expanding the rule randomly to unrelated parties seems a reach.
Require, by who? Remember, in its current configuration NIL cannot be based on playing at a specific institution. So, so long as the kid does whatever the promotional work outlined in the contract is, he gets paid regardless of university affiliation.
Now, could the employer frontload the payments, or require that the athlete live in a certain geographic area, sure, but that would be contract context specific.
there are also rules for other types of entities.
26 CFR § 1.162-7 - Compensation for personal services.
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