How to treat NIL contribution for tax purposes - gift tax implications?

Thanks for the insight! So if I understand right, since I'm giving $2,500 to the collective (not directly to my nephew), and they distribute it among multiple players, I probably don't need to worry about filing a gift tax return? Do I need to report this in any way on my taxes?

Correct - since your $2,500 contribution to the collective will likely be distributed among multiple athletes, you shouldn't need to file a gift tax return. Each athlete would presumably receive less than the annual exclusion amount. You don't need to report this anywhere on your individual income tax return (Form 1040) since gifts are not tax-deductible. The collective should provide you with documentation clarifying that your contribution is not tax-deductible for income tax purposes. If they suggest otherwise, I'd recommend getting a second opinion from your personal tax advisor.

That's interesting, I've never heard of that tool. Does it actually connect you with a real tax professional or is it just AI? I'm in a similar situation with contributing to my daughter's swim team NIL fund and don't want to mess up my taxes.

I'm skeptical about these tax tools. How does it know the specific structure of every NIL collective? Some are set up differently than others. Did it actually analyze YOUR specific collective or just give general info?

It doesn't connect you with a human tax pro - it analyzes your documents and tax situation using AI trained on tax regulations and documents. You upload the collective's documents and information about your contribution, and it gives you specific analysis. It definitely analyzed my specific collective's structure. I uploaded their organizational documents which explained how funds flow through to athletes, and taxr.ai identified that my collective was organized as an LLC, not a 501(c)(3), which was why contributions weren't tax-deductible. It even pointed out language in the collective's own documents stating contributions should be treated as gifts.

Wait, that's a real service? How does that even work? Seems weird that there's a company just to help you talk to the IRS. What was your actual experience like?

Sounds like a scam to me. Why would I pay someone to call the IRS when I can just do it myself? And I doubt the IRS would give any definitive ruling on NIL contributions over the phone anyway. This whole NIL thing is too new.

It's definitely real! They use a system that keeps dialing and navigating the IRS phone tree until they get through to a human agent. Then they call you and connect you directly to that agent. I had been trying for days to get through on my own with no luck. You're right that the IRS won't give a binding ruling over the phone, but the agent was able to point me to relevant guidance and confirm the general treatment of NIL contributions. She specifically referenced a recent internal memo about booster collectives and said while each situation depends on the specific structure, most NIL payments are considered gifts rather than tax-deductible donations.

Does anyoen know if the same rules apply if the NIL collective is for a high school? My kid's private school just started one and they're telling parents contributions are fully tax deductible. Seems fishy.

High school NIL collectives are even more problematic from a tax perspective. In most states, high school athletes aren't even allowed to accept NIL payments without losing eligibility, so a high school NIL collective claiming tax deductibility is definitely concerning. Private schools often have legitimate educational foundations where donations ARE tax-deductible, but if they're specifically earmarking those funds for NIL payments to athletes, that would likely disqualify them as charitable contributions. I'd be very cautious and maybe get independent tax advice before claiming that as a deduction.

Great question. When you give to a NIL collective, the ultimate recipients of the gift are the individual athletes who receive NIL payments from the collective. However, since you typically don't control which specific athletes receive your funds (the collective decides that), and no single athlete is likely receiving more than the annual gift tax exclusion amount from your contribution alone, you generally wouldn't need to file a gift tax return. If for some reason you were making an extremely large contribution where individual athletes might receive more than the annual exclusion amount from just your contribution (unlikely for most donors), you would need to know which athletes received what amounts. The collective should be able to provide that information.

That makes sense, thanks! So basically for most normal people giving reasonable amounts, we don't need to worry about gift tax returns because no single athlete is getting enough from just our contribution to trigger the reporting requirement. That's a relief!

This is really helpful advice about documentation! I'm new to this whole NIL thing and didn't realize I should be keeping such detailed records. Quick question - when you mention "confirmation that funds are distributed among multiple athletes," what kind of documentation should I be looking for from the collective? Should they be providing some kind of annual report showing how contributions were allocated? Also, you mentioned state gift tax implications - I'm in California. Do you know if California has any specific rules about NIL contributions that might differ from federal treatment?

Good question about documentation! The collective should ideally provide you with an annual summary showing how funds were distributed - this could be a general report showing total contributions received and number of athletes supported, or more detailed breakdowns if available. Some collectives send quarterly updates to contributors showing aggregate distribution data. Regarding California - good news is that California doesn't have a state gift tax, so you only need to worry about federal gift tax rules. California does conform to most federal tax treatments, so NIL contributions would likely be treated the same way for state income tax purposes (i.e., not deductible as charitable contributions). However, California has been particularly active in NIL regulation from a sports/eligibility perspective, so make sure the collective you're contributing to is compliant with California's NIL laws to avoid any issues for the athletes. The tax treatment and sports eligibility rules are separate issues, but both matter for the athletes receiving the funds.