In news that could rock the world of name, image and likeness, the Internal Revenue Service suggests that nonprofit NIL collectives offering tax deductions could be breaking the law.

According to a memo released from the office of the IRS Chief Counsel, donations made to nonprofit NIL collectives “are not tax exempt” because the benefits they provide college athletes are “not incidental both qualitatively and quantitatively to any exempt purpose.”

The 12-page memo was posted publicly Friday on the IRS website. The memo, actually written May 23, is filtering through the college athletics world as well as those working in the collective space. 

The full memo can be found here.

The news could have a resounding impact in the collective space, where booster-led groups are pooling donations to distribute to college athletes through NIL deals. More than 200 collectives exist among the 131 FBS schools, dozens of which have been granted 501(c)(3) status and are receiving millions in donations from boosters who are under the impression that their gifts fall under tax deduction.

Though the IRS has approved 501(c)(3) nonprofit status, many within the college industry have warned for more than a year now that the government entity would eventually investigate and likely put a stop to tax deductions for NIL-related donations. Jason Belzer, the co-founder of Student Athlete NIL who manages several for-profit collections, has been one of the loudest critics of nonprofit collectives.

“I think it’s a bad business model,” Belzer told Sports Illustrated recently. “I’ve been long on the record to say the majority of collectives are doing it as a way that is disingenuous. They are using it to get a tax writeoff to pay student athletes.

“The IRS may grant it and then come back a year later and say, ‘Wait, what the f--- is going on? The kid promoting the charity is driving around the Mercedes and tweeting about how great this charity is!?’”

In the latest evolution of NIL collectives, a school’s foundation arm—a nonprofit entity—is growing more involved in athlete compensation. Mostly within the SEC footprint, state legislatures are amending their laws to give their schools an advantage in allowing such a model, which Texas A&M announced earlier this spring. SI published a story last week diving into the issue.