IRS vs. name, image, and likeness: New ruling poses threat to student-athletes' endorsement deals

How sensitive is the NIL money game in college athletics? No one ABC13 Sports spoke with for this story wanted their school mentioned for fear that their program might be perceived as "falling behind" in the race to get money into the hands of college athletes.

It's all legal, but it's also continually evolving. Now, the IRS is ready to have the final say, even after a new law in Texas seemed to give local schools an advantage.

The basics of name, image, and likeness, or NIL, are simple - college athletes can make money for endorsements. Stars at Power 5 programs can make hundreds of thousands of dollars or even more.

A new Texas law allowed universities and their fundraising entities to get more directly involved in the NIL game. But a source explained to ABC13's Sports Anchor Greg Bailey that a recent ruling from the IRS has caused athletic programs to pull back and change course. The IRS has ruled that NIL money is not tax deductible.

Universities in Texas now understand the IRS ruling goes much further - if fundraising arms at universities get directly involved in directing NIL money to athletes, they risk losing their tax-exempt status.

One source explained losing that status would be "disastrous" for an entire athletic program. Schools and various programs have consulted attorneys, searching for ways to get around the IRS ruling.

The new Texas law, and laws like it in other states, have drawn criticism from leaders like SEC commissioner Greg Sankey.

RELATED: New law will protect Texas schools against NCAA penalties

At the SEC media days in Nashville, Sankey offered this, "Our student-athletes deserve something better than a patchwork of state laws that support their Name, Image, and Likeness activity... if support is the right word. Our student-athletes deserve something better than a race to the bottom at the state legislature level."

Sankey and others are calling for uniform NIL regulations. For now, the law of the NIL landscape has been provided by the IRS.

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