In this week's Film Room, we:
- Flag tax considerations for institutional payments to student-athletes
- Provide an update on the Fontenot case
Tax Considerations for Institutional Payments to Student-Athletes
As of July 1, 2025, institutions are permitted to make direct payments to student-athletes. Of the many issues raised by institutional payments to student-athletes, tax considerations may not be getting enough attention.
In May 2025, the IRS published a Technical Guide relating to tax-exempt organizations such as universities. (Stay with us, and don’t let the mention of taxes cause your eyes to glaze over!) The guide includes relevant framing for analysis of payments to student-athletes. In general, whenever a charity pays an insider, it’s necessary to determine if a payment is “inurement”—in other words, if the payment unduly benefits the insider. Institutional payments to student-athletes in connection with their NIL benefit the student-athlete, but the student-athlete also benefits the institution, the tax-exempt entity. If the two are balanced, it’s not a problem. If the IRS views the payments as excessive, it can be an issue.
In an article published last month, we examined the increased scrutiny of tax status in higher education, including in athletics. Obviously, the guide and related tax considerations for tax-exempt entities are highly technical. It’s an area that warrants campus sensitivity as sizable payments are made to student-athletes.
Fontenot v. NCAA et al.
The Fontenot case, originally filed in fall 2023 in federal court in Colorado, was stayed when the House case received preliminary approval in October 2024. That stay was lifted upon Judge Wilken’s granting final approval in the House case last month. After House case final approval, the Fontenot court entered a stipulated order requiring defendants to respond to plaintiffs’ most recent—the fourth—amended complaint by July 21, 2025.
The very long (841 pages!) complaint alleges violations of the antitrust laws resulting from alleged restrictions on student-athletes’ ability to profit from their NIL. The defendants in Fontenot are the NCAA, Pac-12, SEC, Big Ten, Big XII, and ACC. The plaintiffs include several high-profile former student-athletes, including current NBA players Donovan Clingan, Tyler Herro, Aaron Holiday, and Aaron Nesmith. We’ll continue to track case updates.
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