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“Taking a Sack: The NFL and its Undeserved Tax-Exempt Status”

Last month, the IRS came underneath scrutiny for outright denying applications for certain organizations looking for a tax-exempt status. Perhaps, the IRS should look closer at the National Football League’s (NFL) tax-exempt status instead.

The NFL currently brings in about $10 billion in profits each year; however, these profits are exempt from taxes due to the league’s status as a non-profit.

The NFL’s exemption comes from a 1966 law, passed at the time of the merger with the old American Football League, specifically “allowing ‘professional football leagues’ to enjoy 501(c)(6) status as tax-exempt trade organizations”.

With the NFL’s citation of this law, “the registered NFL nonprofit alone received $184 million from its 32 member teams. It holds over $1 billion in assets. Together with its subsidiaries and teams – many of which are for-profit, taxed entities – the NFL generates an estimated $9 billion annually”.

The National Hockey League (NHL) and Professional Golf Association (PGA) are two other prominent leagues in the United States who have cited the same law to maintain their tax-exempt status.

The Major League Baseball (MLB) also retained its tax-exempt status until 2007. “It chose to surrender that status in part because as the salary information illustrates, tax-exempt, non-profit status requires you to report the salaries of your top executives.” The league has since decided that protecting that particular information from the public was more important than escaping taxes.

Because of the non-profit status of the NFL, we now know commissioner Roger Goodell’s 2012 salary: $29.4 million. This salary tops the executives at Wal-Mart, Coca-Cola, ATT and several large banks.

“This is one of the things in the tax code that just doesn’t make any sense,” John Hart, a spokesman for Sen. Tom Coburn, R-Okla., told USA TODAY Sports. “It’s one of the striking examples in the tax code where middle- and lower-income Americans are essentially subsidizing salaries for multimillionaires.”

An article titled “Taking a Sack: The NFL and its Undeserved Tax-Exempt Status,” in the Arizona State Sports and Entertainment Law Journal made it to the desk of Sen. Coburn, on the Senate Finance Committee, and since, he has been citing facts in the article in order to push through reform bills.

Philip Hackney, a former attorney for the IRS, said he thinks such tax exemptions for pro sports leagues are improper because they violate the spirit of the tax code.

“If there is a justification for providing tax exemption to business leagues, it would be they operate for the public purpose of aiding commerce for all within a broad segment of some type of business or business in general,” said Hackney, an LSU law professor who previously worked as an IRS attorney litigating exempt-organization tax issues. “These (sports) organizations, in my opinion, are anything but public-minded in their profit interest. They are focused on the profits of their franchises.”

As the Indiana Business Journal reported, that proved to be a nice for the NFL when the Super Bowl was held in Indianapolis two years ago, because “hotels and restaurants … weren’t taxing National Football League employees. They were exempt from paying, according to an Indiana Department of Revenue directive. The NFL is using its tax-exempt status as a 501(c)(6) to avoid paying the taxes, in addition to fuel, auto rental and admissions taxes.”

Each NFL team pays $6 million in annual membership dues and the teams then write those dues off as ‘charitable donations’. With the $192 million pool, owners then receive interest-free loans to receive funding for new or renovated stadiums.

Sen. Coburn points out that: “That means we’re left with two bills: Not only do taxpayers lose out on federal tax revenue, we pay for new stadiums that generate profits which enrich only the owners.”

On April 24, Sen. Coburn proposed an amendment to the Marketplace Fairness Act, which would remove the non-profit professional sports leagues have used to avoid taxes.

What is the NFL’s response?

The league says that they qualify for tax exemptions and the non-profit status because the 32 individual franchises are not tax-exempt.

Coburn “has it wrong,” NFL spokesman Brian McCarthy told USA TODAY Sports. “Every dollar of income generated in the NFL — such as tickets, TV rights fees, merchandise sales, etc. — is subject to federal income tax.”

Luckily for the NFL, Coburn has tried to attach the amendment to the Marketplace Fairness Act; however, the Senate leadership hasn’t even considered it yet. According to its last tax form, the NFL has spent $1.5 in lobbying efforts; maybe those friends on Capital Hill can continue keeping them safe in the eyes of the IRS.

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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At JDKatz: Attorneys at Law, each of our attorneys brings a unique set of experiences and perspectives to bear on our clients’ legal problems. For each case or task we take on, we assemble a team of lawyers ideally situated to our client’s specific needs and goals. Our managing partner, Jeffrey D. Katz, founded our firm in 2000 after starting his career in the tax department of Big Four accounting firm KPMG Peat Marwick. To learn more about our attorneys’ backgrounds and qualifications, please review their individual profiles.

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