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Tax News: NFL is a Tax-Exempt Organization? Sort of…..

It may be hard to believe that the most profitable and powerful sport in the U.S. is a tax-exempt organization, but for now that is the case.  Years ago the NFL was able to not only classify itself as a tax exempt 501(c)(6) entity, but the Internal Revenue Code actually lists “professional football leagues” as a covered entity for tax exemption under Section 501(c)(6).  For many taxpayers this is an extremely alarming situation, however, the true facts are much less egregious.

First of all, most of the money that is earned by NFL is either passed on to the 32 teams, which pay their own share of taxes, or is earned through other entities within the NFL that are not tax exempt.  The tax-exempt NFL entity only deals with league matters and management of league activities.  Also, although it is tax-exempt, that does not mean it cannot strive for profit.  Tax exempt entities always work towards earning a profit, however, the profit is supposed to be dedicated to the tax-exempt purpose – in this case, maintaining and promoting the professional football league.  Nevertheless, it is still eyebrow raising that a tax-exempt entity would pay its leader, Roger Goodell, somewhere between $20-30 million per year.  Finally, as a tax-exempt entity the NFL does not have motivation to look for tax planning opportunities.  Without this motivation you cannot simply look at the bottom line and consider the NFL would pay tax on all that revenue.  Based on a reported $1.5 million in lobbying activities last year the NFL paid, if it became a taxable entity it seems very likely it would also spend some money on minimizing tax.

Despite the situation not being as favorable as it appears for the  NFL, U.S. Senator Tom Coburn is pursuing actions to try to eliminate the NFL as a tax-exempt entity.  One major point is that the NFL does not promote all professional football, only a small, exclusive group.  With many taxpayers viewing the NFL as a very wealthy business, and reports of $90-100 million in potential tax earnings over the next 10 years, it seems very likely that any changes to the Internal Revenue Code to eliminate the NFL as a tax-exempt entity will be welcomed by the public.  However, the changes would be made because many believe the NFL does not meet the definition of a tax-exempt organization, not simply because it is profitable.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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