NFL Nonprofit Status Seen Targeted in IRS Code Revision: Taxes

There’s a fresh spark in Congress to scrap the nonprofit status of sports outfits like the National Football League as part of the revisions to the U.S. tax code.

Senator Tom Coburn, an Oklahoma Republican, says the tax legislation should eliminate the status given to organizations like the NFL, National Hockey League and Professional Golfers’ Association of America, Bloomberg BNA reported.

The tax-exempt status of profit-making sports leagues has long raised concern among some lawmakers. Congress is drafting a plan for the biggest changes to tax rules since 1986. Officials are looking to end some long-standing breaks, and there is a debate between the political parties about finding ways to bring in more revenue and help reduce the national debt.

“To bring in more revenue to the government is obviously something that has some appeal,” said Michael McCann, professor at the University of New Hampshire School of Law and director of its Sports and Entertainment Law Institute.

The NFL’s nonprofit status, which relates to its classification as a business league, was established in the 1960s as the NFL was negotiating its 1970 merger with the former American Football League. The PGA’s status is related to its charitable giving; nearly all PGA Tour events are non-profit.

The leagues have successfully fought such challenges to their status under Section 501(c)(6) in the past. However, the other changes that are being considered in the tax code now are so broad that the effort may gain strength now.

Repealing the tax-exempt status for certain pro sports leagues would increase federal budget receipts by $109 million between fiscal years 2014 and 2023, according to an estimate from the congressional Joint Committee on Taxation.

Coburn Tweet

Coburn in May made an amendment to another bill being considered on the Senate floor, the Marketplace Fairness Act (S. 743), that would have removed the tax exemption. He withdrew the amendment before the bill passed.

More recently, Coburn tweeted Aug. 26 about how foreign professional golfers can avoid U.S. income taxes by exploiting what he termed a “loophole” in the tax code, as well as the nonprofit status enjoyed by the NFL, the NHL and the PGA.

Legislation to overhaul the tax code should end such subsidies, he said in July in a letter to Senate Finance Committee Chairman Max Baucus and ranking member Orrin Hatch.

Specifically, Coburn questioned the nonprofit status of the NFL, NHL and PGA, as well as foreign golfers’ ability to use the PGA’s charitable status to avoid any impact on their permanent resident alien status and thereby avoid U.S. income taxes.

Coburn has also raised the issue in his annual report on wasted government spending, most recently issued in October 2012. “Major professional sports leagues should no longer be eligible for general federal tax exemption,” he said in the report.

On Table

Baucus, a Montana Democrat, and House Ways and Means Committee Chairman Dave Camp, a Republican from Michigan, wouldn’t say whether tax preferences for certain professional athletes and sports leagues are in their crosshairs, instead simply saying everything is on the table.

The Ways and Means Committee plans to mark up legislation to rewrite the tax code this fall.

McCann told Bloomberg BNA that tax exemptions for college athletics also deserve consideration. The National Collegiate Athletic Association remains tax exempt, although McCann said college sports are overwhelmingly motivated by profits rather than any academic mission.

“There’s some merit to discussing an exemption that’s supposed to be based on academics,” McCann said.

Lawmakers have generally treaded more lightly around the NCAA question, which McCann attributed to political dynamics in their home districts.

NCAA Divisions

Coburn didn’t mention college sports in his letter to Baucus and Hatch, nor did he raise the matter in his report on government spending. Similarly, Chuck Grassley, an Iowa Republican who is a senior Senate Finance Committee member, has in the past questioned the NFL’s tax-exempt status and has remained less vocal about the NCAA.

In March, a spokesperson for Grassley said the senator doesn’t look at the NCAA solely as it relates to Division I sports, but also Division III and smaller colleges that don’t bring in much money and often operate at a loss. Smaller schools also deserve consideration when contemplating changes to tax policy that would affect the NCAA, Grassley’s spokesperson said.

The pro leagues and the NCAA have always fended off attacks on their exempt status, even though debate over the gray area around tax exemptions would also ripple beyond revenue.

Tax Clarity

A group known as the Business Coalition for Fair Competition has petitioned Congress for a more level playing field between companies that pay income taxes and competitors that operate as nonprofits.

The organization’s president, John Palatiello, has urged lawmakers to better clarify the difference between exempt and nonexempt purposes as part of legislation to rewrite tax laws, including in testimony before the Ways and Means panel in February.

Palatiello is less focused on revenue. He acknowledged that clearer tax-status qualifications would increase payments.

“There’s no question that there are significant revenue implications to this debate,” Palatiello said.

Before it's here, it's on the Bloomberg Terminal.