Did you know that the NFL is a tax-exempt nonprofit?

by Steven Sodini 18. December 2012 08:23
Wastebook is an annual publication by Senator Tom Coburn, MD, of Oklahoma, of the Top 100 biggest wastes of taxpayer monies each year.  For the 2012 edition of Wastebook (which is the primary source for this discussion), the topic that Senator Coburn ranked #2 on his 2012 list may surprise many people, since a lot of people (including this author) are big sports fans. As of October, 2012, the National Football League (NFL), the National Hockey League (NHL), and the Professional Golfers’ Association (PGA) are all currently classified as non-profit organizations to exempt themselves from federal income taxes on earnings.  Citing the Form 990’s filed by these organizations (which are available to the public), Senator Coburn concludes that taxpayers may be losing at least $91 million in federal revenue by subsidizing these tax loopholes for professional sports leagues that already benefit widely from rabid fans and generate billions of dollars and turning a profit, while claiming to be non-profit organizations. According to Senator Coburn, based on its 2010 Form 990, the registered NFL nonprofit alone received $184 million from its 32 member teams and holds over $1 billion in assets.  Together with its subsidiaries and teams – many of which are in fact for-profit, taxed entities – the NFL generates an estimated $9 billion in revenue each year.  All 32 of its teams are included in the top 50 most expensive sports teams in the world, ranking alongside some of the world’s famous soccer teams. Almost half of the NFL teams are valued at over $1 billion.  According to their own Form 990 for 2010, the PGA generated over $900 million in revenue, mostly through television rights, tournament earnings and sponsorships, and royalties.  In 2009, the NHL received nearly $76 million from its member teams, according to its own Form 990. As also disclosed on their Form 990’s, league commissioners and officials benefit from the nonprofit status of their organizations.  Roger Goodell, commissioner of the NFL, along with 7 other top NFL officials, reported a combined $51.5 million in salary and perks in 2010 alone.  Tim Finchem, commissioner of the PGA Tour, earned $5.2 million in 2010.  The NHL’s commissioner, Gary Bettman, received $4.3 million in 2009.  In comparison, the average salary of a traditional nonprofit CEO is $3.4 million.  These organizations are clearly taking advantage of the provision of the tax code that allows industry and trade groups, such as the U.S. Chamber of Commerce, to qualify as non-profit and tax-exempt.  None of these groups are permitted to promote a specific brand within an industry but each may promote the industry itself.  Qualifying organizations only pay taxes on few types of income and expenditures, including lobbying.  State and local governments also normally exempt these organizations from state income and sales tax as well, all of which adds up to an estimated $10 billion additional benefit to the nonprofit sector.  Noting the advantage in operating largely tax-free, the NFL, NHL, and PGA are all registered with the Internal Revenue Service (IRS) as IRC Section 501(c)(6) nonprofit trade organizations. These leagues all state that they help the professional sport in each of their leagues. On its 2010 Form 990, the NFL described itself as a “trade association promoting interests of its 32 member clubs.”  The NHL said its mission is “to perpetuate professional hockey in the US and Canada” on its own Form 990. These vague statements aside, it is pretty clear that major professional sports leagues are not in the business of simply promoting the hockey, football, or golf industry, but are rather in fact businesses with a primary purpose to make money.  The reason the NFL was even given tax exemption status in the first place stems from the 1966 merger of the then-American Football League (AFL) and NFL, where Congress passed a law granting specific antitrust exemptions to the new NFL.  Also, at that time, it added “professional football leagues” to the list of entities eligible for nonprofit status.  According to the IRS, “Section 501(c)(6) of the Internal Revenue Code provides for the exemption of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual” (emphasis added).  However, it seems very unlikely that back in 1966, Congress envisioned the NFL becoming a $9 billion per year business nearly 50 years later, much of which clearly inures to the benefit of private investors. By contrast, one major sports league, Major League Baseball (MLB), filed as a nonprofit for years, but later chose to become a for-profit limited liability corporation (LLC) in 2007, in part due to an opposition to the IRS’ new salary transparency rules for nonprofits, which require releasing information on salaries above $150,000.  Although the NFL has lobbied over the years in Washington against an expansion of the disclosure reporting, they have found little support to date.  It is clear that major professional sports leagues have no business being permitted to be eligible for federal tax exemption.  Removing them from federal nonprofit status may also benefit states and localities, which lose out on much needed revenue.  One widely circulated example, according to the Indianapolis Business Journal, was at this year’s Super Bowl in Indianapolis, where “hotels and restaurants [did not tax] National Football League employees … The NFL [used] its tax-exempt status as a 501(c)(6) to avoid paying taxes, in addition to fuel, auto rental and admissions taxes.
Categories: Tax

Pennsylvania Opportunity Scholarship Credit

by Tom Guappone 18. September 2012 12:02
The Opportunity Scholarship Credit is available to business entities that make contributions to non profit organizations that provide scholarships to eligible students to pay tuition and necessary school related fees to attend participating non-public or a participating public school in a school district that is not the recipient’s school district.  Eligible students who reside within the attendance boundary of a low-achieving school can apply for a scholarship to attend a participating public or non-public school. The Pennsylvania Department of Education has released a list of the low achieving schools as required for the opportunity scholarship credit that is available against corporate income, capital stock, franchise and other entity taxes. To obtain more details and a list of schools, please visit the PA website or contact a Urish Popeck tax specialist and visit our tax services page.
Categories: Tax

Issues Nonprofits Must Consider for Corporate Governance and Risk Mitigation

by Ken Urish 11. August 2011 11:31
Audit committees provide a variety of benefits to nonprofits. An audit committee can implement an enhanced internal control structure, deter fraud, improve financial practices, advance financial reporting, and help nonprofits meet their accountability goals. [More]
Categories: Assurance