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National Football League Abandons Tax Exempt Status.

(Parker Tax Publishing May 11, 2015)

In a letter to the U.S. House of Representatives, NFL Commissioner Roger Goodell expressed the League's plans to file returns as a taxable entity for its 2015 fiscal year.

Letter Announcing Intention to Drop Exempt Status

The NFL has been a tax exempt organization since the 1940s, but will give up this exempt status beginning in 2015. In an April, 28 letter, NFL Commissioner Roger Goodell informed league owners and presidents that an internal committee had voted to have the league office and Management Counsel file returns as taxable entities for its 2015 fiscal year, which started earlier this month.

Goodell remarked that the effects of the NFL's tax exempt status had repeatedly been mischaracterized, pointing out that the income generated through licensing, sponsorships, television rights, and ticket sales is earned by the 32 teams in the league, which are all taxable entities. Goodell noted this would remain the case, and the NFL's change in filing status would not affect its business. Giving up its tax exempt status, Goodell claimed, would eliminate the distractions caused by this mischaracterization.

Goodell sent a copy of the letter to members of the House of Representatives, informing them of the NFL owners' decision to abandon their exempt status.

OBSERVATION: Although the IRS has extensive procedures for requesting tax exempt status in place, it does not have procedures for requesting that exempt status be terminated. In order to electively terminate its tax exemption, the NFL will likely need to amend its organizational documents in a manner that would disqualify it from exempt status. This could be as simple as changing its statement that it is not organized for profit, to say that it is organized for profit.

Congressional Opposition to Exempt Status

Congress amended Code Sec. 501(c)(6) in the 1960s to add professional football leagues, confirming the NFL's exempt status. However, in recent years, multiple legislators have questioned that exemption, introducing legislation to revoke the NFL's tax-favored status.

In 2014, Senator Cory Booker (D-N.J.) introduced the Securing Assistance for Victims' Empowerment (SAVE) Act to bar professional football leagues from qualifying for exempt status under Code Sec. 501(c)(6), planning to use the tax savings generated for domestic violence prevention.

Also in 2014, Dave Camp, the former House Ways and Means Committee Chair, proposed to eliminate exemption for professional sports leagues in his tax reform plan, the Tax Reform Act of 2014.

In March of 2015, House Oversight and Government Reform Committee Chair Jason Chaffetz (R-Utah) and ranking minority member Elijah E. Cummings (D-Md), sent a letter to Goodell requesting information on the NFL's operations as an exempt organization. The letter noted that the IRS has recognized that professional sports leagues are inherently different from other 501(c)(6) organizations, such as business leagues and chambers of commerce.

In January Chairman Chaffetz had also introduced H.R. 547, the Properly Reducing Overexemptions (PRO) for Sports Act, with the purpose of eliminating the 501(c)(6) tax-exemption for professional sports leagues with annual revenues over $10 million, providing estimated tax savings of $109 million over the next decade.

Implications of Change in Exempt Status

Forbes notes that the loss of the tax breaks are minimal, only costing the NFL a little more than $10 million each year. By way of perspective, the annual revenue of the league and its franchises is believed to exceed $9 billion.

Bloomberg points out that revoking the NFL's 501(c)(6) status will actually provide some benefits to the league, such as ending disclosure requirements which provided the public with information on Goodell's salary. The NFL Commissioner received $35 million in salary and bonuses in 2013, drawing public criticism.

The NFL will not be the only professional sports organization without exempt status. Major League Baseball (MLB) voluntarily revoked its exemption in 2007, and the National Basketball Association (NBA) has never been tax exempt. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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