Sunday, February 1, 2015

NFL Not The Only Organization That Does Not Need Or Deserve Tax Exempt Status

Originally published on on September 15, 2014.

Interest in the NFL's tax exemption seems to be spiking again.  Fred Barbash of the Washington Post did a piece titled -  Why Congress will never take back the NFL's tax break  this morning.  I wrote about the controversy back in February when the Properly Reducing Overexemptions For Sports Act was introduced. I am probably one of the few people in the world who finds Internal Revenue Code Section 501 much more interesting than football.   My skewed perspective probably accounts for why I have poorly communicated my concern about this controversy.  My concern is that in the context of tax policy, the NFL exemption is trivial.

Has NFL Turned The Corner?

Since I last looked at this issue, another NFL Form 990 has been released - this one for the year ended March 31, 2013.  For that year the National Football League actually showed a profit  - $8,996,039.  The owner members must have been ecstatic as Roger Goodell's salary went to $44,107,000 as opposed to a mere $29,419,000  that he made in the prior year when the League lost over $77,000,000.

So if the NFL had not been an exempt organization would it have had to pay somewhat over $3,000,000 in corporate income tax for its year ended 3/31/13?  Probably not.  In the previous three years, the NFL had posted losses of $77,628,857, $52,195,047 and $42,277,760.  That would be nearly enough in net operating loss carryovers to cover the NFL for the next twenty years at that profit level, although the earlier losses might expire before that.

(It is important to keep in mind in this discussion, that I am only writing about the National Football League organization that is exempt from taxation under 501(c)(6) of the Internal Revenue Code.  The 32 member teams is where the real money is.  They are not exempt organizations, so their financial information is not public)

Shouldn't We Pull Its Exemption Anyway - Just Well Because?

Actually I agree that the NFL should not be an exempt organization.  I just think that there should be a different approach to eliminating its exemption.  I would do it by repealing Code Section 501(c)(6).  That section exempts trade organizations.  Trade organizations are not themselves trying to make money, but their members are trying to make money for themselves.  Trade organizations do not get tax deductible charitable deductions, but the dues they collect will probably be deducted by members as ordinary and necessary business expenses.  I don't see what the policy rationale is for allowing organizations like that to accumulate tax free profits.  If they operate at about a breakeven, which is probably what the dues paying members would prefer, they don't need exempt status. If they are profitable they don't deserve exempt status.

Among the organizations that would lose exempt status under this proposal would be the American Bar Association, which showed profits in the $10,000,000 range in each of  the last two available years and the American Institute of Certified Public Accountants, which on net went $10,000,000 backwards over two years. Not to make you crazy but the American Psychiatric Association netted just under $5,000,000 between 2011 and 2012.

I don't know what the tax policy reason for treating those groups differently than the owners of football teams would be.  If the entities want to avoid tax, they can rebate some of the dues.  I wouldn't mind at all if the AICPA did that.  Just saying.

The Bigger Picture

Congress might use this flap about the NFL and even more significantly the interminable Tea Party/Dark Money/IRS Targeting scandal (You get to pick the name based on your point of view) as a goad to look more closely at the whole exempt organization area.  There are 29 different types of exempt organizations under 501(c) alone.  Many entities put a burden on overstretched IRS resources to claim exempt status for no discernible federal tax reason.  It let's their dark money stay dark.  It allows them to get a liquor license, sponsor bingo games and avoid state sales and use tax.  Silliest of all is that 501(c) status can give an organization credibility in some circles - another illustration of Barnum's law.

So overall, my goal in stating in my previous post on this subject that concern over the NFL's exemption is silly is to move the discussion to a broader look at the rationale for exempting any trade organizations and beyond that to an overhaul of the whole exempt organization area.

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