NFL Dropping Its Tax-Exempt Status

May 01, 2015

The term “nonprofit” is commonly misused when referring to an organization, as it assumes that nonprofits fail to actually turn a profit. So it is no surprise that some eyebrows were raised earlier this week when news broke that the National Football League (NFL) announced it would be giving up it nonprofit status.

What the NFL really did was made an election to forgo its tax-exempt status for the head office located in New York. Just like trade associations, professional sports organizations like the NFL have historically be granted a tax exempt status under code section 501(c)(6). The rationale behind this is that they merely work to promote the members of their leagues, and it is the individual teams themselves that make the profits and pay the taxes. Another example of a 501(c)(6) is the AICPA, which doesn’t have a profit motive itself, but promotes and supports its for-profit members. The NFL’s individual teams are not tax-exempt, and although all but one of the NFL teams receive don’t disclose financial information, it is assumed that they pay corporate income tax rates on their profits.

The reasoning for the league’s sudden change is unclear, but many believe it has to do with the disclosure of public information. Upon request, organizations that file Form 990 are required to disclose the information included on the form. Some of this information that is notable is the compensation of officers and key executive, and the money the NFL collected from fines and penalties. The NFL has run into its fair share of PR blunders in the past year and may want to keep as much information private as possible.

Remember, just because the NFL was a “nonprofit” doesn’t mean they weren’t making any money. The move to drop the tax-exempt status will cost them. By looking up the organization’s Form 990 it filed in 2013, one can see that revenues for the NFL accumulated to about $327 Million for that year. The Joint Committee on Taxation has estimated that the NFL will now have to pay approximately $10 million a year in taxes. In the end, the privacy the league gains may be worth the tax dollars in the minds of the NFL.

By: Anthony Mifsud, CPA

Categories: Non-Profit