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NFL Surrenders Tax Exempt Status

After being a tax exempt non-profit for more than seven decades, NFL Commissioner Roger Goddell announced that the league will surrender its non-profit designation starting with the 2015 season.

Joe Camporeale-USA TODAY Sports

Since 1942, the National Football League and other professional sports leagues including the National Hockey League and Major League Baseball have qualified for tax exempt status as 501(c)(6) organizations under the tax codes of the United States.  MLB was the first organization to give up its protections in 2007 because the league felt that not enough money was saved to offset the added burdens imposed by disclosures required by the statute. Interestingly, the National Basketball Association has never chosen to avail itself of 501(c)(6) status.

There have been numerous instances over the years where calls have been made for the IRS to revoke the status from the NFL, but such matters would have required significant changes to the existing tax code. If a league such as the NFL meets the standards set forth, then the protections simply cannot be taken away simply because the league is a multi-billion dollar a year business.  By voluntarily relinquishing the status, the league will put to an end the fallacy that the 32 owners were legally avoiding taxes on their billions. (Each of the teams is a for-profit operation and since they equally split a great majority of the NFL's revenue, the income generated was actually taxed at that point.)

This move could easily be viewed as a public relations ploy on behalf of the league, and there is little doubt that the NFL could use some good press at this time. Representative Jason Chaffetz  of Utah, a chief opponent of tax exempt status for professional leagues, sees it as a move toward fairness in taxation.

"We are extremely pleased with the decision from the NFL to waive its tax-exempt status. It is rewarding to see such an important and positive step toward restoring basic fairness. We hope other professional sports organizations in similar situations will follow the positive example set by the NFL, and we look forward to rightfully returning millions of dollars to the federal treasury as a result."

The quote from the Utah Congressman brings up an interesting point, just how much tax revenue will be paid in to federal coffers by the NFL? Estimates range from a high of around $91 million per year to just $109 million over ten years depending on which expert you asked. (And you though expert opinions on draft prospects  varied greatly, didn't you?) The actual impact of this move will take years to evaluate.

Perhaps the most immediate visible result of this move is that the NFL will now have the luxury of not having to publish the income of its top movers and shakers. We know that Commissioner Goodell made over $35 million in salary and bonuses last year because as section 501(c)(6) filings require, his compensation package is made a part of the public record. By switching its tax status the league will no longer be under any obligation to disclose the salaries of its management structure. You have to wonder if this, and not fairness, is the driving force behind the move.