Why the NFL is a Tax Exempt Nonprofit Organization
Once Again, Journalists Didn’t Do Their Research.
December 21, 2013
The National Football League legally qualifies as a tax exempt,
nonprofit organization. And there’s not a thing wrong with that.
The league and the teams are two different things.
The teams pay taxes. The league does not.
When some “journalists” learned that the NFL was a nonprofit
organization, they incited outrage, driving millions of Americans
into a full-fledged hissy fit.
“The NFL can’t BE nonprofit. It’s a $9 billion industry,” they raged.
Actually, no. The National Football League is not an industry at all.
Professional football is an industry.
The NFL is a trade association representing that industry.
CHARITIES AND OTHER NONPROFITS
Most people think that “nonprofit” and “charity” are the same thing, and that the NFL is claiming to be a charity. Again, no. "Nonprofit" and "charity" are two different things. A charity is only one of the 57 types of nonprofit organizations in 31 categories recognized by the Internal Revenue Service. Most of the categories are in section 501 of the IRS Code; others are in Sections 521 and 527.
That's U.S. Code Title 26, Subtitle A, Chapter 1, Subchapter F.
Charities, churches, private schools, and other entities are under section 501.c.3. Labor unions are in 501.c.5. Business leagues and trade associations are 501.c.6. Political organizations fall under section 527.
BUSINESS LEAGUES AND TRADE ASSOCIATIONS
According to the IRS website:
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.
A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. Trade associations and professional associations are business leagues. To be exempt, a business league's activities must be devoted to improving business conditions of one or more lines of business as distinguished from performing particular services for individual persons. No part of a business league's net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only enough income to be self-sustaining). The term line of business generally refers either to an entire industry or to all components of an industry within a geographic area. It does not include a group composed of businesses that market a particular brand within an industry.
It doesn’t mention the NFL specifically, but says “football leagues”. That includes the American Indoor Football League. And all of the other professional sports leagues meet the definition too. So, the NFL is a trade association, just like the American Bar Association, National Automobile Dealers Association, National Grocers Association, American Medical Association, National Association of Civil Engineers, and thousands more.
The law permits tax exemptions for trade associations because promoting business and industry benefits the nation’s economy. And the Constitution gives Congress the power to regulate commerce.
While they don’t pay taxes, nonprofits do have to file annual reports to the IRS detailing their revenue and expenses. They use a form called the 990. You can read all nonprofits’ 990 forms at one website called Guidestar.org. Just insert “National Football League” into the search box.
NATIONAL FOOTBALL LEAGUE
Thirty-two independent corporations operate professional football teams that belong to the National Football League. Those teams collectively earn a total of about $9 billion in revenue each year. Those teams pay taxes under the same rules as all US corporations. That money belongs to the teams, not to the NFL. Then those 32 corporations pay dues and fees for their NFL membership. The NFL provides certain services to its members. It pays no taxes because its money does not belong to any individual, stockholder, or corporation.
Professional football players work for 32 different profit-making, tax-paying corporations. Commissioner Roger Goodell works for a nonprofit, tax-exempt organization called the National Football League. Goodell and the players all pay personal income taxes under the same IRS rules that you follow.
ANALOGY
Millions of independent attorneys operate law firms and belong to the American Bar Association. According to the US Census Bureau, those attorneys collectively earn a total of about $1.5 trillion in revenue each year. That money belongs to the lawyers and their firms, not to the ABA. Those lawyers and firms pay taxes under the same rules as all US individuals and corporations. Those lawyers pay dues and fees to belong to the ABA. The ABA provides certain services to its members. It pays no taxes because its money does not belong to any individual, stockholder, or corporation.
See how that works? Just like the lawyers, the individual football teams are all separate, profit-making, taxpaying corporations which belong to the NFL.
The LEAGUE is nonprofit. The TEAMS are not.
The TEAMS earn $9 billion a year. The LEAGUE does not.
BENEFITS
Yes, I know the football teams pay a lot of money to the NFL for its services. That doesn’t matter. The number of dollars the organization has is irrelevant. What counts is what the organization DOES with the dollars. The American Red Cross, US Chamber of Commerce, and AFL-CIO have a lot of dollars too, and they are all valid nonprofit organizations.
Some critics complained about taxpayers supporting the NFL. The NFL does not pay taxes on its revenue. Taxpayers do pay for the stadiums in most cities, but that benefits the TEAMS, not the LEAGUE. Believe me, no one is a stronger critic of taxpayer-funded stadiums for private sports teams than I am. I refuse to buy anything with the names of any Pittsburgh sports teams. I bought two stadiums and an arena; that’s all they get. But the NFL doesn’t own the stadiums, and it doesn’t get the public benefits. It does, however, meet the legal requirements as a trade association. If you want to strip the NFL of its status, then strip the ABA too. Yeah. See how far you get with that one.
We can debate whether cities and states should continue to subsidize their football teams, or American society emphasizes sports too much, or the value of pro football. But there is absolutely nothing wrong with enabling nonprofit trade associations. And I WISH "journalists" would learn to do some research before they freak out and throw everyone into a frenzy.
FOR MORE INFORMATION
Read the Constitution
United States Code
Internal Revenue Service: Charities and Other Nonprofits
Nonprofit Organizations: Myths and Facts
Guidestar.org – Search “National Football League”
National Football League
USA Today: NFL drops tax-exempt status to avoid 'distraction'
Contact Pat for email notice of all new Community Matters articles.
UPDATE
March 31, 2020
The National Football League dropped its nonprofit status in May 2015,
calling it a distraction.
According to USA Today,
Major League Baseball gave up its tax-exempt status several years ago and said the move was "tax-neutral." The NBA says it has never been a not-for-profit. The NHL and PGA Tour have had a similar tax-exempt status.
Patricia A. O'Malley
Social Policy & Programs Consulting
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