NFL tax-exempt status under attack

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The start of the 2013 football season has been a good one for me. I saw my Dallas Cowboys hang on to beat conference rival New York Giants. The other Lone Star State team, the Houston Texans, came from behind on Monday Night Football to defeat the San Diego Chargers.

The NFL itself, however, is off to a bit of a rocky start, at least on the tax playing field.

Sen. Tom Coburn, R-Okla., has renewed his efforts to strip the league of its tax-exempt status. The Sooner State senator says any version of tax reform, now a hot topic on Capitol Hill, should eliminate the preferential tax status given to sports organizations like the NFL, National Hockey League and Professional Golfers’ Association of America.

You didn’t know the NFL, the overseer of the most popular sport in the United States and maker of $10 billion a year, operates as a nonprofit? Does that mean the outrageous prices of the tickets we buy to the games are deductible as charitable donations?

The answer to the first question is yes, the NFL, et. al., are nonprofits.

The answer to the second question is no, the leagues are not traditional charities to which we’re accustomed to contributing.

Different tax-exempt rules

The charities that provide us a way to deduct donations on Schedule A are granted tax-exempt status by the Internal Revenue Service under section 501(c)(3) of the Internal Revenue Code.

The professional sports leagues’ earnings are tax exempt under section 501(c)(6). That part of the code applies to business leagues, chambers of commerce, real estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit. Yes, professional football leagues are specifically cited in the tax statutes.

Under that description, says the NFL, it is an organization whose primary purpose is to further the industry or profession it represents. It cites as an example the revenue-sharing agreement the NFL administers to all the 32 member teams.

A continual tax target

The professional sports leagues’ tax-exempt status is a fixture in Coburn’s annual “Wastebook,” the senator’s collection of what he calls the most egregious ways U.S. tax dollars are wasted each year. In the 2012 edition, he cited the league loophole as costing $91 million in taxes.

In response to tax reform requests from his colleagues Senate Finance Committee chair Sen. Max Baucus, D-Mont., and the committee’s ranking minority member Sen. Orrin Hatch, R-Utah, Coburn is again recommending that professional sports leagues lose their tax-exempt status.

The leagues have fended off similar attacks over the years. I suspect they’ll do so again this congressional session.

But as talk continues on how to raise more federal revenue and revamp the tax code, the clock might just be running out, albeit in slow motion, on the NFL and other nonprofit professional sports groups.

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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and a co-author of the e-book “Future Millionaires’ Guidebook.”