As millions of Americans get ready for the Super Bowl on Sunday evening, not many will be thinking about tax policy and non-profits as the players run out on the field, but the NFL officially classifies itself as a tax-free non-profit, avoiding millions in potential federal taxes each year.
You can find the exemption smack dab in the fine print of the federal tax code, 26 U.S.C. § 501(c)(6), the part that details certain non-profit exemptions, sandwiched between "(5) Labor, agricultural, or horticultural organizations" and "(7) Clubs organized for pleasure, recreation, and other nonprofitable purposes":
"(6) 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 and no part of the net earnings of which inures to the benefit of any private shareholder or individual."
"No major professional sports league deserves to have a tax exemption," said Sen. Tom Coburn (R-OK), who has spent several years trying to convince his colleagues to take it out of the tax code.
Coburn charges that the NFL, the National Hockey League and the Professional Golf Association all use the same section of the tax code to avoid paying certain federal taxes; Coburn says it costs taxpayers $109 million over ten years.
Last year, Coburn tried to force a vote on an amendment on the Senate floor to strip this tax break for the NFL, NHL, PGA and LPGA.
'This amendment would prohibit these professional leagues from receiving tax exempt status," Coburn argued, as he noted the NBA and Major League Baseball do not use this part of the tax code.
Here is the text of Coburn's plan:
"No organization or entity shall be treated as described in subsection (c)(6) if such organization or entity -
(1) is a professional sports league, organization, or association, a substantial activity of which is to foster national or international professional sports competitions (including by managing league business affairs, officiating or providing referees, coordinating schedules, managing sponsorships or broadcast sales, operating loan programs for competition facilities, or overseeing player conduct) and
(2) has annual gross receipts in excess of $10,000,000."
No vote was ever taken on the amendment by the full Senate.
It's important to stress that the individual NFL teams do pay taxes - it's the NFL headquarters which says it is a non-profit, and has used the provision since it was added to the tax code back in 1966.
"Taxpayers should not be asked to subsidize sports organizations already benefiting widely from willing fans and turning a profit, while claiming to be non-profit organizations," said the Oklahoma Republican in his "Wastebook" about government waste - something Coburn has been after for several years.
Did you ever wonder why we find out that the salary paid to NFL Commissioner Roger Goodell was about $30 million? That's because non-profits under this section of the tax code must submit financial statements to the IRS - those are then made public.
The last time the tax code underwent major reforms was in 1986 - this provision survived that Congressional reform process, which was the product of a divided Washington (Democrats ran the House, GOP ran the Senate, and Ronald Reagan was President.)
We've got the same type of division in the Congress right now (one party with the House, one with the Senate and White House), but no one is seriously talking about tax reform right now.
"We're doing special favors for the guys connected in Washington, but not special favors for the average American," Coburn lamented.
Pass me the remote. The Super Bowl is almost on.
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