Wednesday, May 8, 2013
A few months back I posted about the NFL's tax-exempt status, mostly as a critique of reporters who don't seem to even try to get their facts straight when discussing nonprofit organizations. But the NFL is back in the news, propelled by Senator Tom Coburn's proposal to strip the NFL (along with the PGA and NHL) of their 501(c)(6) status, as outlined in this article on Think Progress.
While not as terrible as the NFL article I blogged about earlier, the Think Progress piece still makes fundamental errors. First, it classifies the NFL as a "501(c)(6) charitable organization". Wrong. 501(c)(6) organizations ARE NOT CHARITIES; that's what 501(c)(3) is all about. The piece compounds its mistake later on by asserting that NFL teams deduct their dues as charitable donations. Sigh. Wrong again. You can't take charitable donation deductions for dues to a (c)(6). I'm pretty certain, however, that NFL teams take Section 162 business expense deductions for those expenses, which they would absolutely be entitled to continue doing even if the NFL was not tax-exempt.
It is true, of course, that if the NFL were stripped of exemption, those dues would be gross income to the NFL; but we don't tax corporations on gross income. We tax them on their net income (more or less). As I detailed in my earlier post, strip the NFL of exempt status and their are still plenty of ways for the NFL to avoid paying any taxes. Just ask General Electric, which avoided paying income taxes for years despite healthy cash flows. The Think Progress piece at least did note that "It’s unclear how much of a benefit ending the tax-exempt status of professional sports leagues would bring directly to taxpayers" and that Major League Baseball, which gave up its exempt status under 501(c)(6), claims exempt status essentially had no effect on their tax payments (which I'm inclined to believe, since, after all, they did give it up!).
And finally, there's the snarky "Further, the leagues hardly pay their executives as if they are non-profits." Here we go again: the myth that nonprofit CEO's ought be something just short of destitute because, well, after-all, they're NONPROFITS, right? Well, maybe the folks at Think Progress ought to review the compensation levels of exempt hospital CEO's or University head football coaches. (There is a legitimate debate about compensation levels of executives of nonprofits, but that legitimate debate is hardly the point of the Think Progress comment).