Wednesday, September 17, 2014

NFL and Tax Expenditures

The Washington Post has an interesting article on the National Football League, listing the various ways in which the NFL has been supported by taxpayers at the federal and state level over the decades, including of course through tax-exempt status as a 501(c)(6) organization. The article makes the general point that subsidies that were initially thought desirable when the NFL was a fledgling organization are harder to justify today. The New York Times also recently conducted a debate about the NFL’s tax-exempt status.

Taking aside the case for or against the NFL, the Post article represents a larger point about tax benefits and the ongoing need for them that could be applied to other exempt organizations, including charitable exempts such as hospitals and colleges and universities. Tax exemption, eligibility to receive deductible contributions, tax-exempt financing all become perpetual tax benefits. Although the original case for a tax benefit might be strong, over time as organizations grow, the case might weaken. Yet because benefits are written into the tax code, it is hard to make appropriate adjustments.

The NFL has attracted scrutiny because of high compensation for its commissioner, the personal conduct of players, and their (modest) punishment. This fits a pattern where scandal forces us to take a closer look at tax expenditures. In the case of the NFL, adjustments have been proposed, initially by Senator Coburn, and now also by Senator Cantwell (who cites the NFL’s refusal to change the name of the Washington Redskins).

The question though is whether as part of tax reform we should seriously examine tax-exemption and other related tax benefits for other exempt organizations as well, without waiting for a scandal.

Side comment: In the case of the NFL, the tax benefits conveyed may not be not obvious from the label “exempt status.” In general, the benefits are that NFL member teams accelerate deductible expenses to the extent the NFL does not spend member dues currently. In addition, the deduction for member dues to the NFL can convert capital expenditures to current deductions to the extent the NFL uses monies to invest in capital projects. Loss of tax-exempt status as proposed by Senators Coburn and Cantwell would eliminate both benefits. Another approach would be to tax the investment income of the NFL, or even 501(c)(6) organizations more broadly.

Roger Colinvaux

https://lawprofessors.typepad.com/nonprofit/2014/09/nfl-and-tax-expenditures.html

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