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Legal procedure: Critics cry foul as NFL defends nonprofit status

Lynda Woolard, a diehard New Orleans Saints fan, believes the NFL should receive no tax exemption. Her online petition to strip that tax break from the league has garnered more than a quarter million signatures. She's wearing a Jimmy Graham jersey at the Superdome.
Lynda Woolard, a diehard New Orleans Saints fan, believes the NFL should receive no tax exemption. Her online petition to strip that tax break from the league has garnered more than a quarter million signatures. She's wearing a Jimmy Graham jersey at the Superdome.Keith Willey

At NFL headquarters on Park Avenue in Manhattan, the daily business may span game scheduling, referee hiring or media-rights bargaining – an operation financially fueled by all 32 pro teams which collectively pay more than $250 million in annual “membership dues.”

All of that revenue received by the league office — more than a half billion dollars since 2010 — is untouchable to the Internal Revenue Service.

Score? No, says the NFL’s tax attorney, Jeremy Spector. He says the league office, according to U.S. tax code, is a nonprofit trade association, promoting football and serving as an agent and organizer for the 32 clubs. And it’s been that way since the 1940s.

Out of bounds? Yes, says U.S. Sen. Tom Coburn- R-Okla., who filed a bill in September to revoke the tax exemption, asserting that working folks are subsidizing a special break for a sports league. He’s got 275,000 supporters in spirit: Americans who have signed a petition that asks Congress to strip the nonprofit status.

“This doesn’t pass the basic fairness test,” said the petition’s author, Lynda Woolard. Somewhat ironically, she adores her hometown New Orleans Saints and shouts the praises of what that team has done to help rebuild and revive the region after Hurricane Katrina. But she's had it with the league office. 

“I was getting frustrated with what I saw from the NFL. We had the (2011) lockout, the (2012) replacement refs, the concussion issue. We’ve got cities subsidizing stadiums then having TV blackouts so fans can’t even see the games,” Woolard said. “What I saw happening was the fans being left out of the loop.

“I know this (tax exemption) is just one tiny piece of that puzzle,” she added. “But to me, I felt like we had to say: ‘Hang on a minute, this doesn’t seem right!’ This is a way for the fans to tell the NFL: ‘You don’t get to just do whatever you want.’ ”

If the response from the NFL’s league office could be boiled down to six words, those would be: “We’re glad you brought this up.”

The NFL does not claim to be a charity, and the $9 billion in annual revenue earned through network-TV contracts, jersey sales, ticket proceeds and other sources gets funneled to the 32 teams where all of that money is subject to taxation, said NFL attorney Spector.

The only tax-exempt slice of that football empire is the league office, which qualifies as a 501(c) 6 trade association, Spector said. 

The IRS says it cannot comment on an individual entity.  

“The NFL, those 32 teams who are making $9 billion, they’re not tax exempt. I think that’s what’s driving a lot of the confusion,” Spector said.

Even Woolard’s petition erroneously states: “… the NFL does not pay federal taxes.”

“People hear that the NFL is tax exempt,” Spector said, “and they think: ‘You’ve got to be kidding me. I just paid $200 for a ticket. The television networks are paying a billion dollars a year. Are you telling me they’re escaping tax on all that?’ And the answer is: No, they’re not escaping tax on any of that. The teams are paying tax on all of that money.

"You can imagine, it’s extremely frustrating to see the petition and it’s really frustrating to see (news) articles that say $9 billion is tax exempt. It just means that nobody has asked the question yet," Spector said. 

The NFL's 990 federal tax form, filed to the IRS in 2012 and available for view at the nonprofit watchdog site GuideStar, shows that during the previous year the league office received $255.3 million in revenue (almost all of it via annual dues paid by the teams) while it spent a total of $332.9 million, including $2.3 million in grants given to community groups like United Way ($15,898) and March of Dimes ($10,000). 

Using its tax-exempt revenues, the league office also paid $29.4 million in salary to NFL Commissioner Roger Goodell, for which he owed income taxes, and it paid $35.9 million to the New York City construction firm J.T. Magen & Company, which built out a new office space for the NFL bosses and their 1,546 employees after their previous lease expired and they opted to relocate to another part of Manhattan. 

While the money to pay for those expenses was derived from tax-exempt revenues, the league does not claim an off-setting federal deduction — as do for-profit corporations — for any business expenses it incurs such as moving, remodeling, travel or rent, Spector said. 

"Whatever benefit they’re getting from the exemption, they’re losing in not claiming a deduction," Spector said. "The system stays in balance."

But a tax attorney unaffiliated with the NFL, Washington, D.C.-based Jeffrey S. Tenenbaum, questions how the NFL league office meets the definition of a tax-exempt nonprofit when "the principal purpose of a 501 (c) 6 is promoting an entire industry or profession or sport."

In contrast, consider the U.S. Tennis Association, Tenenbaum suggested, calling that organization "the classic example of a 501(c) 6 entity because anyone can join as a member and they spend a lot of time and money promoting the sport, from little kids all the way on up." (Tenenbaum, a partner at the national Venable law firm and chair of the firm’s nonprofit organizations practice, emphasized that he was not expressing his personal opinion on whether the NFL should or should not be tax-exempt.)

By comparison, the National Basketball Association has never had a tax exemption. Major League Baseball gave up the tax exemption for its league office in 2007. "There was no business or other benefit for us to have the exemption, so we made the decision to relinquish it," said MLB spokesman Matt Bourne. 

The National Hockey League's main office, just like the NFL league office, does file a 990 form with the IRS as a 501 (c) 6. 

That means the Senate bill drafted by Coburn (an Oklahoma medical doctor by profession) also would remove the NHL's tax-exempt status, if it were to pass. His bill has been referred to the Senate Finance Committee. 

"Dr. Coburn's main concern isn't with the NFL but with politicians in Washington who are keeping tax rates for every American artificially high to pay for tax earmarks for sports leagues and other special interests," said John Hart, a spokesman for Coburn. 

"In other words, tax earmarks are a tax increase for everyone who doesn't receive the benefit. In this case, every American pays a little more in taxes to provide an indirect subsidy to professional athletes and team owners. This exemption underscores the need for tax reform."