Late last week, the National Football League (NFL) announced that it would voluntarily give up its tax exempt status. Most folks are surprised to find out it was exempt from taxes at all — but it was.
The NFL has been tax exempt since 1942 under section 501(c)(6) of the Internal Revenue Code which grants tax exempt status to organizations with a goal “to promote the common business interest” with activities “directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.”
It’s been suggested that professional sports leagues should not be exempt from tax (the National Hockey League (NHL), the Professional Golfers’ Association (PGA) and Ladies Professional Golf Association (LPGA) are all examples of sports leagues which remain tax exempt).
The reasoning? Because those companies (or related companies) turn a profit. They also tend to have significant assets. That’s where things get tricky. Turning a profit doesn’t disqualify you as a tax exempt organization but having a profit as a primary motive is a deal breaker. Neither does having significant assets.