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“The NFL Is Not A Nonprofit”: So Why Does It Get To Act Like One?

The National Football League generates about $9.5 billion in revenue each year. It is, by Forbes’ estimate, the most valuable sports league in the world. Its commissioner, Roger Goodell, makes $44 million in a year. And yet, the NFL’s head office has long been allowed to operate as a tax-exempt nonprofit—as if its sole purpose for existence wasn’t to extract wads of cash from the wallets of American sports fans.

This week two Democratic senators have announced bills that would put this obvious farce to an end. In response to the outrage swirling over the NFL’s apparent tolerance of domestic abuse, New Jersey’s Cory Booker introduced legislation that would prohibit tax-free status for all major sports leagues. (The National Hockey League and PGA Tour are also nonprofits.) Washington state’s Maria Cantwell, meanwhile, is offering a bill targeted directly at the NFL’s tax-exempt status, prompted by its refusal to force the Washington, D.C., franchise to change its name from a racial slur against Native Americans.

Even if it’s taken a series of national scandals to give this idea a fresh push, it’s nice to see common sense gaining more steam. Previously, Republican Sen. Tom Coburn of Oklahoma (whose state lacks an NFL team) and the House Ways and Means Committee have proposed legislation that would strip sports leagues of their nonprofit status. But if senators representing Giants, Jets, and Seahawks fans suddenly feel comfortable getting behind this idea, that’s progress.

Chances are, yanking away the NFL’s tax exemption wouldn’t drastically change its finances. Only the league office, which considers itself a trade association for its clubs—just like the U.S. Chamber of Commerce or the National Dairy Council—is a nonprofit; the teams themselves are purely for-profit. As a result, pro football’s copious TV revenues are taxed once they’re passed down to the franchises. A separate, for-profit company called NFL Ventures, co-owned by the teams, handles the league’s merchandising and sponsorship earnings. Finally, the league office often operates at a loss—in 2011 it finished more than $77 million in the red, while in 2012 it only had $9 million left at year’s end. Without profits, of course, there’s nothing for the government to tax.

The case of Major League Baseball is instructive for what might happen to the NFL if it were to lose its exemption. In 2007, MLB gave up its nonprofit status, reportedly because of new IRS rules that would have required public disclosure of its executives’ salaries. Later, it said the move was “tax-neutral.”

Congress itself doesn’t think the NFL’s tax bill would be that big. Coburn has suggested that taxing the NFL and NHL alone would raise about $91 million per year. But the Congressional Joint Committee on Taxation—probably a bit more credible in this instance—believes ending tax exemptions for all sports leagues would bring in just under $11 million per year. Booker hopes his bill would raise about $100 million over a decade, which would go to support domestic abuse programs. That’s a mere trickle compared with the geyser of cash the NFL generates each year.

So if money isn’t really the issue, what is? It’s about principles. Letting the NFL operate tax-free makes a mockery of the entire concept behind nonprofits, which is that we should give a special break to organizations that do the useful, unprofitable work normal corporations won’t.

The NFL’s lawyers like to point out that the IRS has a long history of treating sports leagues as tax-exempt. The government first gave the league office its nonprofit status in 1942, they note, and hasn’t questioned it since. Citing this history is a reasonable response to critics, such as Gregg Easterbrook, who claim that the NFL is simply benefiting from a special tax loophole that came about thanks to some brilliant lobbying in the 1960s—Congress actually inserted “professional football leagues” into the list of nonprofit trade groups covered by Section 501(c)(6) of the tax code. The code had previously covered “business leagues, chambers of commerce, real-estate boards, or boards of trade.” But this legislative carve-out doesn’t explain why, for instance, pro hockey and pro golf also get to operate tax-free.

The problem is that the NFL should never have been considered a trade association in the first place. Love or hate the lobbying they do in Washington, trade groups are supposed to work for the benefit of entire industries, and be open to any business in that industry that would like to join. If you own a butter-making factory, then by God, you can pay dues and become a member of the American Butter Institute. The NFL, in contrast, operates a legally sanctioned sports cartel. It’s not in the league’s interest to let in more teams, because that could hurt the value of existing franchises.

“To be a 501(c)(6) organization, anyone who meets your requirements for who’s part of the industry has to be allowed to join the association as a member,” Jeffrey Tenenbaum, chairman of the nonprofit organizations group at the law firm Venable, explained to ESPN last year. “With professional sporting leagues, that’s not the case; it’s a very closed circle. You can’t start a professional football team and join the NFL.”

If NFL executives were out lobbying on behalf of college football teams or arena football, we might have a different story. But they’re not. The league office is the enforcement wing and rule-making body of a profit-making operation. The same goes for leagues like the NHL, which exist for the express purpose of excluding competition.

The deeper issue at play here is that nonprofits exist to do things for the public good—things that for-profit companies generally don’t do. That’s why we give nonprofits a break from the IRS. And it’s why the government should be stingy about which kinds of organizations count and which don’t. We know that sports leagues won’t suddenly disappear if we treat them like normal corporations and ask them to pay, at most, a few million dollars to the government. Major League Baseball certainly hasn’t gone anywhere. The NFL won’t either.

 

By: Jordan Weissmann, Senior Business and Economics Correspondent; Slate, September 18, 2014

September 21, 2014 Posted by | IRS, National Football League, Tax Exempt Status | , , , , , , , | Leave a comment

“IRS Hearings Are Another Republican Circus”: A Folly Wrapped In A Charade And Shrouded By Farce

Dave Camp had a secret.

The House Ways and Means Committee chairman was ready to send the panel’s files on former IRS official Lois Lerner to the Justice Department for a possible prosecution — a handover that could have been accomplished with a simple phone call to the attorney general. Instead, Camp put on a show.

The Michigan Republican invited the press and the public to the committee’s storied hearing room Wednesday, only to call an immediate vote to kick them out. This way, the panel could meet in a closed session to debate Lerner’s fate — a dramatic but meaningless gesture because the sole purpose of the secret meeting was to authorize releasing the committee’s files on Lerner to the public.

Republicans said the closed session was required to make the information public, but the panel’s ranking Democrat, Sandy Levin (Mich.), said the debate should be held in the open.

“Mr. Chairman?” he inquired after the plan to go into secret session was announced.

Camp ignored Levin. “The clerk will call the roll,” he said.

“Mr. Chairman?”

“The clerk will call the roll.”

“Mr. Chairman?”

“The clerk will call the roll.”

Levin pressed on, patiently raising a point of order.

“Just chill out,” the 60-year-old Camp finally snapped at his 82-year-old colleague.

“I’m very chilled out,” Levin replied.

This was true. Levin hadn’t raised his voice at all. Camp, on the other hand, was agitated — for good reason.

The lawmaker, who is retiring at the end of this term, has built a solid reputation over the years, and he recently won plaudits for releasing a thoughtful proposal to overhaul the tax code. Camp was on course to retire with dignity — at least until he allowed his committee room to be turned into a circus tent Wednesday. It was a folly wrapped in a charade and shrouded by farce.

Folly: There was no need to have a formal hearing to convey the information to the Justice Department, which is already investigating the IRS’s targeting of conservative groups.

Charade: The committee made a big show of having its secret hearing, even though it was a foregone conclusion that the members would vote along party lines to release its “secret” information — including the transcript of the secret hearing — to the public.

Farce: Camp said Lerner could be prosecuted for releasing private taxpayer information. Yet in making public its Lerner files, the committee used its authority to do legally the same thing it accused her of doing illegally: releasing confidential taxpayer information. That hadn’t been done in at least 40 years.

Of course, the taxpayers whose information was released — mostly related to Karl Rove’s Crossroads GPS group — may not mind, because they have an interest in seeing somebody pay for the IRS’s targeting of a disproportionate number of tea party groups for extra scrutiny.

The IRS scandal didn’t come close to the “culture of corruption” Camp promised or the “targeting of the president’s political enemies” and coverup alleged by Darrell Issa (R-Calif.), whose committee is holding the contempt vote. Instead, the investigations didn’t go beyond Lerner, a civil servant who led the agency’s tax-exempt division. “This was a career employee in the IRS potentially who did all these things,” Camp said after Wednesday’s secret session. “So we have to make sure that the signal goes out that this doesn’t happen again.”

That’s a reasonable sentiment, and one shared by Levin, who on Wednesday said Lerner had been guilty of “clear mismanagement.” Democrats objected not to Camp turning over the committee’s information on Lerner, but to the cloak-and-dagger hearing followed by the wholesale release of tax records.

The AP’s Stephen Ohlemacher asked Camp why he didn’t just “pick up the phone” rather than make private taxpayer files public.

Camp agreed that such a release was unprecedented but said, “This is so important that I think the public has a right to know.” He repeatedly called the matter “important” and “a very serious thing.”

But the chairman’s claims of importance were undermined by his committee’s antics, including its showy secrecy. Reporters, waiting out the two-hour closed session in the hallway, were treated to Krispy Kreme doughnuts by the committee’s staff. But inside the room, other staffers were unplugging the journalists’ cables, just to be sure nobody pierced the veil.

When Camp reconvened the hearing after the secret session, cameramen called out for him to wait as they reassembled their equipment. Rep. Paul Ryan (R-Wis.) complained. “Are you guys ready?” he moaned.

But Camp waited, which was wise. What good is a farce if it isn’t on film?

 

By: Dana Milbank, Opinion Writer, The Washington Post, April 9, 2014

April 11, 2014 Posted by | IRS, Republicans | , , , , , , , , | Leave a comment

“Republican’s ‘Un-American’ Activities”: Darrell Issa Tries McCarthyite Move To Revive Flailing IRS Probe

GOP congressman and House Committee on Oversight and Government Reform chairman Darrell Issa’s quest to uncover the smoking gun of the IRS scandal story — the missing Gotcha! moment that will cause the Obama administration to crumble under the weight of its own corruption — has run aground lately, primarily due to the people in Issa’s cross hairs pleading the Fifth Amendment. But that doesn’t mean Issa is quite yet ready to give up.

According to a report in the Huffington Post, Issa and his allies are considering making a rare argument and a procedural move in order to force former IRS official Loris Lerner to testify. Lerner used to be the head of the IRS department tasked with figuring out whether to grant tax-exempt status to groups claiming to be apolitical in nature and focused primarily on “social welfare.” Republicans have charged that the IRS disproportionately targeted right-wing organizations for review. Lerner resigned and has spoken to Issa’s committee, but has also refused to answer some questions by pleading the Fifth.

In response to Lerner’s invocation of this constitutional right, Issa is now arguing that because the former government official did speak with the committee before pleading the Fifth, she waived her right to do so and is thus eligible to be held in contempt of Congress and even possibly face criminal charges. A report by the Congressional Research Services that is pushing Issa’s argument calls Lerner “critical to the Committee’s investigation[.]” Further, the report states that “Without [Lerner’s] testimony, the full extent of the IRS’s targeting of Tea Party applications cannot be known, and the Committee will be unable to fully complete its work.”

One potential problem with Issa’s latest move, however, is the fact that no American has ever been successfully prosecuted for pleading the Fifth before Congress. Indeed, even the attempt to prosecute on such grounds is rare, with most of the examples in recent history having occurred during the McCarthyite years of the 1950s.

More from HuffPo:

Most of the cases involved the House Un-American Activities Committee and its communist witch-hunts in the 1950s. But one that is particularly instructive involves a Buffalo, N.Y., woman named Diantha Hoag, who was fired from her factory job after Sen. Joe McCarthy (R-Wis.) and his Senate Committee on Government Operations accused her of being a communist and she pleaded the Fifth.

In that case, Hoag answered many more questions than Lerner did. She listed several places where she had lived, said she worked at a Westinghouse plant, and told committee members that she knew Westinghouse contracted with the military. Lerner never went beyond a short opening statement professing her innocence.

Hoag flatly refused to answer questions about her associates and any communist connections she may have had.

When McCarthy attempted to compel her testimony through the courts, as Issa is now threatening, a judge did not look kindly on the bid, declaring: “I reach the conclusion that the defendant did not waive her privilege under the Fifth Amendment and therefore did not violate the statute in question in refusing to answer the questions propounded to her. Therefore, I find that she is entitled to a judgment of acquittal on all counts.”

 

By: Elias Isquith, Salon, April 9, 2014

April 10, 2014 Posted by | Darrell Issa, IRS | , , , , , , , | Leave a comment

“Tax-Exempt Hatred”: The IRS Should Strictly Police Hate Groups Seeking Non-Profit Tax-Exempt Status

A few weeks ago, Forbes magazine published an intriguing column by Peter J. Reilly that asked an important question: If the Southern Poverty Law Center calls the Family Research Council a hate group, should the IRS take action?

In the column, Reilly criticizes a paper by University of Georgia Professor Alex Reed. Reed argues that the IRS must do a better job enforcing its procedure 86-43, which is the standard it uses to determine if a tax exempt organization is advocating an educational point of view or one that produces materials that are factually unsupported, distorted or make substantial use of inflammatory and denigrating language. If it organization does the latter, the procedure indicates that it does not qualify for tax-exempt status.

Reed writes that the IRS’ poor oversight of 86-43 has allowed many out-of-compliance organizations to keep their preferential tax benefits, particularly hate groups. Hate groups advocate hostility toward certain groups of people because of their race, ethnicity, religion, sexual orientation or gender identity. He references The Family Research Council, which has a long history of publishing offensive propaganda about the LGBT community.

Other tax-exempt organizations not mentioned by Reed, but with similar reputations include: the anti-LGBT Family Watch International,  whose research archive contains numerous offensive, junk science studies on gays and lesbians, and the xenophobic Federation for American Immigration Reform, which has volumes of distortions broadly denigrating immigrants.

Reilly argues that strict enforcement of 86-43 wouldn’t work because “if somebody expresses a view that you find threatening to your world view, you are likely to conclude that they hate you.” In other words, it would be impossible for any IRS employees to enforce 86-43, because any threat to their beliefs would trump their professional obligations. He ignores the possibility that the IRS could punish employees for targeting organizations based on their personal or political beliefs, an obvious, much needed reform given the IRS’s political targeting of tea party organizations earlier this year.

Both Reilly and Reed would do better not framing their arguments around what organizations the Southern Poverty Law Center deems hate groups. In fact, the hate group term doesn’t even need to be involved. Any organization whose educational materials don’t conform to the procedure should be scrutinized. The IRS must ground its enforcement on its rules, not the Southern Poverty Law Center’s position.

Enforcement has nothing to do with limiting an organization’s free speech. The Family Research Council, Family Watch International, Federation for Immigration Reform or any other group masquerading as educational institutions don’t need tax-exempt status to exercise their civil liberties. One is not necessary to the other.

Enforcement has to do with the fair application of rules designed to maintain the integrity of the tax-exempt system. Preferential tax treatment is, for all intents and purposes, a government subsidy administered through the tax system. If a tax-exempt organization is flouting the standards by which its status is awarded, it shouldn’t expect the government to continue to assist it in the coordination of its financial activities. The government is not obligated to make it easier for these organizations to threaten people’s basic rights and freedoms. In fact, the government has a moral, legal and ethical obligation to do the opposite.

By: Jamie Chandler, Washington Whispers, U. S. News and World Report, November 19, 2013

November 20, 2013 Posted by | IRS | , , , , , , | Leave a comment

“Scamming The Taxpayers”: The IRS Controversy And The Tax-Exempt Charade

As we’re learning more about the IRS giving heightened scrutiny to conservative groups filing for tax-exempt status, we should make one thing clear: If what we’ve heard so far holds up, the people involved should probably get fired, and new safeguards should be put in place to make sure nothing like it happens again. And let it be noted that liberal publications, at least the ones I’ve seen, have all taken that position and have been discussing this story at length.

Now, let’s see if we can understand the context in which this happened. There’s an irony at work here, which is that it may well be that the IRS employees involved were trying to obey the spirit of the law but ended up violating the letter of the law, while for the organizations in question it was the opposite: they were trying to violate the spirit of the law, but probably didn’t violate the letter of the law.

Let’s take the first part, the IRS employees. When a group files for tax-exempt status, the IRS investigates it, asks it some questions, and determines whether it qualifies under section 501(c)(3) or 501(c)(4). The difference between them is that a 501(c)(3) is supposed to be a genuine charity, like your local food bank or Institute for the Study of Foot Fungus, while a 501(c)(4) is still primarily devoted to “social welfare” but is allowed more leeway to engage in some political activities like lobbying and participation in elections, so long as the political activities make up a minority of its time. The biggest practical difference is that donations to (c)(3) groups are tax-deductible, while donations to (c)(4) groups are not.

Once the Supreme Court said in the 2010 Citizens United decision that (c)(4) groups could engage in “express advocacy” (i.e. explicitly saying “Vote for Smith!”), the IRS got flooded with new applications for (c)(4) groups, and its job was to determine if these groups were actually “social-welfare” organizations that also did some politicking on the side, or if they were groups whose main purpose was actually political, in which case, according to the law, they should be denied (c)(4) status. We know very little at this point about what the IRS employees in Cincinnati did and why, but the generous interpretation is that since so many of the applications they were getting in 2010 and 2011 were from Tea Party groups that looked a lot like their sole purpose was to elect Republicans, they looked for some way to handle them all together, so they searched for applications with words like “Tea Party” and “Patriot” in their names and subjected them to extra scrutiny.

Even if their motivations were innocent and they were just struggling to find ways to wade through all these applications and do their jobs properly—in other words, if there was no violation of the spirit of the law—it was still improper for them to sort the applications this way, because it could mean in practice that an ideological test was being applied to which groups got heightened scrutiny. But now let’s look at the other half of the story, the groups applying for tax-exempt status.

The truth is that a great many of the groups that request 501(c)(3) and 501(c)(4) status, of all ideological stripes, are basically pulling a scam on the taxpayers. Maybe that’s a bit harsh, but at the very least they’re engaged in a charade in which they pretend to be “nonpartisan” when in fact they are very, very partisan. For instance, nobody actually believes that groups like the Center for American Progress on the left or the Heritage Foundation on the right aren’t partisan. When there’s an election coming, they mobilize substantial resources to influence it. They blog about how the other side’s candidate is a jerk, they issue reports on how his plans will destroy America, and they do all sorts of things whose unambiguous intent is to make the election come out the way they want it to. CAP and Heritage, along with many other organizations like them, are 501(c)(3) charities, meaning as long as they never issue a formal endorsement and are careful to avoid any express advocacy, they can maintain the fiction that they’re nonpartisan (keep getting tax-deductible contributions, which are easier to obtain than those that aren’t tax-deductible).

And that fiction is even more exaggerated when you get to the (c)(4) groups, particularly the new ones. For instance, when Karl Rove’s Crossroads GPS applied for 501(c)(4) status, it explained to the IRS that it was a social-welfare organization for whom influencing elections wouldn’t be its primary purpose. Instead, the group said “Through issue research, public communications, events with policymakers, and outreach to interested citizens, Crossroads GPS seeks to elevate understanding of consequential national policy issues, and to build grassroots support for legislative and policy changes that promote private sector economic growth, reduce needless government regulations, impose stronger financial discipline, and accountability in government, and strengthen America’s national security.” It claimed that 50 percent of its activities would be “public education,” 20 percent would be “research,” and the remaining 30 percent would be “activity to influence legislation and policymaking.” On the section of the form where the group has to state whether it plans to spend any money to influence elections, it wrote that it “may, in the future” do so, but “Any such activity will be limited in amount, and will not constitute the organization’s primary purpose.”

As everyone knows, this is a joke. Crossroads GPS was created for one purpose and one purpose only: to get Republicans elected. Maybe they found a way to stay within the letter of the law, but there’s no question they were violating its spirit. And the same is true of Priorities USA, the pro-Obama group created in advance of the 2012 election by a couple of former White House staffers. Both are actually twin groups, a (c)(4) and a super PAC, which allows the people running them to keep within the letter of the law by moving spending around between the two. (Stephen Colbert and Trevor Potter memorably explained how all this can be done.)

Without knowing anything about the particular Tea Party groups that were subjected to heightened scrutiny (we’ve only heard about a few so far), the broader context is that you have a lot of groups of all political persuasions that are essentially trying to pull a fast one on the IRS, and through them, the American taxpayer. Keep in mind that tax-exempt status is a gift that we give to groups that can demonstrate they deserve it. Perhaps this part of the tax code should be made stricter, or perhaps it should be made looser so all these charades can stop. But either way, this wouldn’t be a bad time to start that discussion.

 

By: Paul Waldman, Contributing Editor, The American Prospect, May 13, 2013

May 14, 2013 Posted by | Citizens United, IRS | , , , , , , , | 1 Comment

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