Why is the NFL relinquishing its tax-exempt status?

On Behalf of | Apr 30, 2015 | Business Formation & Planning |

You may already heard that the NFL has decided to voluntarily relinquish its tax-exempt status — a designation that the league has enjoyed for nearly 49 years. It’s a decision that some within the public feel was long overdue, especially among those who felt that the league, for decades, had been intentionally “skimming millions of dollars from taxpayers.”

If you’re not familiar with how the 501(c)(6) designation works though, you might be curious about what this shift will mean for the NFL. You might even be asking the question we’re presenting in today’s post title: why is the NFL relinquishing its tax-exempt status?

According to several news sources, including the Washington Post, the rationale behind the decision was because the league’s tax-exempt status had become a “distraction,” Commissioner Roger Goodell explained this month. His statement wasn’t far from the truth either. The league has received extensive criticism from the public and even from politicians who have long questioned how a business that is clearly making billions of dollars in revenue each year has been considered a non-profit since 1942.

But aside from public and political pressure, some believe that the league’s decision also stems from the desire to elevate its image. From allegations against players for committing domestic violence to lawsuits regarding brain injuries, the NFL has received a lot of negative press in recent years. By relinquishing its tax-exempt status, the league may regain some trust from the public again.

But as our Pasadena readers who understand business law know, the process of relinquishing a tax-exempt status is not a simple one. A business must meet certain requirements defined by the IRS and must file the appropriate documentation as well.

Though it’s unknown how far into the process the NFL is, it is known that once the league is considered for-profit, it will no longer be required to publically report Goodell’s annual earnings. This by-product of the transition will allow the NFL to focus attention on its continuing success as a business rather than how much its executives make in a year.

Sources: Fortune, “NFL drops tax exempt status, gains good PR,” Daniel Roberts, April 29, 2015

The Internal Revenue Service, “K. Voluntary Relinquishing of Tex Exempt Status,” Accessed April 30, 2015

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