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For many years, the Internal Revenue Service (IRS) has required charities organized under section 501(c)(3) of the tax code to report their top executives’ salaries on Form 990 when filing tax returns. This information has been made available to the public as a kind of quid pro quo for the favorable tax treatment received by the organizations. The main purpose of reporting the salaries is to provide taxpayers the opportunity to hold charities accountable for abusing their tax-exempt status by overpaying their executives. Over 1.6 million tax-exempt organizations file Form 990 every year and not all are organized under section 501(c)(3).
Business leagues, defined by Internal Revenue Code section 501(c)(6) as “associations of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit” also use Form 990. This classification includes professional football leagues like the National Football League (NFL) which earns its revenue from dues paid by its 32 member teams.
Until recently, business leagues were not required to report the salaries of executives, although, the NFL has made information about the commissioner’s salary–nearly $10 million–available to the public for several years. For the 2008 tax year, the IRS redesigned Form 990 and expanded the salary disclosure requirements to encompass business leagues. Business leagues must now report and publicly disclose some employees’ salaries, particularly, all corporate officers, directors, trustees, and key employees that make over $150,000. This broadening of publicly available compensation information by the IRS has sparked an outcry from the NFL and other business leagues who believe the new reporting requirements constitute an invasion of privacy.
The IRS reasons that these changes will improve overall compliance and increase the transparency of organizations that enjoy the privilege and benefit of exemption from federal income tax. Insofar as the changes relate to business leagues, the IRS will create a further safeguard against private inurement which could occur, for example, if the NFL were to tender its net earnings to a member team as direct financial assistance.
The greatest benefit the NFL receives from its tax-exempt status is an ability to finance the construction or renovation of member teams’ stadiums by issuing bonds with more favorable interest rates and time horizons than it could if it had to pay federal income taxes. Because the NFL is the only major sports league that claims the exemption, it is also the only league that will have to disclose compensation information to the public.
The NFL is requesting that the IRS make an exception for business leagues that would excuse them from reporting this information at all or, alternatively, at least redact compensation information from the material disclosed to the public. However, given that other professional sports leagues have found ways to structure their organizations to avoid publicly disclosing executives’ salaries, as long as the NFL wishes to maintain its favorable tax status, it seems the IRS will require it to abide by all tax-exempt organization regulations including those that mandate salary disclosure.
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