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Over 250,000 circulation
Enterprise story
Fourth place

Critics question league's tax-exempt activities

New Orleans Times-Picayune

Feeding the hungry. Sheltering the homeless. Searching for a cure to cancer.

Among the services provided by tax-exempt groups classified as nonprofit, here's a surprising one: enriching multimillionaires.

Chances are most people know the group: the National Football League. Taking highly unusual steps for a tax-exempt nonprofit, the NFL has saved some owners millions of dollars in interest through its unique stadium loan program. The NFL has approved more than $850 million in stadium loans for 10 teams and raised a substantial portion of the money by selling league-backed bonds to private investors.

The league saves owners by borrowing the money at lower interest rates than individual teams could, then transferring the money to the owners. Borrowing owners enjoy additional savings because the league charges little interest on the loan money.

Nonprofit experts say the IRS typically restricts such activities for two reasons: • To prevent tax-exempt groups from gaining a competitive advantage over taxpaying groups that provide the same service.

• To prevent tax-exempt groups from organizing simply to profit the group members.

1. Building NFL fortunes

2. Bank of NFL; Sure, if teams can secure taxpayer money

3. Critics question league's tax-exempt activities

"On the one hand, owners always want to get public financing for stadiums," said Bill Allison, co-author of a book on tax scams and managing editor at the Center for Public Integrity. "On the flip side, they are using nonprofit status to gain favorable borrowing rates. It's pretty outrageous."

But the NFL says the loan program violates no IRS rules and is consistent with its mission of promoting professional football.

"Just because it's never been done before doesn't mean that there's anything wrong with it," said Andrew Friedman of Covington & Burling, the law firm that represents the NFL. "... The league is simply helping its members do what they need to do in order to further their business interests."

The NFL also said all taxable revenue is taxed at the team level. "The league is not sheltering income and not making money off of this," NFL treasurer Joseph Siclare said.

In some cases, the IRS permits loans or other activities outside a tax-exempt group's stated mission. But in those cases, the agency imposes a special tax – called the unrelated business income tax. According to the league's 2000 tax return, the most recent available, the NFL paid no such tax.

And according to those documents, the NFL doesn't think it's subject to those taxes.

The NFL suggests its loan program complies with its tax-exempt mission because the new stadiums will "enhance stability of the franchises, protect future broadcasting revenue streams, enhance the overall financial strength of the NFL clubs, and allow access to more cost-effective and flexible financing sources," according to the 2000 tax return.

Critics don't agree.

"Is this a legitimate tax-exempt purpose" said Peter Flaherty, who as president of the National Legal and Policy Center has pushed the IRS to revoke certain exemptions. "I don't think so. Joe Six-Pack doesn't think so."

Others who said they question if the NFL's loan-related activities are permissible for a tax-exempt group include two of the country's nonprofit experts: Marcus Owens, former head of the IRS tax-exempt division and now a private attorney; and Bruce Hopkins, an author of several books on nonprofit law.

"Issuing bonds does strike me as an unusual activity for a (tax-exempt business league)," Owens said. "I'm not aware of it having happened before." Hopkins said he, too, knows of no other tax-exempt organization operating similarly to the NFL.

Former Texas congressman J.J. Pickle said the real question is more basic.

"Why would sports be exempt in the first place" said Pickle, who fought to curb tax exemption during his 32 years in Congress. "Legally, I'd say it stretches the original intent."

The IRS requires that tax-exempt nonprofit groups spell out their missions and keep a copy of their applications after the IRS grants exemption. So what is the NFL's official nonprofit mission, and are stadium loans a reasonable extension of that mission.

There's no telling. The NFL said it has lost its copy of the application it filed with the IRS in 1942, and the IRS also said it was unable to find a copy of the application.

© 2009 The Dallas Morning News