How does the NFL remain a nonprofit as 275,000 others lose their 501(c)3 status?

It is rather distressing to see the huge number of nonprofits in the US that have had their 501(c)3 status status revoked over the last year as a result of changing regulations and deeper analysis by the IRS. The 501(c)3 status allows a nonprofit a wide range of benefits including but not limited to exemption from federal and/or state corporate income taxes, the ability to apply for grants and other public or private allocations available only to IRS-recognized, 501(c)3 organizations and discount on US Postal bulk-mail rates and other services. In the meantime many of us learned this week that the NFL is an offically recognized nonprofit, that’s right that NFL – the National Football League a multimillion dollar business with many of the highest paid athletes in the world and a commissioner (CEO) who received $44.2 million in compensation in 2012.

No matter how you slice it something’s not right when many thousands of small organizations are losing their status and the NFL somehow maintain theirs.

Let’s dig a little deeper though, according to the most recent IRS statistics some 275,000 nonprofits lost their tax exempt status in the last year and most frequently for failing to complete required annual reporting to maintain their status with others not managing the annual turnover to maintain their distinct status. To be fair thousands of nonprofits begin operations with the best intentions and then cease activity within months or a year or two due to lack of support, planning or in some cases legitimacy.

However many nonprofits have been revoked due to differing laws state by state that continued to change and alter exactly what organizations are eligible, many of these changes due to individual states desperately seeking funding (tax revenues) as their coffers run dry. There has also been debate over whether all nonprofits at risk have been issued with warnings in a timely manner – this added to the fact that there was much confusion about completing the needed reports. I firmly believe that the charity sector should operate with complete transparency wherever possible and that many of these organizations weren’t operating any longer in a serious fashion, it’s estimated that somewhere between 60% and 75% of those revoked had annual turnovers of less than $25,000.

On the other hand according to this Guidestar report from 2011, the top 100 nonprofits that were revoked that year had revenues between $4-400 million so it’s wrong to assume we’re looking only at very small organizations.

Perhaps it’s time for a proper resource, ideally a nonprofit, to aid nonprofits on the brink so that if they are in the appeal process they can be equipped to have the best opportunity to remain active. There are different appeals process and review boards from state to state so it would be difficult to administer but surely this would be valuable to many.

Let’s accept that perhaps 70% of those 275,000 revoked charities weren’t very active and filing reports correctly then – which still leaves 82,500 nonprofits losing their status when perhaps they need better education and organization, I’m not suggesting that the IRS maintains 501(c)3 status for nonprofits indefinitely either, but that the playing field is as level/transparent as it should be. Speaking of playing fields that brings me back to the NFL.

What is true is that their tax-exempt status is now in great danger, this the result of a combination of public and political pressures related to numerous recent scandals within the NFL. The battle is already heading to Congress but it’s interesting that it took these events and the related negative press to bring the spotlight on the league and their tax exempt position.

I’ll be back next week to look at how the NFL achieved 501(c)3 exemption and ask whether it made sense in the first place.

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