Is Your Nonprofit the Next NFL?

A funny thing popped into my inbox the other week: a petition from Change.org called “Congress: Revoke the Tax-Exempt Status of the National Football League.”

Usually, I either discard these emails if I’m not moved by the cause, or I immediately sign if I am. This one I had to think about it. I have long thought it ridiculous that the NFL, one of the most profitable organizations in the country, is part of the nonprofit sector and enjoys tax benefits. But did I want to help lobby to revoke its organizational status—or any organization’s organizational status, for that matter?

It wasn’t until I read the recent Atlantic article on the topic, appropriately titled “How the NFL Fleeces Taxpayers,” that I decided that, yes, it is indeed unjust that the NFL enjoys similar tax benefits to say, a community health center, and I went ahead and signed the petition.

There are two interesting things about this petition:

1. It does not appear that it is connected in any way to the Atlantic article or any organization, as many Change.org petitions are. (More and more, organizations are using Change.org’s database to promote their own causes.) Instead, it appears that an average person, albeit one very much engaged in the nonprofit sector, started it.
2. More than 260,000 people have signed it so far. Meaning that at least 260,000 people care about an organization’s tax status enough to know what it means. And not only are they aware of what an organizational status signifies, but they have collectively decided that an organization should not have the status it does. In short, they are calling out the federal government and telling it that its decision to grant tax benefits was wrong.

Why do these things matter?

Well, it is, I believe, unprecedented. I have never heard of any challenges to a major nonprofit’s “nonprofitness.” Payments in lieu of taxes have been around for a while, but those don’t call for the revoking of tax status.

More importantly, this call has major implications for the sector: If the public can say that an organization does not meet the social criteria required to be a nonprofit, this flips filing for nonprofit status on its head. Currently, once you’re in, basically, you’re in. If the IRS deems you a nonprofit, it’s very difficult for it to revoke that status. As long as your financials are in order and you aren’t paying out shareholders, you’re fine.

Note that this process has nothing to do with what is most associated with the nonprofit sector: social outcomes. The IRS does not require anything that proves you are doing a good job with what you said you would do. All it cares about is whether or not individuals are “not profiting” from the nonprofit.

In the world where public outcry could overturn tax status, nonprofits would have a much larger burden of proof. If an organization is not meeting promises to donors, typically the only thing a donor can do is stop donating. If petitions like this one about the NFL catch on, the public could not only stop donation, but also work to revoke the privilege to have anyone donate to the organization. If you have no formal relationship with an organization, yet disagree with what it is doing in your community (say, the NRA or PETA), you could ultimately revoke the tax benefits for that organization.

There’s another, more subtle conclusion that comes from this petition: If the government can remove tax benefits because of a failure to produce social outcomes, regardless of the organizational status, can it give tax benefits to organizations that do meet social outcomes, even if the organization is for-profit? If you’ve followed what’s happened in Philadelphia with Benefit Corporations, you know that answer is yes.

The NFL is a special case here. It is very clear that it falls down on the job in terms of bettering society. (Again, read the Atlantic article for the full history—which includes brain injuries, corrupt public deals, and more.) But if the petition takes hold and the public successfully revokes the status of a nonprofit, the sector will have to answer some serious questions about its fundamental nature.

The NFL is clearly an outlier in the nonprofit sector. But it may become the exception that proves the rule—that nonprofit status is ultimately an arbitrary distinction that we need to re-examine.

Only time will tell.

Read more stories by Jeff Raderstrong.