PGA Tour non-profit status

[andyville99]

While I'm not a tax expert, the recent moves by the PGA Tour to ban players raised the question for me about whether an organization that operates as a non-profit can legally pull that off without having their non-profit status challenged.  I think it will be an interesting saga to follow and I'd guess it may come up as the LIV - PGA Tour tensions increase...   here's one article that provides some interesting factoids about the Tour and it's operation.

 

https://insidesources.com/as-pga-execs-collect-millions-critics-question-its-non-profit-status/#:~:text=Laura Neal%2C Senior Vice President,golf-cart riding — contradiction.

 

[lowndes]

Even if they lost their non-profit status I’m not sure that will effect them as much as most people think.  Lots of different ways to structure yourself to reduce taxes.  People make a bigger deal about that status than is warranted in my opinion.

[Llortamaisey]

32 minutes ago, lowndes said:

Even if they lost their non-profit status I’m not sure that will effect them as much as most people think.  Lots of different ways to structure yourself to reduce taxes.  People make a bigger deal about that status than is warranted in my opinion.

Great point. Plenty of other tax avoidance schemes out there for the PGA Tour to exploit. I feel like the non-profit scheme gets all the hate because it’s the easiest loophole to exploit. They’ll be fine. No one needs to worry about them being forced to pay their appropriate share of taxes. 

[wee stones]

The bigger question is whether or not a non-profit can make decisions like this and claim competition related arguments as to why the decision is being made.

 

Non-profits aren’t supposed to be basing decisions on gaining or losing competitive advantages in the first place. 

[aus10KC]

They serve to advance professional golf and put on events for their members. Can an organization decide it's own rules for membership? 

 

They have no shareholders as well. They do pay taxes, members and employees pay taxes, they give the communities they are in an economic boost and help local charities in those communities. 

 

I'm sure this will go to court, but should the govt get involved in something like this. I say no, unless they restricting membership based on a protected status. 

[huskydawg]

Types of Organizations Exempt under Section 501(c)(6) | Internal Revenue Service (irs.gov)

 

 

Quote

 

Section 501(c)(6) of the Internal Revenue Code provides for the exemption of the following types of organizations:

• Business leagues
• Chambers of commerce
• Real estate boards
• Boards of trade
• Professional football leagues

 

 

I think we're talking about business leagues, so clicking there we get:

 

Quote

 

A business league is an association 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.

 

To be exempt as a business league, an organization's activities must be devoted to improving business conditions of one or more lines of business (as distinguished from performing particular services for individual persons). It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Merely indicating the name of the organization or the object of the local statute under which it is created is not enough to demonstrate the required general purpose.

 

 

Clicking on lines of business we get:

 

Quote

This term generally refers either to an entire industry or to all components of an industry.  For exemption purposes, a line of business is a trade or occupation, entry into which is not restricted by a patent, trademark, or other means that allow private parties to restrict the right to engage in the business.  It does not include a group composed of businesses that market a particular brand within an industry.  Thus, for example, an organization that served the needs of users of a specific brand of computer or assisted franchise owners of a particular brand of products promoted only a segment of a line of business and so was not exempt under section 501(c)(6).

 

Maybe I'm wrong, but I think a "line of business" would include all professional golf, and a "particular brand within an industry" would define the PGA Tour.  If I'm completely off base, I'd be interested to hear where.

 

[m d g]

As usual, only the lawyers (and Phil Mickelson and...) will get rich on this one : )

[italianstallion]

The whole non-profit thing is blown out of proportion, but that’s mainly because people don’t understand why it’s a non-profit. Its not a non-profit because it gives money to various charities and it’s not a non-profit because it’s trying to avoid taxes. The PGA TOUR is non-profit because all of its actions are done on behalf of and for the benefit of its members, the Players. After all expenses are paid, everything left over gets parked into investment and pension funds for the PGA TOUR members. This is why Players agree and sign to be members of the PGA TOUR.

 

If you’re a long time PGA TOUR member in good standing, when you retire you stand to make just as much in pension as you did in on course winnings. 

[ray9898]

1 hour ago, italianstallion said:

The whole non-profit thing is blown out of proportion, but that’s mainly because people don’t understand why it’s a non-profit. Its not a non-profit because it gives money to various charities and it’s not a non-profit because it’s trying to avoid taxes. The PGA TOUR is non-profit because all of its actions are done on behalf of and for the benefit of its members, the Players. After all expenses are paid, everything left over gets parked into investment and pension funds for the PGA TOUR members. This is why Players agree and sign to be members of the PGA TOUR.

 

If you’re a long time PGA TOUR member in good standing, when you retire you stand to make just as much in pension as you did in on course winnings. 

 

Yup.  The funds are allocated to individuals and that is where the tax burden lies.

[bankbank]

anyone know the salary of j monahan? 

[andyville99]

8 hours ago, bankbank said:

anyone know the salary of j monahan? 

the article said $8.88 million in 2019 - not bad for running a "non profit"!!

[jdl]

No players have been "banned". Some have resigned their membership, some have been suspended.

[TourSpoon]

What confuses some people is that when they hear "non-profit" they think the people working for them are taking a vow of poverty. While this may be the case with some organizations, in the larger ones, the CEOs do fairly well. The CEOs compensation package are considered part of the operating costs of the organization. Just Google non-profit CEO salaries and you can see what some of these people are making. in JM's case, being the CEO is very profitable! 

[pingfool]

13 hours ago, lowndes said:

Even if they lost their non-profit status I’m not sure that will effect them as much as most people think.  Lots of different ways to structure yourself to reduce taxes.  People make a bigger deal about that status than is warranted in my opinion.

sounds like a canned response from usga and pga tour apologist…

 

of course non profit status is a huge benefit, especially when you have no direct completion (until now)

 

All the noise is because someone is attempting to disrupt a monopoly

[lowndes]

11 hours ago, italianstallion said:

The whole non-profit thing is blown out of proportion, but that’s mainly because people don’t understand why it’s a non-profit. Its not a non-profit because it gives money to various charities and it’s not a non-profit because it’s trying to avoid taxes. The PGA TOUR is non-profit because all of its actions are done on behalf of and for the benefit of its members, the Players. After all expenses are paid, everything left over gets parked into investment and pension funds for the PGA TOUR members. This is why Players agree and sign to be members of the PGA TOUR.

 

If you’re a long time PGA TOUR member in good standing, when you retire you stand to make just as much in pension as you did in on course winnings. 

 

This - but it is also why I think the PGA Tour could structure themselves as some sort of pass through entity (think similar to a law firm, accounting firm, etc.) and achieve a very similar result.  It most likely would just complicate things a bit more so than they are now in certain areas (and likely make things a bit less complicated in other areas).

 

That said I would be shocked if the PGA Tour's non-profit status is in jeopardy.  They seem to fit perfectly within 501(c)(6) so unless that went away then I'm not sure what the rationale would be.

[ray9898]

11 hours ago, andyville99 said:

the article said $8.88 million in 2019 - not bad for running a "non profit"!!

 

The salary amount of those who work for an organization has nothing to do with if it has non-profit status.  It isn't a difficult concept to grasp.

Edited June 22, 2022 by ray9898

[BottleCap]

10 hours ago, TourSpoon said:

What confuses some people is that when they hear "non-profit" they think the people working for them are taking a vow of poverty. While this may be the case with some organizations, in the larger ones, the CEOs do fairly well. The CEOs compensation package are considered part of the operating costs of the organization. Just Google non-profit CEO salaries and you can see what some of these people are making. in JM's case, being the CEO is very profitable! 

Just because it’s happening doesn’t mean it’s right

[ray9898]

I don't get why this is a difficult concept to grasp.  The PGA Tour is not like a publically traded company such as General Motors where the main goal is for the company to be profitable which increases the market value and benefits the shareholders.  The PGA Tour exists to benefit its members only, there is no goal to hold wealth as an entity but instead it passes it to the members.  Those members receive the profits and that is where the tax burden lies. 

 

Non-profit status has no relation to being some sort of charity.

Edited June 22, 2022 by ray9898

[Tpfol]

11 hours ago, jdl said:

No players have been "banned". Some have resigned their membership, some have been suspended.

"no longer eligible to participate in PGA Tour play" sure sounds like a ban, no?

And a suspension with no recourse, no time frame or path to return surely sounds like a ban....

 

 

[Stevens24]

The real question becomes does being a non profit hurt them competitively? They can’t offer guarantees or appearance fees for a player to show up at certain events. The NFL and MLB gave up theirs to be able to expand their business dealings and not be as limited.

[NMBob]

59 minutes ago, ray9898 said:

The PGA Tour exists to benefit its members only,

 

that sounds like any of thousands of family owned businesses or maybe even any private company that is not a corporation.   I don't tend to note all non chain or non franchised restaurants as non profits..    Non profits tend to be things like neighborhood committees and your local bowling league , the mlb players association, not MLB itself or the new york yankees organization etc.

 

seems it blatantly violates by making more money at an event and paying the players more money.....

 

A 501(c)(6) membership-based nonprofit is an organization that exists to promote its members' business interests, without the goal of making a profit. In addition, these organizations must make sure that no one individual or shareholder benefits financially from the organization's income.  

 

 

 

 

from the irs description

"No part of its net earnings may inure to the benefit of any private shareholder or individual;"

Edited June 22, 2022 by NMBob

[Titleist99]

40 minutes ago, ray9898 said:

I don't get why this is a difficult concept to grasp.  The PGA Tour is not like a publically traded company such as General Motors where the main goal is for the company to be profitable which increases the market value and benefits the shareholders.  The PGA Tour exists to benefit its members only, there is no goal to hold wealth as an entity but instead it passes it to the members.  Those members receive the profits and that is where the tax burden lies. 

 

Non-profit status has no relation to being some sort of charity.

You can explain it to them, but you can't make them understand....

[ray9898]

35 minutes ago, NMBob said:

 

that sounds like any of thousands of family owned businesses or maybe even any private company that is not a corporation.   I don't tend to note all non chain or non franchised restaurants as non profits..    Non profits tend to be things like neighborhood committees and your local bowling league , the mlb players association, not MLB itself or the new york yankees organization etc.

 

You are still confused even though you hit on the main point.  You are describing an LLC, they also do not pay 'corporate taxes'.  The members of the LLC pay individual taxes on the profits of the company just as PGA Tour members and employees pay individual tax on the profits from tour related activities. 

 

The PGA Tour isn't building wealth for shareholders like a corporation, they are a non-profit organization, the members and employees are for-profit. 

[ray9898]

1 hour ago, NMBob said:

 

 

A 501(c)(6) membership-based nonprofit is an organization that exists to promote its members' business interests, without the goal of making a profit. In addition, these organizations must make sure that no one individual or shareholder benefits financially from the organization's income.  

 

from the irs description

"No part of its net earnings may inure to the benefit of any private shareholder or individual;"

 

Since you added more to your quote.  You seem to have a misunderstanding there also.  A 501C6 exists to serve the members of such organization.  They are the only people who can benefit financially from the organizations income, not 'private shareholders or individuals' who are outside of the limited membership.

 

Once again....just like your example where you described a LLC.....the individuals shoulder the tax liability for the profits of the organization.

[NMBob]

50 minutes ago, ray9898 said:

 

You are still confused even though you hit on the main point.  You are describing an LLC, they also do not pay 'corporate taxes'.  The members of the LLC pay individual taxes on the profits of the company just as PGA Tour members and employees pay individual tax on the profits from tour related activities. 

 

The PGA Tour isn't building wealth for shareholders like a corporation, they are a non-profit organization, the members and employees are for-profit. 

 

1) So we can better understand, who else is organized this and operates like this under the same tax code?  Seems there would be hundreds.  Who else tries to make bigger profits on events, so it can pay its members more ?   It just doesn't seem to pop up.

 

2) also, it seems the pga tour is sitting on 300 million dollars.  So, if they are tax exempt, they make money off that cash account or investment, and pay no taxes?   There are numerous articles from places such as espn etc talking about how many tens of millions of taxes the pga tour has avoided.  I was wondering what they were referencing.  (I found it, this is one of the problems., 

 

 

Quote

 

Many people take the "nonprofit" designation an organization has as meaning it cannot keep any money it makes above expenses. But that's not true. The PGA for years has carried over profits -- to the tune of $700 million as of 2011. A feature on Finchem this year in Forbes magazine cites the tour's savings as giving the tour a "competitive advantage" that preserved its TV contracts even as corporate sponsors wavered in a shaky economy.

That $700 million is likely what the tour would have paid taxes on were it not structured as a nonprofit, said Brad Borden, a tax law professor at Brooklyn Law School in New York, who reviewed the tour's finances for "Outside the Lines."

 

 

So, if this is not a charity, and all they do is pass money to the people involved and not stockholders, why should they be allowed to grow money tax free unlike the rest of us and businesses that pay taxes?

 

 

You said "there is no goal to hold wealth as an entity but instead it passes it to the members.  "   appears to be a very misleading  statement if they were sitting on 700 million growing tax free.

Edited June 22, 2022 by NMBob

[ray9898]

47 minutes ago, NMBob said:

 

So we can better understand, who else is organized this and operates like this under the same tax code?  Seems there would be hundreds.  Who else tries to make bigger profits on events, so it can pay its members more ?   It just doesn't seem to pop up.

 

NFL, NHL, LPGA all operate as a 501c6.  MLB did until a few years ago when they decided to expand beyond the limitations of a non-profit.  One of the main purposes of a trade organization is to promote common business interests and most certainly profit for members is near top of the list.  I don't see why that is confusing.  A c6 isn't a charity, it is a trade organization.

 

A professional sports league is actually in the very description of a 501c6 the IRS publishes. 

 

 

IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Edited June 22, 2022 by ray9898

[ray9898]

1 hour ago, NMBob said:

 

So, if this is not a charity, and all they do is pass money to the people involved and not stockholders, why should they be allowed to grow money tax free unlike the rest of us and businesses that pay taxes?

 

 

You said "there is no goal to hold wealth as an entity but instead it passes it to the members.  "   appears to be a very misleading  statement if they were sitting on 700 million growing tax free.

 

The money they hold will be reinvested to further the tour or is in holdings for pension plans and such they administer for the members.  The administrative office is not the profit center, the players are just like the individual teams are in the NFL.  All holdings by the Tour will eventually be used to benefit the members who carry the tax burden.

[NMBob]

23 minutes ago, ray9898 said:

 

The money they hold will be reinvested to further the tour or is in holdings for pension plans and such they administer for the members.  The administrative office is not the profit center, the players are just like the individual teams are in the NFL.  All holdings by the Tour will eventually be used to benefit the members who carry the tax burden.

1 hour ago, ray9898 said:

 

NFL, NHL, LPGA all operate as a 501c6.  MLB did until a few years ago when they decided to expand beyond the limitations of a non-profit.  One of the main purposes of the organization is to maximize profits for the members.  I don't see why that is confusing.  

 

A professional sports league is actually in the very description of a 501c6 the IRS publishes. 

 

 

IRC 501(c)(6) provides for exemption of business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues (whether or not administering a pension fund for football players), which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

 

yep, only sports leagues, and i understand they have a ruling on it.  The tax law clearly needs to be changed.  all these other organizations, none of them are the primary provider of income to its members, they are just kind of professional societies for intellectual growth etc.  The society of electrical engineers etc.   Or another example, the PGA should likely be one.  The pga is a professional organization which isn't the primary provider of income to thousands of golf pros that make up its body,  but the PGA tour should not be one. 

 

  Why would a sports league, today,  be treated any different than any other entertainer?  Golfers are really not much different than says singers,  Its about sales to people who will watch, or selling tv rights.    An entertainment industry.

. 

The sports clubs it should have been limited to, should basically be the amateur ones, not ones  focused on increasing their own revenues to pay their own members,  Ie, your clubs mens golf association that you pay 75 bucks for, or the city curling club that organizes to help fund the resources, but doesn't focus on providing primary income to the associations curlers  themselves.    

 

there is zero reason for the tax exemption.  It seems to be a tax loophole used by a very  few sports entertainment operations that are always trying to make more money.  There is nothing really special about not having shareholders as other businesses, you have to be a sports league lol.  I hope congress changes the law, but I am sure they will be lobbied not to and have been in the past.   It just makes the PGA tour look privileged in  tax loopholes.     They use the charity line to justify it in public interviews, but you have laid out, its actually a  separate issue.   

 

 

the origin of the loophole is interesting.

 

"This legislative quirk dates back to the 1966 NFL-AFL merger. “Professional football leagues” were added to the code that year to ensure that the merger could go forward “without fear of an anti-trust challenge under either the Clayton Antitrust Act or the Federal Trade Commissions Act,” and to ensure that “a professional football league’s exemption would not be jeopardized because it administered a players’ pension fund,” according to the Internal Revenue Service. In return for this favorable treatment of the merger by two Democratic lawmakers — Louisiana Senator Russell Long, chairman of the Finance Committee, and Louisiana representative Hale Boggs, House majority whip — New Orleans was awarded the NFL’s next expansion franchise"

 

Edited June 22, 2022 by NMBob

[grm24]

56 minutes ago, ray9898 said:

NFL, NHL, LPGA all operate as a 501c6. 

Appreciate the information you've posted about the non profit designation. That said FWIW the NFL gave up it's 501(c)(6) status in 2015.

[Shilgy]

9 minutes ago, NMBob said:

 

yep, only sports leagues, and i understand they have a ruling on it.  The tax law clearly needs to be changed.  all these other organizations, none of them are the primary provider of income to its members, they are just kind of professional societies for intellectual growth etc.  The society of electrical engineers etc.   Or another example, the PGA should likely be one.  The pga is a professional organization which isn't the primary provider of income to thousands of golf pros that make up its body,  but the PGA tour should not be one. 

 

  Why would a sports league, today,  be treated any different than any other entertainer?  Golfers are really not much different than says singers,  Its about sales to people who will watch, or selling tv rights.    An entertainment industry.

. 

The sports clubs it should have been limited to, should basically be the amateur ones, not ones  focused on increasing their own revenues to pay their own members,  Ie, your clubs mens golf association that you pay 75 bucks for, or the city curling club that organizes to help fund the resources, but doesn't focus on providing primary income to the associations curlers  themselves.    

 

there is zero reason for the tax exemption.  It seems to be a tax loophole used by a very  few sports entertainment operations that are always trying to make more money.  There is nothing really special about not having shareholders as other businesses, you have to be a sports league lol.  I hope congress changes the law, but I am sure they will be lobbied not to and have been in the past.   It just makes the PGA tour look privileged in  tax loopholes.     They use the charity line to justify it in public interviews, but you have laid out, its actually a  separate issue.   

 

 

 

 

I am far from an expert….but does the  NFL itself try to make money?  Does the PGA Tour?  Or do the football teams get the revenue-and pay taxes?  Same as golf.  The players get paid and pay taxes.

The commissioners of each league are like the administrators of any large charity.  Well compensated? Yes.  And if a large charity wants to compete for competent help they need to pay.