Federal Tax Exemption and Sports Organizations

Almost everyone intersects at some point in their life with a nonprofit organization that provides access to opportunities for children or adults to learn and play sports.  As many folks may be aware due to recent media coverage, even the NFL is a nonprofit organization (a 501(c)(6) organization, which covers organizations like business leagues and chambers of commerce).  How (and whether) these organizations qualify as tax-exempt depends on the specific activities of the organization.

Sports activities are not, by their very nature, charitable activities.  Simply the fact that an organization enables athletic activity does not mean that it is a tax-exempt organization of any type.  For example, professional sports teams are all for-profit enterprises.  However, some organizations that promote a sport or sports may qualify as tax exempt under §501(c)(3) as charitable organizations.  Organizations that qualify in this manner meet the standard because they fall into one of the following categories:

  1. The organization meets the definition of educational because it either teaches sports to youth, or it is affiliated with a tax-exempt school or university.  These types of organizations can provide facilities and equipment without jeopardizing their tax-exempt status.
  2. An organization that provides athletic opportunities for youth may also qualify as charitable because the organization exists for the charitable purpose of combatting juvenile delinquency or lessening the burdens of government.  These types of organizations can also provide facilities and equipment.
  3. The organization is organized and operated to “foster national or international amateur sports competition.”  These types of organizations cannot provide facilities or equipment.
  4. The organization is organized and operated to “foster national or international sports competitions” and meets the definition of a “qualified amateur sports organization.” These types of organizations can provide facilities and equipment.

Whether or not an organization meets the definition of fostering national or international amateur sports competitions depends on the specifics of that organization.  For example, if the organization exists primarily to provide social opportunities to the players, then it may not qualify.  Whether the social activities are primary are not is determined based on the specifics of the organization’s activities.  Similarly, whether the organization promotes national/international competition or more local/regional competition can affect exemption and will be based on the organization’s specific activities.

Organizations that don’t qualify under §501(c)(3) may qualify under other tax sections, including under §501(c)(4) as a social welfare organization, or under §501(c)(7) as a social club.  As mentioned prior in this article, certain types of sport-related nonprofits may even qualify under §501(c)(6) as a business league.  Requirements on how the organization operates will vary, depending on the organization’s specific activities and what type of tax-exempt organization the organization would like to be.

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