Golf season is in full swing in parts of the U.S. — but a U.S. Senator is making golf news this week. Senator Ron Wyden (D-OR), the chair of the Senate’s finance committee, has introduced two bills targeting The PGA Tour and its tax-exempt status.
The bills are called the Sports League Tax-Exempt Status Limitation Act and the Ending Tax Breaks for Massive Sovereign Wealth Funds Act.
Background
Currently, the PGA Tour is tax-exempt under section 501(c)(6) of the Tax Code. The section applies to “Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
Under the Regs, that status can apply to any business league, defined as “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. It is an organization of the same general class as a chamber of commerce or board of trade.”
That puts professional sports leagues in the same company as chambers of commerce (including the U.S. Chamber of Commerce), real estate boards (including the National Association of REALTORS), and other professional organizations (such as the American Library Association–Allied Professional Association, American Medical Association, and the Academy of Motion Picture Arts & Sciences.)
Sports Leagues
Over the years, many professional sports leagues, including the NFL, have enjoyed the benefit of tax-exempt status. The NFL gave up its status in 2015 after years of defending its right to it, following the Major League Baseball (MLB), which gave up its 501(c)(6) tax-exempt status in 2007. The National Basketball Association (NBA) has never been exempt, nor has Major League Soccer (MLS). Some sports leagues still do enjoy tax-exempt status, including the National Hockey League (NHL), the Professional Golfers’ Association (PGA), and the Ladies Professional Golf Association (LPGA).
Sports League Tax-Exempt Status Limitation Act
The Sports League Tax-Exempt Status Limitation Act would exclude sports organizations with assets exceeding $500 million from benefiting under 501(c)(6) of the tax code. The threshold would be a rolling average based on the three prior tax years, as reported on Form 990. The Form 990 series are information returns—while tax-exempt organizations generally do not pay federal income tax, they must still report their income and expenses each year to the IRS. Those forms are typically made available to the public.
Under the bill, an organization that loses its status would be barred from refiling as a 501(c)(6) organization, even if its assets fall below the $500 million threshold in subsequent years.
According to a memo released by the Senate Finance Committee, The PGA Tour “is now by far the largest sports organization with a 501(c)(6) designation,” reporting over $1.1 billion in revenue in 2020, as well as over $3.9 billion in assets.
The Committee notes that The PGA Tour has also announced that they intend to keep their status as a non-profit organization after their widely-publicized merger with Saudi-backed LIV Golf.
The memo goes on to state that “[s]ports organizations receiving hundreds of millions of dollars annually from television rights and membership dues don’t need to be subsidized by American taxpayers.” As it applies to the PGA Tour, the memo says that “no multibillion-dollar organization should be able to partner with a Saudi-Arabian backed competitor to dramatically increase their profit while simultaneously maintaining a tax-exempt status.”
“Most of America’s big pro sports leagues gave up their tax exemptions voluntarily when their revenues climbed into the stratosphere, and they hadn’t even shamed themselves with Saudi blood money,” Wyden said. “An organization that betrays its own word and agrees to become a profit generator for Saudi Arabia’s brutal regime has disqualified itself for a tax exemption.”
You can read the text of the bill here.
The Ending Tax Breaks for Massive Sovereign Wealth Funds Act
The Ending Tax Breaks for Massive Sovereign Wealth Funds Act would eliminate certain tax benefits provided to foreign governments with more than $100 billion in funds available for global investment.
Under current law, some investment income, including dividends and interest made to a foreign person is subject to a 30% withholding tax. That means that tax must be withheld on those payments—taxpayers can file a tax return to recover any excess tax payable at the end of the tax year.
Section 892 of the tax code exempts foreign governments from withholding on certain types of payments. This includes sovereign wealth funds. A sovereign wealth fund is a government-owned investment fund. Notably, LIV Golf—the entity merging with The PGA Tour—is financed by the Saudi Arabia Public Investment Fund, the nation’s sovereign wealth fund.
The proposed bill would make non-exempt foreign governments that have more than $100 billion invested globally subject to withholding tax on payments made from the U.S. An exception would apply to countries that have a free trade agreement or a tax treaty with the U.S. and are not deemed by the State Department a “foreign country of concern.”
Some exceptions would apply, including those countries with a free trade agreement or a tax treaty with the U.S. and those that are not a “country of concern.” According to a Senate Finance memo, Treasury would be required to publish a list of the countries treated as non-exempt foreign governments. The memo says that “[b]ased on public sources, the countries that are expected to be made ineligible for the tax break are Saudi Arabia, Russia, China, Qatar, the United Arab Emirates and Kuwait.”
If the bill passed, it would apply to those payments made after 2023. Certain investments would be grandfathered until 2026, including capital deployed before the date of enactment of the bill, investments in publicly-traded companies (as long as the investment is under 10%), and investments that are made after implementation, if done under a binding written contract with specific investment amounts contractually required.
Beginning in 2026, there would be no further grandfathering.
You can read the text of the bill here.
Wyden said, about the bill, “Many of the biggest sovereign wealth funds out there belong to countries that do not have our interests at heart, and there’s no good reason for hardworking American taxpayers to have to subsidize their huge profits.”
National Security
This isn’t the first time Congress has raised concerns about foreign investments in the U.S., including those funded by sovereign wealth funds. In 2007, President Bush signed the Foreign Investment and National Security Act of 2007, which, among other things, requires CFIUS (Committee on Foreign Investment in the United States) to investigate foreign investments which may be owned or controlled by a foreign government or power. And recently, there has been an uptick in efforts to monitor investments by certain foreign countries and their citizens—including a recent law passed in Florida that would limit ownership of real property in the state.
Previous Actions And Responses
A previous bill to strip the PGA Tour of its tax-exempt status called the “No Corporate Tax Exemption for Professional Sports Act” was introduced in the House by Rep. John Garamendi (D-CA) in June of 2023. There has been no significant movement on that bill.
Also in June of 2023, Wyden opened an investigation into the agreement between the PGA Tour and LIV Golf, including the “deal’s financial structure and implications for censorship and national security, given the PGA Tour’s extensive real estate holdings near U.S. military sites.” You can read his letter to the PGA Tour here.
Reactions from The PGA Tour over the controversy have been muted—at least publicly. However, according to Golf.com, this week PGA Tour commissioner Jay Monahan issued a memo to players offering a series of updates on the Tour’s future.
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