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CROMWELL, CONNECTICUT – JUNE 25: Keegan Bradley celebrates on the 18th inexperienced throughout the ultimate spherical … [+]
Golf season is in full swing in elements of the U.S. — however a U.S. Senator is making golf information this week. Senator Ron Wyden (D-OR), the chair of the Senate’s finance committee, has launched two payments focusing on The PGA Tour and its tax-exempt standing.
The payments are referred to as the Sports activities League Tax-Exempt Standing Limitation Act and the Ending Tax Breaks for Huge Sovereign Wealth Funds Act.
Background
Presently, the PGA Tour is tax-exempt beneath part 501(c)(6) of the Tax Code. The part applies to “Enterprise leagues, chambers of commerce, real-estate boards, boards of commerce, or skilled soccer leagues (whether or not or not administering a pension fund for soccer gamers), not organized for revenue and no a part of the online earnings of which inures to the good thing about any personal shareholder or particular person.”
Underneath the Regs, that standing can apply to any enterprise league, outlined as “an affiliation of individuals having some widespread enterprise curiosity, the aim of which is to advertise such widespread curiosity and to not interact in an everyday enterprise of a form ordinarily carried on for revenue. It is a company of the identical common class as a chamber of commerce or board of commerce.”
That places skilled sports activities leagues in the identical firm as chambers of commerce (together with the U.S. Chamber of Commerce), actual property boards (together with the Nationwide Affiliation of REALTORS), and different skilled organizations (such because the American Library Affiliation–Allied Skilled Affiliation, American Medical Affiliation, and the Academy of Movement Image Arts & Sciences.)
Sports activities Leagues
Over time, {many professional} sports activities leagues, together with the NFL, have loved the good thing about tax-exempt standing. The NFL gave up its standing in 2015 after years of defending its proper to it, following the Main League Baseball (MLB), which gave up its 501(c)(6) tax-exempt standing in 2007. The Nationwide Basketball Affiliation (NBA) has by no means been exempt, nor has Main League Soccer (MLS). Some sports activities leagues nonetheless do get pleasure from tax-exempt standing, together with the Nationwide Hockey League (NHL), the Skilled Golfers’ Affiliation (PGA), and the Girls Skilled Golf Affiliation (LPGA).
Sports activities League Tax-Exempt Standing Limitation Act
The Sports activities League Tax-Exempt Standing Limitation Act would exclude sports activities organizations with belongings exceeding $500 million from benefiting beneath 501(c)(6) of the tax code. The edge could be a rolling common primarily based on the three prior tax years, as reported on Type 990. The Type 990 collection are data returns—whereas tax-exempt organizations typically don’t pay federal revenue tax, they have to nonetheless report their revenue and bills annually to the IRS. These varieties are usually made out there to the general public.
Underneath the invoice, a company that loses its standing could be barred from refiling as a 501(c)(6) group, even when its belongings fall beneath the $500 million threshold in subsequent years.
In response to a memo launched by the Senate Finance Committee, The PGA Tour “is now by far the biggest sports activities group with a 501(c)(6) designation,” reporting over $1.1 billion in income in 2020, in addition to over $3.9 billion in belongings.
The Committee notes that The PGA Tour has additionally introduced that they intend to maintain their standing as a non-profit group after their widely-publicized merger with Saudi-backed LIV Golf.
The memo goes on to state that “[s]ports organizations receiving lots of of thousands and thousands of {dollars} yearly from tv rights and membership dues do not have to be sponsored by American taxpayers.” Because it applies to the PGA Tour, the memo says that “no multibillion-dollar group ought to be capable of associate with a Saudi-Arabian backed competitor to dramatically improve their revenue whereas concurrently sustaining a tax-exempt standing.”
“Most of America’s large professional sports activities leagues gave up their tax exemptions voluntarily when their revenues climbed into the stratosphere, and so they hadn’t even shamed themselves with Saudi blood cash,” Wyden stated. “A corporation that betrays its personal phrase and agrees to change into a revenue generator for Saudi Arabia’s brutal regime has disqualified itself for a tax exemption.”
You’ll be able to learn the textual content of the invoice right here.
The Ending Tax Breaks for Huge Sovereign Wealth Funds Act
The Ending Tax Breaks for Huge Sovereign Wealth Funds Act would get rid of sure tax advantages supplied to international governments with greater than $100 billion in funds out there for world funding.
Underneath present regulation, some funding revenue, together with dividends and curiosity made to a international individual is topic to a 30% withholding tax. That implies that tax have to be withheld on these funds—taxpayers can file a tax return to get well any extra tax payable on the finish of the tax yr.
Part 892 of the tax code exempts international governments from withholding on sure varieties of funds. This consists of sovereign wealth funds. A sovereign wealth fund is a government-owned funding fund. Notably, LIV Golf—the entity merging with The PGA Tour—is financed by the Saudi Arabia Public Funding Fund, the nation’s sovereign wealth fund.
The proposed invoice would make non-exempt international governments which have greater than $100 billion invested globally topic to withholding tax on funds constructed from the U.S. An exception would apply to international locations which have a free commerce settlement or a tax treaty with the U.S. and usually are not deemed by the State Division a “international nation of concern.”
Some exceptions would apply, together with these international locations with a free commerce settlement or a tax treaty with the U.S. and people that aren’t a “nation of concern.” In response to a Senate Finance memo, Treasury could be required to publish an inventory of the international locations handled as non-exempt international governments. The memo says that “[b]ased on public sources, the international locations which might be anticipated to be made ineligible for the tax break are Saudi Arabia, Russia, China, Qatar, the United Arab Emirates and Kuwait.”
If the invoice handed, it might apply to these funds made after 2023. Sure investments could be grandfathered till 2026, together with capital deployed earlier than the date of enactment of the invoice, investments in publicly-traded firms (so long as the funding is beneath 10%), and investments which might be made after implementation, if executed beneath a binding written contract with particular funding quantities contractually required.
Starting in 2026, there could be no additional grandfathering.
You’ll be able to learn the textual content of the invoice right here.
Wyden stated, concerning the invoice, “Most of the greatest sovereign wealth funds on the market belong to international locations that shouldn’t have our pursuits at coronary heart, and there isn’t any good purpose for hardworking American taxpayers to need to subsidize their large income.”
Nationwide Safety
This is not the primary time Congress has raised issues about international investments within the U.S., together with these funded by sovereign wealth funds. In 2007, President Bush signed the International Funding and Nationwide Safety Act of 2007, which, amongst different issues, requires CFIUS (Committee on International Funding in the US) to analyze international investments which can be owned or managed by a international authorities or energy. And just lately, there was an uptick in efforts to watch investments by sure international international locations and their residents—together with a latest regulation handed in Florida that will restrict possession of actual property within the state.
Earlier Actions And Responses
A earlier invoice to strip the PGA Tour of its tax-exempt standing referred to as the “No Company Tax Exemption for Skilled Sports activities Act” was launched within the Home by Rep. John Garamendi (D-CA) in June of 2023. There was no important motion on that invoice.
Additionally in June of 2023, Wyden opened an investigation into the settlement between the PGA Tour and LIV Golf, together with the “deal’s monetary construction and implications for censorship and nationwide safety, given the PGA Tour’s intensive actual property holdings close to U.S. navy websites.” You’ll be able to learn his letter to the PGA Tour right here.
Reactions from The PGA Tour over the controversy have been muted—at the very least publicly. Nonetheless, in response to Golf.com, this week PGA Tour commissioner Jay Monahan issued a memo to gamers providing a collection of updates on the Tour’s future.
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