By dropping tax-exempt status, NFL can avoid disclosing Roger Goodell's salary

The NFL's annual tax return always seemed a little strange.

Among other things, it described the league as "trade association" that is not organized for profit and is exempt from paying income taxes.

It also publicly disclosed how much it paid its commissioner -- $44 million to Roger Goodell in fiscal year 2012.

But not anymore. After more than 70 years as a tax-exempt operation, the NFL said Tuesday that its league office will relinquish its tax-exempt status and file as a taxable entity instead.

"This has gotten to be too public of an issue for them, and it's probably kind of embarrassing," said Bruce Hopkins, author of the book The Law of Tax-Exempt Organizations. "I think it is more smoke than fire, and it shouldn't make any difference to them. They just don't want to the attention given to it."

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Members of Congress have criticized the exemption in recent years, questioning why such a rich sports league shouldn't have to pay taxes, especially as it gave Goodell an eight-figure pay package . The league also combines to rake in around $10 billion in annual revenue.

In response, the league said the controversy was rooted in a basic misunderstanding. The league office was tax-exempt, but its member teams were not. Some might have been under the mistaken impression that the entire league was allowed to avoid taxes.

Tax experts also told USA TODAY Sports that the NFL's decision to give up its tax-exempt status was largely symbolic and not likely to result in significant new tax bills. By giving up its tax-exempt status, the league also no longer will have to disclose what it pays top executives.

"The income generated by football has always been earned by the 32 clubs and taxable there," said a statement issued by Robert McNair, owner of the Houston Texans and chairman of the league's finance committee. "This is the case whether the league office is tax exempt or taxable. The owners have decided to eliminate the distraction associated with misunderstanding of the league office's status, so the league office will in the future file returns as a taxable entity."

Former Sen. Tom Coburn previously proposed removing these exemptions for pro sports leagues. If they were removed, it could generate $109 million in new tax revenue over 10 years, according to an estimate in 2013 by Congress' Joint Committee on Taxation.

NFL spokesman Brian McCarthy previously pointed out to USA TODAY Sports that the league office probably wouldn't see much of a tax difference if it became a taxable entity. A recent NFL tax form showed that almost all of the league office's $327 million in revenue came from team membership dues and assessments.

The league offices of the PGA Tour and NHL have a similar tax-exempt status.

"In reality, if the NFL and NHL league offices were taxable entities, they would be entitled, like any taxable business, to claim offsetting deductions for their expenses, and would be taxed only on their net income," McCarthy said in a 2013 email. "These deductions would result largely in a wash because leagues generally charge their members annual dues in an amount equal to their annual expenses."

Several years ago, Major League Baseball gave up its tax-exempt status and said the move was tax-neutral. In exchange for giving up its tax exemption, MLB also wouldn't be required to disclose what it pays top executives.

Now the NFL won't have to do that, either. And perhaps that's enough to make this all worthwhile for the NFL. Every year, Goodell's compensation made news headlines after it was disclosed on the tax form.

"That was just a huge sore for them every year," said Philip Hackney, an associate law professor at LSU who previously worked as an IRS attorney litigating exempt-organization tax issues. "From public relations standpoint, it was quite clearly problematic for them."

Goodell said in a memo to NFL clubs Tuesday that the "effects of the tax exempt status of the league office have been mischaracterized repeatedly in recent years."

"The fact is that the business of the NFL has never been tax exempt," the memo stated. "Every dollar of income generated through television rights fees, licensing agreements, sponsorships, ticket sales, and other means is earned by the 32 clubs and is taxable there. This will remain the case even when the league office and Management Council file returns as taxable entities, and the change in filing status will make no material difference to our business. As a result, the Committees decided to eliminate this distraction."

The NFL memo said the league office was first granted tax-exempt status by the IRS in 1942. "The IRS has repeatedly confirmed that status over the years," it states.

Follow sports writer Brent Schrotenboer on Twitter @Schrotenboer. Contact: bschrotenb@usatoday.com