House tax writers review tax issues in pro, college sports

Tax Hot Topics

Members of the House Ways and Means Committee on both sides of the aisle recently kicked off a robust discussion about the use of municipal bonds to build or renovate sports facilities or for relocation and the federal tax exemption for interest paid on those bonds. The issue was one of several raised during a June 30 hearing on tax policy and the sports industry, where other topics included the nonprofit status of many sports organizations, the tax treatment of pay to executives and other highly paid employees, and tax complexity and compliance for student-athletes.

In his opening statement, Ways and Means Chair Jason Smith, R-Mo., laid out the impetus for the hearing: “From college athletes to professional leagues, sports organizations benefit from a range of favorable tax treatments, including tax exemptions and taxpayer-funded subsidies that warrant congressional oversight to ensure tax dollars are being used as intended.”

In discussing the use by teams and owners of tax-exempt municipal bonds, Smith pointed to the planned move of the Kansas City Chiefs from Missouri across the border to the Kansas side of the metropolitan region, while Rep. Darin LaHood, R-Ill., cited the possibility of the Chicago Bears’ move from Illinois to Indiana. Both questioned whether local communities share in any of the benefits from professional teams’ use of tax incentives or if the owners were taking advantage of the below-market source of funding to boost teams’ profits at the expense of local taxpayers.

Rep. Brendan Boyle, D-Pa., who shared these concerns about the use of taxpayer-financed subsidies to attract and retain sports teams, said he is considering legislation to address the issue and noted that a federal excise tax could be one approach. 

Highlighting another tax incentive used by some team owners, Smith noted that the original House-passed version of last year’s tax bill included a provision to limit franchise intangible amortization, a deduction these individuals can take against their personal tax liabilities when they purchase a team. While this proposal did not make it into the final version of the One Big Beautiful Bill Act (OBBBA), the chair expressed continued interest in reducing the deduction, which he characterized as a provision that allowed owners to shelter income from unrelated businesses. 

In the wake of Republicans’ changes to the deduction for executive compensation at public companies in last year’s tax bill and ahead of an expansion of the limitation next year, Smith and other members of the committee also raised the idea of further broadening this provision to include privately held sports teams. Tax writers questioned the fairness of the Section 162(m) provision limiting the tax deduction for pay of the most highly compensated employees at professional sports organizations that are publicly traded (a group that includes only three franchises) but not at the majority that are privately held.

Smith indicated that he is working to develop legislation that would “level the playing field” and suggested that one approach would be to apply the limitation to all sports teams. 

Generally, Section 162(m) limits a publicly held corporation’s tax deduction to $1 million per taxable year per covered employee, which currently includes the CEO, CFO and the next three highest-compensated executive officers. The American Rescue Plan Act of 2021 (ARPA) expanded the definition of “covered employee” to add the next five highest-paid employees during the taxable year (the “ARPA five”) for tax years beginning after Dec. 31, 2026. Within sports organizations, this group may include highly paid athletes as well as executives. 

Historically, the Section 162(m) regulations have applied affiliated group rules under Section 1504 when determining the nondeductible amounts of compensation. The One Big Beautiful Bill Act (OBBBA) of 2025 legislated that if a publicly held corporation is a member of a controlled group, the Section 162(m) limit applies to the aggregate compensation deduction for all members of the controlled group. That change is effective for tax years starting after Dec. 31, 2025. (For more on this change, see our July 2025 Tax Insight.)

A further topic of significant discussion by committee members from both parties was the nonprofit status of large college programs, which Rep. Lloyd Smucker, R-Pa., described as “looking more and more like professional teams” and commercial entities. Member after member questioned whether increasingly large and profitable athletic programs serve a public purpose worthy of tax subsidies or are, as Rep. Kevin Hern, R-Ok., put it, “sports programs wrapped in some educational ideas in order to continue their tax-exempt status.”

Separately, Rep. Greg Murphy, R-N.C., questioned whether it might be appropriate to end all tax exemptions for professional sports leagues that have not already opted to give up this status.