Tuesday, July 1, 2008
Remember back in 2000 when the IRS issued weak and spineless regulations pertaining to the taxation (or not) of revenues that nonprofits -- primarily colleges and universities -- generate from essentially running travel agencies under the guise of tax exempt educational tours. The commercial travel industry fought tooth and nail to get the new regulation, thinking it would finally put them on an even playing field with those tax free travel agencies run by colleges and universities offered to alumni in hopes of getting even more tax free donations. Those alumni were likely to go on vacations anyway, why not give them a team jersey, a few seminars and collect the cash? The commercial industry had to have been sorely disappointed when the regs were finally issued. Here, in all its glory is the rule (1.513-7):
(a) Travel tour activities that constitute a trade or business, as defined in §1.513-1(b), and that are not substantially related to the purposes for which exemption has been granted to the organization constitute an unrelated trade or business with respect to that organization. Whether travel tour activities conducted by an organization are substantially related to the organization's exempt purpose is determined by looking at all relevant facts and circumstances, including, but not limited to, how a travel tour is developed, promoted and operated. Section 513(c) and §1.513-1(b) also apply to travel tour activity. Application of the rules of section 513(c) and §1.513-1(b) may result in different treatment for individual tours within an organization's travel tour program.
I doubt that there has been a single dollar of tax imposed either before or after the regulation. After all, under those regulations, the nonprofit need only include a few more "mandatory" (wink, wink) educational seminars to make travel to the Great Barrier Reef, for example, distinguishable from taxable Travelocity.com. I remember getting a good chuckle when, as a university counsel, I first read the regulation and the accompanying helpful (to college and universities) examples. Anyway, the WSJ recently ran an article describing the new generation of nonprofit travel tours referred to as "voluntourism:"
Voluntourism -- a trip to an exotic destination combined with charitable work -- is booming. The group Greenforce offers a $2,150 penguin rescue-and-rehabilitation program in South Africa with accommodations and a "meal allowance" during six weeks of catching, feeding and cleaning up after penguins and other seabirds. But there also are mountain-biking and wine tours available for visitors' two days off per week.
Some first-generation voluntourism programs were criticized as being less-than-fun for participants. And organizations such as London watchdog group Tourism Concern question the wisdom of dispatching unskilled volunteers for stints so short they're just disorienting. The group also questions projects where voluntourists displace locals on routine work, "as if local people weren't able to cook things or clean things or teach," says Tricia Barnett, the group's director. As a result, a growing number of charities and tour groups are returning to the idea that tourists should just be tourists. Groups that want to funnel aid to poor communities now are appealing first to visitors' desire for a good experience, ahead of their work ethic and sense of sympathy. The rationale is that more tourists doing less produces more sustainable income and aid for local economies.
If I understand the article correctly, the nonprofit charges the "voluntourist" a nice fee (in this case $2,150) to catch and bathe penguins in between biking and wine tasting. I wonder if voluntourism would be considered an unrelated business and therefore taxable under the previously mentioned joke of a regulation. No classes being offered, just a chance to pay the organization for travel to a place at which to perform "charitable services," perhaps while also taking in the sights and doing what tourists do. We could whip out our handy dandy all purpose tax tool -- bifurcation -- and tax the part of the fee alloted to biking and wine tasting. But the examples to the regulation quoted above don't seem to anticipate use of that tool. I suppose if the "voluntourism" industry includes enough fun community building "work" -- perhaps some salmon or trout fishing to help wean the overpopulated rivers and streams -- in the "voluntour" to Alaska, the hills of North Carolina, or the Austrailian Outback (no salmon, but surely lots of Kangaroos to observe scientifically), that $2,150 fee is just entirely tax free. But I am in a cynical mood these days.