Nonprofit Law Prof Blog

While I Wait for Women’s Single Sculls Repechages…. Exemption and the Olympics!

So … I never thought I’d see a concert lineup that included the metal band Gojira (complete with bloody severed heads in the background- BOLD!), Lady Gaga doing the can-can, and Celine Dion.   But here we are…. The 2024 Paris Summer Olympics opening ceremony.  And I’m down for it.  All of it.

I am an Olympics nerd. I have already watched Norway v. Sweden in Women’s Team Handball.  I’m disappointed I can’t find the Archery ranking rounds that happened yesterday streaming on Peacock.  I will wake up at 5 am to watch doubles badminton tomorrow.  I’m that person.

So, it seems only appropriate to do a little review of the tax-exempt status of the Olympics for the blog today, because there are no other competitions to watch on opening ceremony day and I’ve already watched all the available Rugby 7s replays (five stars – will watch again.)  So here’s a deep dive (pun intended) into the Olympics.

Section 501(c)(3) and Section 501(j)

If you are reading the Nonprofit Law Prof Blog, you probably already know that Section 501(c)(3) describes organizations that “foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment)…”   If, however, you are a “qualified amateur sports organization” under Section 501(j), you are exempt from the prohibition on providing athletic equipment.

Prior to 1976, the IRS would grant exempt status to athletic organizations if they could show that they were charitable or educational.   But those were pretty narrow buckets.   The amateur sports language was added to Section 501(c)(3) in 1976, but the IRS apparently took the provision of equipment provisions seriously – From a 1987 EO CPE Text: 

For example, an organization which, as part of its coaching program, made videotapes of athletes for the purpose of analyzing their performance could not be granted exemption as an amateur athletic organization under IRC 501(c)(3), since the use of videotape equipment was considered the provision of equipment.

As we all know from watching Cool Runnings, bobsleds are really expensive, so this simply could not stand. Section 501(j) wasn’t added until 1982.  While the definitions of a “qualified amateur sports organization” and the general 501c3 language are close, they aren’t completely co-terminus.  But it is clearly intended to cover Olympic-type organizations.   See e.g., GCM 39459, finding as exempt the organization for USA women’s bowling even though they supplied uniforms and equipment.

Bowling is not an Olympic sport but recognized by the US Olympic Committee and eligible for the Pan Am games, which is enough.  Apparently, bowling was a demonstration sport at the 1988 Seoul Summer Olympics and has lobbied to be added, making the short list for the 2020 Tokyo Summer Olympics but missing the cut to surfing, skateboarding, and sport climbing.  BUT I DIGRESS.

Your organization needs to be organized primarily to cater to serious athletes, so hosting running events open to all levels and not at Olympic distances didn’t get exempt status – it was deemed more recreational in nature. 

US Olympic & Paralympic Committee

So the USOPC is recognized by the International Olympic Committee as the National Olympic Committee for United States.  According to its website, it’s a “federally chartered nonprofit corporation” – you might remember my Veterans’ Day post on the USO, which is the same thing.  It’s a 501c3 and a public charity under 170(b)(1)(a)(vi) - the USOPC’s most recent Form 990 is in fact available on its website. It lists itself as a corporation formed in 1950 with a legal domicile in Washington DC but an HQ in Colorado Springs, Colorado.  A really interesting supplemental note on its Schedule D – wasn’t able to find a lot on this, does anyone have any details???

INSTALLMENTS FOR THE BROADCAST MEDIA RIGHTS, FOR THE OLYMPIC AND WINTER OLYMPIC GAMES, ARE HELD BY USOPC IN TRUST. THESE PAYMENTS ARE RECORDED ON THE STATEMENT OF FINANCIAL POSITION AS ASSETS HELD ON BEHALF OF OTHERS UNTIL THE GAMES OCCUR AND CERTAIN REQUIREMENTS ARE MET, THEN THE CASH WILL BE RELEASED AND THE AMOUNT WILL BE RECORDED AS REVENUE.

As a final note on related entities, there is a US Olympic and Paralympic Foundation, which “generates philanthropic support to empower Team USA athletes to achieve sustained competitive excellence and well-being.”  It appears that the USOPC doesn’t support athletes directly; athlete support comes from the USOP Foundation.  Formed in 2013 out of Colorado, it lists itself as a 170(b)(1)(A)(vi) on its Form 990.  The Foundation reports a management agreement with the USOPC on its Part VI and Schedule R.

National Governing Bodies.

If you look on the lists of grants made by the USPOC, it includes the national governing bodies for the various sports.  The list includes, USA Artistic Swimming,  the United States Curling Association (which is so much fun – try it if you can) and the Unites States Amateur Confederation of Roller Skating (OMG can we have roller derby in the Olympics?  I mean this year, breaking is an Olympic sport, so why not?  It does make me feel bad for bowling…) They are all listed as separate Section 501c3 organizations.

Because I had to, obviously, I did check out the US Amateur Confederation of Roller Skating, which is d/b/a USA Roller Sports (way better) and headquartered in that hotbed of roller sports, Nebraska (why Nebraska?  Any roller skaters out there know?)  Its 990s are also available, although curiously they report that they are a 509(a)(2) public charity.  

Apparently, rink hockey played on skates was a demonstration sport in the Olympic Games in Barcelona in 1992.  They tried for the 2016 Rio Summer Olympics but lost out to rugby 7s (I see why though – super fun) and golf.  BUT I DIGRESS.

International Olympic Committee. 

I would be remiss if I didn’t mention them.  It is an association under Swiss law, but many international organizations get exempt status from the IRS if they are worried about US source income – so I figure I’d check on the IRS’ website.  Et Voila!!!! And here’s its Form 990.  Interestingly, the list themselves as a Section 501(c)(4) organization, formed in 1894.  I immediately wondered if there is a US Friends of the IOC, or something like that, to take US-based charitable contributions (since 170 deductions are limited to domestic gifts… and they are a 501(c)(4) anyway). 

A quick check of the IOC’s website didn’t show anything that looks like a US fundraising arm, so if anyone has an info, let me know.   I’d keep looking, but it’s getting kind of late and I need to get some sleep before doubles badminton qualifying rounds at 5 am.

Frenziedly, eww

Nonprofit Sector Reacts to Proposed Political Activity Rules for Tax-Exempt Organizations

Earlier this week, we blogged about the proposed new political activity rules for tax-exempt organizations proposed by the U.S. Department of the Treasury and the Internal Revenue Service.  The NonProfitTimes is reporting that the proposed rules are drawing sharp criticism from some members of the nonprofit sector.

As an initial matter, we note that the rules specifically target 501(c)(4) organizations and political lobbying and activism.  However, the Times notes that the proposed rules can also apply to 501(c)(3) groups.  For example, under the proposed regulations, activities that will be counted as political activity include voter registration drives, nonpartisan voter guides and events such as debates at which candidates appear.  Section 501(c)(3) groups sometimes organize these activities.

Now,  

Organizations classified as 501(c)(4) social welfare organizations are permitted to undertake political activity, so long as it does not constitute the group’s primary purpose. Nonpartisan activities such as voter registration drives currently are not counted against that threshold. The IRS uses a “facts and circumstances” determination on a case-by-case basis to decide whether a given group’s political activity is its primary purpose.

The facts and circumstances test [is] “all very specific to an organization,” according to Viveca Novak, editorial and communications director at the Center for Responsive Politics in Washington, D.C. “It is subjective and can be ambiguous. What the IRS is trying to do is just have some bright line rules.”

This does not satisfy some members of the nonprofit sector.  The NonProfitTimes reports that some sector members have labeled the proposed rules "an attack on First Amendment free speech rights." 

The report notes opposition from other sources:

Marcus Owens, the former director of the IRS Tax Exemption Division and now a lawyer at the Washington, D.C. firm Caplin and Drysdale, said, the proposed rule “eliminates some of the tax rule ambiguities and replaces them with election law ambiguities. There’s still a lot of uncertainty. There’s just different words describing that uncertainty.”

Owens believes the regulations go too far in restricting activities that, because of their nonpartisan nature, did not count as political acts. “It means that for groups like the League of Women Voters, which publishes voters’ guides, that won’t happen in all likelihood,” he said. “What we’ll be left with is biased guides from political groups. Instead of more objective presentation, the public is going to get bombarded with partisan communications.”

Some groups agree with Owens that the proposed regulations go too far, saying that they infringe on free speech. “These proposed new regulations put the First Amendment rights of Americans at even greater risk,” Jay Sekulow, chief counsel of the American Center for Law and Justice in Washington, D.C. said via a statement. “With this move, the Obama Administration opens a new front in its war against political dissent.”

Owens points out that some of the activities that the regulations call political activity, such as get-out-the-vote drives and issue communications, are permitted for 501(c)(3) charities and foundations, which are restricted entirely from political activity. “The Treasury has created a harsher rule,” he said. “They could have mimicked the standards private foundations have to adhere to but instead went with a shotgun approach that does a disservice to the public.”

Gary Bass, executive director of the Bauman Foundation in Washington, D.C., called the proposal “extremely troubling for those who believe in democratic practices.” He worries about the implications for 501(c)(3) groups: “If nonpartisan voter registration, get-out-the-vote, etc., are political for (c)4’s, how can they not be for (c)3’s?” he asked rhetorically.

Bass, like Owens, is critical of the proposal’s ambiguity. “Once again, nonprofits don’t know what they can do,” he said. “The first principle for a rule should be to encourage democratic practice while stifling abuses. This NPRM (notice of proposed rulemaking) abandons such a principle.”

Further, he said the proposed rules will have a chilling effect on foundation funding for nonpartisan civic engagement like voter registration. “Even if there is a legal pathway, it will scare the hell out of foundation legal counsel—and encourage foundations to stay out of this area of funding.”

Not all sector members are critical.  The Times reports that unlike Owens and Bass,

Other groups are more optimistic about the proposal. “The proposal is good for no other reason than it gets the ball rolling on a critical issue,” said Craig Holman, Ph.D., a government affairs lobbyist with the Washington, D.C. group Public Citizen. “It admirably attempts to offer some clarity in what nonprofit groups can and cannot do and reduces the discretion of the IRS in evaluating activities of nonprofits. Overall, it is a positive step by the Treasury Department.”

Fred Wertheimer, president of Democracy 21 in Washington, D.C., agreed. “Democracy 21 applauds the action taken today by the Treasury Department and the Internal Revenue Service to initiate a rulemaking to address the inadequate rules that have been used by the IRS to determine 501(c)4 tax-exempt status,” said Wertheimer in a statement.

Once the regulations are published in the Federal Register, the public will have at least 60 days to comment.

VEJ

A Charitable Baldwin

I don't mind admitting that I'm more drawn to celebrity gossip than C-Span.  In that spirit, a recent item in the Wall Street Journal reports that actor Alec Baldwin intends to donate his profits from his gig as spokesperson for Capital One to nonprofit arts organizations.  Thus far he has given $1 million to the New York Philharmonic and $500,000 to the Roundabout Theater Company, where he sometimes performs.  In a brief interview with the WSJ, he asks "How can I get my hands on more money [to donate]?  How can I set up a food company like Paul Newman that prints money?  Could I sell hair gel?"

So, it turns out that Alec Baldwin, in addition to being a celebrity, is a budding social entrepreneur.  I'm sure many of us could help advise him on his hair gel venture.

TAK