BIRMINGHAM, Ala. - The problem of tax-exempt organizations operating for-profit travel and tour services appears to be rearing its ugly head again - and with increasing frequency.
The issue was a major topic of consternation and discussion at the Southeastern Regional Motorcoach Meeting here Aug. 27-29.
Operators complained that churches and other nonprofit organizations were conducting bus and other travel tours that were both unrelated to their nonprofit purposes and were earning profits that were going untaxed.
"It continues to be a big problem, especially in certain regions," said Norman Littler, senior vice president for government and industry relations at the United Motorcoach Association. Littler helped facilitate roundtable discussions and was a featured speaker at the southeastern coach operators' meeting.
The issue of nonprofit, church and educational organizations conducting bus and other types of travel tours has been a thorn in the side of the private motorcoach industry for years.
From time to time coach operators have complained to the Federal Motor Carrier Safety Administration about the "unfair competition" but, as Littler points out, the complaints have been directed to the wrong branch of the federal government.
"If operators see churches and others going out and doing for-profit charter work, they should turn them in to the Internal Revenue Service," says Littler.
Four and one-half years ago, the IRS issued rules that attempted to draw defining lines around the problem of travel tours conducted by nonprofit, religious and educational organizations. The tax agency's work was made difficult by the broad range of tax-exempt organizations.
The final IRS rule that was issue in Feb. 2000, resulted in large measure from more than four years of lobbying by UMA and others that comprised what was called the Travel Coalition for Fair Competition.
While the IRS stopped short of listing specifications that might qualify or disqualify a tour as "educational" in nature, it clearly opened the door to direct challenges to the tax-exempt status of the many travel programs conducted by nonprofit groups.
And that is what Littler urges coach operators to do: challenge them by reporting them to the IRS.
"The IRS will conduct an audit. It will be completely confidential. If they are found to be operating tour activities that are not related to the purposes for which their tax exemption was granted they could lose their tax exempt status, they could be penalized, and they could be required to pay back taxes.
"In short, we remove the incentive for them to do the work," says Littler.
When the IRS was developing its rule, UMA and others urged the agency to include provisions that would prevent tax-exempt organizations from competing unfairly with taxable travel businesses, like motorcoach operators.
However, it was the IRS' position that Congress did not want to force tax-exempt organizations to abandon all commercial ventures, but rather it wanted the IRS to impose taxes on ventures that are not substantially related to an organization's tax-exempt purpose.
Therefore, before an operator complains to the IRS about a church, charitable, social, university or other nonprofit organization conducting travel business, it needs to verify the tour has little or nothing to do with the exempt purpose of the group and is largely as social outing. That may be easier than you think, however.
Accompanying this story are examples from the IRS of travel tours that were priced to produce a profit for the exempt organizations. In several of the examples the travel programs were unrelated businesses and should have been taxed.