[WPRT 107-7]
[From the U.S. Government Publishing Office]
107th Congress
2d Session COMMITTEE PRINT WMCP:
107-7
_______________________________________________________________________
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
__________
WRITTEN COMMENTS
on
H.R. 2237, EXPANDING THE EXEMPTION FROM UNRELATED TRADE OR BUSINESS
INCOME FOR CONDUCTING CERTAIN GAMES OF CHANCE
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
JULY 26, 2002
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHILIP S. ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Alice Mays, Minority Chief Counsel
______
Subcommittee on Oversight
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio WILLIAM J. COYNE, Pennsylvania
JERRY WELLER, Illinois MICHAEL R. McNULTY, New York
KENNY HULSHOF, Missouri JOHN LEWIS, Georgia
SCOTT McINNIS, Colorado KAREN L. THURMAN, Florida
MARK FOLEY, Florida EARL POMEROY, North Dakota
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of Monday, June 24, 2002, announcing request for written
comments on H.R. 2237, expanding the exemption from unrelated
trade or business income for conducting certain games of chance 1
______
Admiral Benson VFW Post 2818, Litchfield, MN, Elmer Schlueter,
letter......................................................... 2
Allied Charities of Minnesota, Inc., Roseville, MN, Eve
Borenstein, joint letter....................................... 3
American Legion Auxiliary Unit 225, Forest Lake, MN, Nancy Immel,
letter......................................................... 8
American Legion Post 314, Winthrop, MN, Lawrence Conklin, letter. 8
Barker, John Wayne, Merrick, Inc., Maplewood, MN, letter......... 11
Boche, Albert D., Jr., Cottage Grove Athletic Association,
Cottage Grove, MN, letter...................................... 10
Borenstein, Eve, Allied Charities of Minnesota, Inc., Roseville,
MN, and Tax Exempt Law Office of Eve Rose Borenstein, LLC,
Minneapolis, MN, joint letter.................................. 3
Brake, Gloria Vande, Vacationland Figure Skating Club, Brainerd,
MN, letter..................................................... 16
Callen, Philip L., TapeMark Charity Pro-Am, West St. Paul, MN,
letter......................................................... 15
Church of the Holy Trinity, Winsted, MN, Elaine M. Kahle, letter. 9
Clearbrook Community Club, Clearbrook, MN, Jim Granley, letter... 9
Conklin, Lawrence, American Legion Post 314, Winthrop, MN, letter 8
Cottage Grove Athletic Association, Cottage Grove, MN, Albert D.
Boche, Jr., letter............................................. 10
Gerten, Frank L., Sibley Hockey Booster Club, West St. Paul, MN,
letter......................................................... 15
Granley, Jim, Clearbrook Community Club, Clearbrook, MN, letter.. 9
Hamel Lions Club, Hamel, MN, Lil Jungels, letter................. 10
Hebert-Kennedy Post 3979 VFW, Cloquet, MN, Louie Hubbell, letter. 10
Hewitt, Donald, Light Brigade, Inc., Roseville, MN, letter....... 11
Hubbell, Louie, Hebert-Kennedy Post 3979 VFW, Cloquet, MN, letter 10
Immel, Nancy, American Legion Auxiliary Unit 225, Forest Lake,
MN, letter..................................................... 8
Jungles, Lil, Hamel Lions Club, Hamel, MN, letter................ 10
Kahle, Elaine M., Church of the Holy Trinity, Winsted, MN, letter 9
Klinkhammer, Dan, Minnesota Youth Athletic Services, Columbia
Heights, MN, letter............................................ 12
Light Brigade, Inc., Roseville, MN, Donald Hewitt, letter........ 11
Lueben, Dick, North Country Snowmobile Club, Bemidji, MN, letter. 15
Magnuson, Mary B., National Association of Fund-Raising Ticket
Manufacturers, St. Paul, MN, letter............................ 12
Merrick, Inc., Maplewood, MN, John Wayne Barker, letter.......... 11
Minneapolis Jaycees Charitable Foundation, Minneapolis, MN,
William C. Steele, letter...................................... 12
Minnesota Youth Athletic Services, Columbia Heights, MN, Dan
Klinkhammer, letter............................................ 12
National Association of Fund-Raising Ticket Manufacturers, St.
Paul, MN, Mary B. Magnuson, letter............................. 13
National Ataxia Foundation, Minneapolis, MN, Michael Parent,
letter......................................................... 14
Nelsen-Horton American Legion Post 104, Litchfield, MN, Everett
Reilly Jr., letter............................................. 14
North Country Snowmobile Club, Bemidji, MN, Dick Lueben, letter.. 15
Otto, Al, Upper Red Lake Area Association, Waskish, MN, letter... 16
Parent, Michael, National Ataxia Foundation, Minneapolis, MN,
letter......................................................... 14
Reilly, Everett, Jr., Nelson-Horton American Legion Post 104,
Litchfield, MN, letter......................................... 14
Schlueter, Elmer, Admiral Benson VFW Post 2818, Litchfield, MN,
letter......................................................... 2
Sibley Hockey Booster Club, West St. Paul, MN, Frank L. Gerten,
letter......................................................... 15
Steele, William C., Minneapolis Jaycees Charitable Foundation,
Minneapolis, MN, letter........................................ 12
TapeMark Charity Pro-Am, West St. Paul, MN, Philip L. Callen,
letter......................................................... 15
Upper Red Lake Area Association, Waskish, MN, Al Otto, letter.... 16
Vacationland Figure Skating Club, Brainerd, MN, Gloria Vande
Brake, letter.................................................. 16
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
Contact: (202) 225-7601
FOR IMMEDIATE RELEASE
June 24, 2002
No. OV-15
Houghton Announces Request for Written
Comments on H.R. 2237, Expanding
the Exemption from Unrelated Trade or
Business Income for Conducting Certain
Games of Chance
Congressman Amo Houghton (R-NY), Chairman, Subcommittee on
Oversight of the Committee on Ways and Means, today announced that the
Subcommittee is requesting written public comments for the record from
all parties interested on H.R. 2237, a bill to amend the Internal
Revenue Code 1986 to provide that the conducting of certain games of
chance shall not be treated as an unrelated trade or business,
sponsored by Representative Jim Ramstad (R-MN).
BACKGROUND:
The Internal Revenue Code requires tax-exempt organizations to pay
tax at corporate rates on income derived from an unrelated trade or
business. In general, an unrelated trade or business is any trade or
business that is not substantially related to the tax-exempt purpose
that is the basis for the exemption from Federal income tax. Activities
in which substantially all of the work is performed by volunteers are
not, however, considered to be unrelated trade or business.
Section 513(f) of the Internal Revenue Code narrows the term
``unrelated trade or business'' by excluding any trade or business that
consists of conducting bingo games.
Section 311(a) of P.L. 98-369 (as amended by P.L. 99-514) further
excludes the conduct of State-regulated ``games of chance'' conducted
by nonprofit organizations pursuant to a State law originally enacted
on April 22, 1977. This provision applies only to nonprofit
organizations regulated by the State of North Dakota.
The Subcommittee is seeking comments on the following questions
related to H.R. 2237:
Would it be appropriate to expand the exemption for
bingo games to include ``games of chance'' conducted by
nonprofit organizations that are regulated by States other than
the State of North Dakota?
How should the term ``games of chance'' be defined in
this context?
Should Congress consider other changes to the
definition of unrelated trade or business contained in section
513 of the Code?
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit written comments for
the record should send it electronically to
[email protected], along with a fax copy to
(202) 225-2610, by close of business Friday, July 26, 2002. Please
Note: Due to the change in House mail policy, the U.S. Capitol Police
will refuse sealed-packaged deliveries to all House Office Buildings.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. Due to the change in House mail policy, all statements and any
accompanying exhibits for printing must be submitted electronically to,
[email protected], along with a fax copy to
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
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3. Any statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
Admiral Benson VFW Post 2818
Litchfield, Minnesota 55355
July 17, 2002
Honorable Amo Houghton
1111 Longworth House Office Bldg.
Washington, DC 20515
Dear Congressman Houghton,
On behalf of the Admiral Benson VFW Post 2818 Litchfield, Minnesota
Membership (487 veterans) I would like you to know that our interest in
H.R. 2237 is great. We believe that action must be taken as quickly as
possible, this year, to prevent the IRS change in policy which would
result in additional taxation of nonprofit organizations involved in
charitable gambling in the future.
Non-profit charitable gambling donations support worthwhile
activities in local communities. This support is vital, to small rural
communities such as ours, and has a positive impact on our community
quality of life.
We feel that it is right and proper for the UBIT exemption for
bingo conducted by non-profit organizations be expanded to include all
other legal ``games of chance'', such as pull-tabs, paddle-wheels,
raffles, tipboards, etc. . . ., conducted by non-profits.
It is difficult for us to understand why the non-profit
organizations in one state, North Dakota, are exempt from UBIT and
licensed non-profit organizations in all other states are not. This
surly can not be considered equal or fair treatment.
We appreciate this opportunity to provide our opinion on this
important legislation and thank you for your support and hard work to
ensure H.R. 2237 is passed into law this year.
Sincerely
Elmer Schlueter
Gambling Manager
Allied Charities of Minnesota, Inc.,
Roseville, Minnesota 55113-2177, and
Tax Exempt Law Office Of Eve Rose Borenstein, LLC
Minneapolis, Minnesota 55409
July 24, 2002
Honorable Amo Houghton, Chairman
Subcommittee on Oversight of the Committee on Ways and Means
Greetings to the Chair and Subcommittee Members! On behalf of
Allied Charities of Minnesota, Inc., a trade association of
organizations licensed to conduct ``lawful gambling'' under Minnesota
Statutes Chapter 349, I am writing to submit comments on H.R. 2237, a
bill to amend the Internal Revenue Code 1986 to provide an expansion of
the types of ``certain games of chance'' (now only `bingo') that will
not be treated as an ``unrelated trade or business''.
Allied Charities of Minnesota, Inc. (see address appended at end of
these comments) is a Minnesota nonprofit corporation formed in 1987
which itself is recognized as tax-exempt under Sec. 501(c)(6) of the
Internal Revenue Code. Allied Charities has 1,050 active Members who
are drawn from Minnesota's 1,500 licensed gambling
operators. With only a handful or less of exceptions, its members (and
the pool of licensed gambling operators operating under Minnesota law)
are tax-exempt organizations under Sec. 501(c). Allied Charities
provides technical assistance, advocacy, and support of its Member
organizations to the end of building a better educated and trained
Membership. The ultimate goal of Allied Charities is to promote
smoother functioning Member organizations, thus making it easier for
them to raise funds through lawful gambling.
A. The Unrelated Business Income Tax Scheme
An unrelated business income tax (commonly called ``UBIT'') was
enacted by Congress in 1950 to level the playingfield between the
taxable (typically, for-profit) and tax-exempt sectors. Under its
scheme tax \1\ is imposed in instances when it is established that a
tax-exempt organization \2\ has ``regularly carried on'' \3\ ``any
trade or businesses the conduct of which is not substantially related .
. . to the exercise or performance by such organization of . . .
purpose or function constituting the basis for its exemption under
section 501''.\4\
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\1\ At corporate income tax rates per 26 U.S.C. (herein referred to
as the ``Internal Revenue Code'', or ``Code'') section 511(a)(1).
\2\ The tax initially only applied to Code section (hereinafter,
``Sec. '') 501(c)(3) charities and governmental colleges or
universities. In 1969 it was expanded to reach all Sec. 501(c)
entities.
\3\ Per Sec. 512(a)(1).
\4\ Per Sec. 513(a).
B. Expansion of UBIT's Reach in 1969 Brought Concomitant `Bingo
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Exception'
When the reach of UBIT was expanded to all 501(c) tax-exempt
entities in 1969, Congress excepted ``certain bingo games'' from
inclusion in Sec. 513(a)'s definition of ``unrelated trade or
business'' via adoption of Code Sec. 513(f). It appears that Congress
did so to avoid burdening the tax-exempt sector and the federal
administrator of tax laws (i.e., the Internal Revenue Service) with the
need to prepare and process, respectively, tens of thousand of UBIT tax
returns that would, as a result of this law change, be required from
tax-exempt entities regularly carrying on bingo events that in the IRS'
eyes were `unrelated'.\5\
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\5\ The Internal Revenue Service has consistently found (and the
Courts have uphold) in most instances that gaming operations are going
to meet the definition of unrelated trades or businesses as they do not
achieve Sec. 513(a)'s standard of being ``substantially related . . .
to the exercise or performance by such organization of . . . purpose or
function constituting the basis for its exemption under section 501''.
To this point note that the IRS consistently has treated as unrelated
trade or business receipts gross revenues received from the following
operational sales of gaming chances sold to:
congregants of religious organizations or churches exempt
under Sec. 501(c)(3) (unrelated as there is apparently no religious
purpose to gambling!); almost all segments of the public other than
served-charitable constituencies by Sec. 501(c)(3) entities in general
[see e.g., Women in the Motion Picture Industry et al v. Comm'r, T.C.
Memo. 1997-518; one of the litigants there was the Sec. 501(c)(3)-
recognized Waldorf School Association of Texas, Inc.]
nonmembers of the sub-sector of organizations whose
exemption is predicated on serving recreational and other needs of
Members (e.g., fraternal organizations exempt under either
Sec. 501(c)(8) or (10)) as well as the sub-sector of veterans
organizations exempt under Sec. 501(c)(4) or (19) [re the former
category, see Julius M. Israel Lodge of B'nai B'rith No. 2113 v.
Comm'r, 78 AFTR2d Par. 96-5482 (Fifth Circuit, 1996), affirming T.C.
Memo. 1995--439.]
community members attending events of the sub-sector
serving social welfare purposes (unless the event itself is part meets
a community need) undertaken by Sec. 501(c)(4) organizations (e.g.,
Jaycees or Kiwanis Clubs) or events of the business league/trade
association/chamber of commerce sub-sector (unless the event itself
accomplishes the purpose of promoting businesses) exempt under
Sec. 501(c)(6) [re the latter category of exempt entities, see Smith-
Dodd Businessman's Ass'n., Inc. v. Comm, 65 T.C. 620 (1975).]
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It is important to note that section 513(f) manifestly operates to
keep the playingfield level between the commercial and exempt sectors
through its continuation of the UBIT scheme's negation of unfair
competition (or unlawful!) opportunities in the exempt sector: Code
section 513(f) is only available for the conduct of bingo games that
are ``not an activity ordinarily carried out on a commercial basis''
and are done so in a way ``which does not violate any State or local
law''.\6\
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\6\ Per Sec. 513(f)(2)(B) and Sec. 513(f)(2)(C), respectively
C. The Growth of ``Unrelated'' Exempt Organization Gaming Operations
Leads to a Half-Decade of Taxpayer Uncertainty re Unrelated Business
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Income Tax Reporting Under IRS' Increased Examination Function
By 1989, many States had enacted non-profit gambling statutes which
permitted not only bingo card sales as permitted gaming but also sales
of chances in non-bingo games (e.g., pull-tabs). Such State legislation
was typically availed as a mechanism to prevent the commercialization
of gaming \7\ while providing a pool of dollars dedicated toward the
support of non-profit/exempt organization services.
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\7\ For example, the goal of ``prevent[ing] commercialization'' of
gambling has been expressly stated since 1984 (the year before pull-
tabs were authorized as a permitted game of chance when conducted by
licensed non-profits) in Minnesota's ``Lawful Gambling'' legislation,
Minnesota Statutes Chapter 349. Therein, section 349.11 (2001) states:
The purpose of sections 349.11 to 349.22 is to regulate lawful gambling
to prevent its commercialization, to insure integrity of operations,
and to provide for the use of net profits only for lawful purposes.
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The IRS, in auditing the revenue streams of tax-exempt
organizations in these States who regularly conducted (within the
meaning of Code Sec. 512(a)(1)) such games, found more questions than
answers, at least initially, in attempting to consistently treat these
games' operations as taxable under the UBIT-scheme.\8\ By the end of
calendar 1990, more than 40 Technical Advice requests had been sent
from the field to the IRS' National Offices asking for guidance as to
both the applicability of UBIT to non-bingo games and, assuming
applicability, how to compute (i.e., what expenses should be allowed as
deductions) taxable income generated by these games' operations. The
vast majority of these requests came out of exempt organization audits
on licensed nonprofit organizations selling non-bingo chances in the
two States, Minnesota and Washington, who were home to the highest
volume of exempt organization/non-profit pull-tab sales in the nation
(by 1989 \2,000 licensed nonprofits in Minnesota garnered
just under one billion dollars of pull-tab sales revenue, a number
which has remained relatively constant since then).
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\8\ See footnote 5 for examples of how the bulk of regularly
carried on exempt organization gaming operations, when conducted with
the public, are characterizable as ``unrelated''.
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The IRS publicly acknowledged its internal confusion re tax
application and taxable income calculation methodologies on May 16,
1990 when it placed these issues under a ``suspense'' (pursuant to a
then-effective Internal Revenue Manual procedure which requires
examination agents to hold taxation issues aside). Resolution of the
issues held in abeyance was expected to come in the form of a Revenue
Ruling. However, formal resolution never came in the form of a Revenue
Ruling; indeed, no Technical Advice was released on these issues
(keeping more than 500 audited taxpayers in ``suspense'') over the
course of the next 4+ years! Finally, in January 1995, then-Assistant
IRS Commissioner for Exempt Organizations/Exempt Plans James McGovern
terminated the suspense through administrative fiat. In a writing
directed to the field, McGovern directed examining agents of gaming
operators to apply non-gaming UBIT principles in determining what
portion of gaming operations (if any) would be held to be
``substantially related'' under Sec. 513(f) and to allow State-law
mandated payments (commonly called in State statutes ``lawful
contributions'') as a dollar-for-dollar offsetting Code section 162
expenses in calculating bottom-line taxable income from these
operations. Although McGovern's writing is technically not precedential
guidance nor certified IRS posture, his now-legendary memorandum
(commonly referred to as the ``McGovern memo'') provides the principles
the exempt organization sector has relied upon since the spring 1995.
D. Current Application of UBIT Principles to UBIT-Tax Reporting and
Assessment Requires Almost All Exempt Organization Sellers of Gaming
Chances to Report Revenues There from as UBIT Receipts
From spring/summer 1995 forward (i.e., after the McGovern memo),
the IRS' Exempt Organization examination agents have applied basic UBIT
principles to testing the quality of relationship an exempt entity's
non-bingo gaming trade/business operations holds to actual
accomplishment (aside from raising money) of the organization's overall
exempt functions and results. Not surprisingly, given that State-
sanctioned nonprofit gaming operations are typically undertaken as a
fundraising methodology that allows gaming chances to be sold to the
public, capturing dollars to go to the authorizing State's enacted
``charitable'' result priorities (and thus normally devoid of
connection to any one organization's specific exempt mission,
particularly when the organization is itself not a charity), it is
almost always the case that such activities are found subject to UBIT-
taxation.\9\
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\9\ There is the potential that a taxpayer's gaming operations will
fit into exceptions from UBIT that are available through the various
statutory bases that allow activities to fall outside of Sec. 513(a)'s
definition of ``unrelated trade or business'' characterization. In
addition to the exception for certain bingo games pursuant to
Sec. 513(f), the three other exceptions are:
Exception No. 1: Operations undertaken substantially all by
volunteers (pursuant to Sec. 513(a)(1)).
Exception No. 2: An ``entertainment or recreational activity of a
kind traditionally conducted at'' certain agricultural or educational
fairs or expositions (and only applied to taxpayers exempt under
Sec. 501(c)(3), Sec. 501(c)(4), or Sec. 501(c)(5)) (pursuant to
Sec. 513(d)).
Exception No. 3: Operations undertaken under North Dakota law after
October 22, 1986 (pursuant to section 311 of the Deficit Reduction Act
1984, as later amended).
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In the list that follows, we have summarized the IRS' consistent
results regarding the outcomes exempt taxpayers on audit (or via other
review of Form 990-T filings) can expect regarding characterization of
all (or some) of their gaming revenues to be subject to UBIT. The list
demonstrates that no appreciable sub-segment of the exempt
organizations universe can regularly conduct gaming operations--in
spite of being expressly allowed by State licensure or similar
authorization--without UBIT consequences.\10\ Here are how the common
sub-sectors of taxpayers exempt under Sec. 501(c) \11\ who conduct
State-authorized non-bingo gaming will have those gaming revenues
mandated to be reported under the UBIT scheme:
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\10\ Unless the entirety of their sales to fully fit into the
bingo/volunteer labor/North Dakota/certain public-agricultural-or-
educational-exposition-activities exceptions enumerated at footnote 9.
Thus it is only pure bingo operations, pure volunteer labor operations,
and North Dakota-site activities that might only need consult a tax
practitioner once to know they need not file a Form 990-T to self-
assess UBIT liability from their gaming operations!
\11\ The list which follows ignores the existence of social clubs
described in Sec. 501(c)(7). These organizations' exempt function
includes providing social or recreational activities for Members and
their guests. However, since all their revenues from non-members are
subjected to unrelated business income tax under the unrelated business
taxable income calculation imposed upon Sec. 501(c)(7) entities
pursuant to Sec. 512(a)(3), it is irrelevant whether the ``substantial
relationship'' standard is met when these organizations conduct gaming
operations.
The charitable community (i.e., Sec. 501(c)(3)
organizations, a class which includes churches). Their non-
bingo gaming revenues will be subject to UBIT in all cases
where the actual conduct of the games cannot be shown to either
be ``instructive/educational'' or ``religious'' (and the
undersigned is not aware of any instance in which they have
been so found!), or part of providing social support to
individuals in a charitable constituency (e.g., gaming at a
service center serving disabled seniors). The volunteer labor
and/or qualified public entertainment exceptions (with respect
to educational expositions) might also apply (i.e., when
conducted within the Sec. 513(a)(1) or Sec. 513(d) exceptions,
respectively.)
Community benefit/social welfare organizations and
local associations of employees (i.e., Sec. 501(c)(4)
organizations such as the Jaycees and the Lions). Their non-
bingo gaming revenues are subject to UBIT except to the extent
that revenues are generated through sales to Members/
constituents if and when recreating or bonding such Members/
constituents is part of the organization's exempt mission (as
it would be, for example, with a veteran's organization holding
Sec. 501(c)(4) status, or with groups providing support to
disadvantaged classes), or when conducted within the
Sec. 513(a)(1) or Sec. 513(d) exceptions noted earlier.
Horticultural organizations (i.e., exempt entities
qualified under Sec. 501(c)(5), such as county agricultural
societies) are subject to UBIT upon their non-bingo gaming
revenues unless conducted within the Sec. 513(a)(1) or
Sec. 513(d) exceptions.
Business leagues, trade associations, chambers of
commerce (i.e., Sec. 501(c)(6) organizations). Their non-bingo
gaming revenues are subject to UBIT (unless conducted within
the Sec. 513(a)(1) volunteer labor exception) to the extent
that such sales cannot be shown to casually be linked to
outcomes improving one or more lines of business.
Fraternal beneficiary societies or domestic fraternal
societies (i.e., Sec. 501(c)(8) or (10) organizations,
respectively), and veterans' organizations (i.e.,
Sec. 501(c)(19) organizations) are subject to UBIT upon their
non-bingo gaming revenues (unless conducted within the
Sec. 513(a)(1) volunteer labor exception) except to the extent
the revenues are generated through sales to Members as part of
providing social or recreational activities for members and
their bona fide guests.
E. Resultant Form 990-T Reporting is Cumbersome, Expensive, and Not
Building Treasury's Coffers
As illustrated above, the reporting of non-bingo gaming revenues by
exempt organizations as unrelated business income receipts is almost
always mandated. Such reporting obligates taxpayers to complete Form
990-T (to the extent gross receipts for the reporting year are greater
than $1,000) and calculate and self-assess unrelated business income
taxes upon that Form. The latter tasks requires appropriate
ascertainment of allowable expenses against such revenue. But here a
quagmire exists, and some background is necessary.
Background Re What Related Expenses Are Deductible
In line with the Tax Court's decision in 1986, South End Italian
Independent Club, Inc. v. Comm'r, 87 T.C. No. 11, the exempt community
has asserted that the pay-out from gaming gross revenues of net
proceeds to charities or other recipients given priority for such
receipts \12\ should constitute deductible expenses. Thus, those pay-
outs, to the extent attributable to gross revenues subject to unrelated
business income tax, would reduce the taxable income calculation in
accord with the deductibility of ``ordinary and necessary business
expenses'' allowed under Code section 162. That seemingly reasonable
posture did not find a friend at the IRS. The agency instead took a
position, which ultimately was rejected by the Tax Court in both South
End Italian Independent Club, Inc. v. Comm'r and Women in the Motion
Picture Industry et al v. Comm'r, T.C. Memo. 1997-518 (1997), that it
was only amounts expended by exempt organizations from their gaming
proceeds to Sec. 501(c)(3) qualified charities and the government for
public purposes that would be deductible, and then that such
deductibility would only be permitted as charitable contributions in
compliance with Code sections 170(c)(1) and (2)! \13\
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\12\ In Minnesota, such contributions must be made either to
certain Sec. 501(c)(3) organizations or to those on a list of approved
non-501(c)(3) recipients. In the latter category are youth sports
programs and programs recognizing veterans' service to our country and
promoting patriotism.
\13\ Those charitable contributions provisions limit the amount of
deductions to which corporations are entitled: to an annual cap of 10%
of pre-contribution taxable income. Thus, corporations making such
contributions must still pay taxes on no less than 90% of their
otherwise-taxable income!
---------------------------------------------------------------------------
It is important to note that the January 1995 ``McGovern memo''
(discussed supra at section C, at page 4) directed IRS' exempt
organization field agents to follow the Court's holding in South End
Italian Independent Club, Inc., thus providing for Code section 162
dollar-for-dollar expensing (rather than section 170(c) limited
``charitable contributions'' deductibility) of State-defined-
``charitable'' disbursements from gaming operations. However, the
litigation leading to the 1997 Women in the Motion Picture Industry
holding demonstrates the fragility of the IRS' administrative position
in two ways that have continued to burden Form 990-T filers:
Lfirst, the government in Women in the Motion Picture
Industry challenged the position that exempt organizations had
asserted under relevant State law (Texas) that their State-law-
defined-charitable-payouts were in fact mandatory (the State
statute set a pay-out threshold annually at 35% and the IRS
argued that amounts paid-out above those thresholds were thus
voluntary and not Sec. 162 deductible--the Court disagreed)
Lsecond, the government in Women in the Motion Picture
Industry convinced the Court that Sec. 501(c)(3) charitable
gaming operators, permitted under relevant State law to make
charitable-payouts to their own non-gaming accounts (instead of
to third parties), could not take Sec. 162 deductions for such
payouts without establishing that they had during the same year
actually expended such amounts completely outside of the
organization's coffers. The practical result of that seemingly
logical holding is that Sec. 501(c)(3) gaming operators are now
singularly disadvantaged in computing their Form 990-T tax
calculations: for every dollar from gaming they would spend on
their own programming (versus a non-Sec. 501(c)(3) gaming
operator who might make a payment to a Sec. 501(c)(3)-qualified
charity), they must demonstrate did not go to a depreciable
asset or to reserves carried over to the following years. Such
demonstration is imprecise at best under current accounting
standards for non-profits, and the evaluation of documentation
to such ends is certainly outside the realm of most IRS field
examiners' experience who bring their own subjective standards
to bear!
Difficult Allocations Are Almost Always Required
Even ignoring the questions concerning to what extent charitable-
payouts are deductible (and the concomitant Sec. 501(c)(3) question of
how to establish a current year payout exists!), a myriad of
allocations are required to properly complete Form 990-T. The Internal
Revenue Service's 1996 internal manual added over a dozen pages to
illustrate how agents might calculate Form 990-T results for exempt
organization gaming operations. Exhibit (22)00-1 from IRM 7(10)69,
pages 197-201 (Illustration of Expense Allocations Where Organization
Has Taxable Gambling Income, issued 10-25-96) directs agents in
ascertaining ``reasonable'' allocation for direct and indirect expenses
when allocations are required. Such allocations are almost always the
norm, being generated when either an organization has bingo sales
(excepted from 990-T reporting) and non-bingo sales, or in addition to
that circumstance, is incurring staff and facilities costs covering
both exempt functions and UBIT-taxable gaming functions (e.g., when a
bookkeeper prepares financial statements covering the organization's
entire operations, including gaming). The ``science'' here is non-
existence, and ripe for dispute on audit. . . .
LAppropriate Tax Planning and Reporting Currently and Historically
Negates Bottom-line Tax Liability
With the years of scrutiny practitioners have had in evaluating the
IRS' progress on these issues, the ``state of the art'' in properly
having gaming operators self-report and self-assess UBIT from the
portion of their gaming revenue streams that definitionally fail the
``substantially related'' standard of Sec. 513(a) and lack
circumstances fitting within any of the statutory exceptions is as
follows:
1. LStart the fastest statute of limitations each year by
timely filing and reporting revenues from gaming operations on
a Form 990-T.
2a. LHire a knowledgeable tax practitioner to support the
organization's determination of required allocations to
segregate only the appropriate portion of deductions against
UBIT-taxable revenue streams.
2b. LMake by year-end so-called `lawful purpose'/`charitable
expenditures' pay-outs (i.e., those in accord with State law
from otherwise net gaming proceeds) in an amount sufficient to
``wash'' down to zero (after all other activity expenses are
taken) the organization's net taxable income in accord with the
two Tax Court holdings allowing such expenditures to be taken
as Sec. 162 deductions: South End Italian Independent Club,
Inc. v. Comm'r, 87 T.C. No. 11 (1986) and Women in the Motion
Picture Industry et al v. Comm'r, T.C. Memo. 1997-518 (1997).
3. LPay $-0--in UBIT tax and hope that neither of the above-
cited cases are ever disputed by the IRS.
F. Expansion of Current Code section 513(f) to Embrace Other Games of
Chance Beyond Bingo is Appropriate Public Policy
As drafted, H.R. 2237 will expand the existing coverage of Code
section 513(f)(1) which now only covers ``bingo games'' (a term defined
in three parts--section 513(f)(2)(A) specifically denotes what is meant
by ``bingo'' (and the Regulations thereunder expand same); thereafter,
sections 513(f)(2)(B) and 513(f)(2)(C) add on further
``qualifications'', which are discussed below) to include--in addition
to such games--``qualified games of chance''. The definition of that
latter phrase, as proposed in H.R. 2237, would be situated under new
sub-section 513(f)(3), which does no more than narrowly continue the
existing ``qualifications'' that bingo games must meet (i.e., bingo
games must meet the two qualifications that the conducting of them be
an activity ordinarily carried out on a commercial basis AND not
violate any State or local law.)
The two proposed ``qualification'' provisions (i.e., now-proposed
sections 513(f)(3)(A) and 513(f)(3)(B)) for additional modes of games
beyond bingo is designed to ensure that the expansion of 513(f) does no
more than allow the other forms of gaming that the States have solely
reserved to nonprofit/exempt organization fundraising to be afforded
the same exception from UBIT that bingo now enjoys. Proposed
513(f)(3)(C) is identical to the qualification bingo games now must
meet (i.e., requiring that the games' conduct not violate any State or
local law). But proposed section 513(f)(3)(B) goes the existing bingo
qualification requirement one better--it moves beyond 513(f)(2)(B)'s
requirement that the game not [be] an activity ordinarily carried out
on a commercial basis to instead set a standard that effectively only
allows the exception to games when it is ``ONLY organizations which are
. . . nonprofit corporations or are exempt from tax under section
501(a) [that] may be licensed to conduct such game within the State''
(emphases added). This narrowing of the requirement for additional
modes of games of chance will effectively embrace UBIT exception to
exempt organizations who conduct sales of pull-tabs, paddlewheel and
tipboard chances, video gaming, and the like, under licensure through
jurisdictions that only allow nonprofit and/or exempt organizations to
so conduct such activities.
And finally, given the huge burden the Form 990-T self-reporting,
self-assessment requirement has imposed upon those in the exempt sector
who conduct non-bingo games of chance under appropriate State statutes,
adoption of the now-proposed amendments to 513(f) would keep the tax
laws simpler, more understandable, and allow easier administration. It
would also end the ``pork barrel'' dichotomy that (since 1986) has
benefited organizations in North Dakota while leaving taxpayers
conducting activities in the other 49 States wondering how to get their
own ``off-Code'' exception!
For all the reasons alluded to in the preceding portions of this
missive that explicate the reality of UBIT-taxation on non-bingo gaming
activities, we respectfully urge the Subcommittee to favorably
recommend H.R. 2237 as a lean, well-defined correction to the Code's
current UBIT foibles.
If we can provide you with any additional information or assistance
in this matter, please call the undersigned, Eve Borenstein, at
612.822.2677. Thank you for consideration of these comments.
Respectfully submitted,
Eve Borenstein
Tax Counsel, Allied Charities of Minnesota, Inc.
American Legion Auxiliary Unit 225
Forest Lake, Minnesota 55025
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20513
Dear Congressman Houghton,I am a Member of the American Legion
Auxiliary in Forest Lake Minnesota and its gambling manager. Our
organization is very active in the community supporting the schools,
needy children and veterans programs, among other things. We use the
income from our gambling sites, including bingo, to support these
programs.
I understand you are working with HR 2237. I would like you to
know, on behalf of the more than 250 Auxiliary Members and the 650
Legion Members that passage of HR 2237 is very important to us. We urge
you to do everything in your power to assure passage of this law.
We need action now to ensure that the IRS doesn't change its policy
and begin taxing licensed nonprofit organizations involved in
charitable gambling now or in the future.
We strongly believe that the UBIT exemption for Bingo be expanded
to include other forms of gambling such as pull-tabs, raffles and the
like.
We believe it is unfair that non-profits in North Dakota are
exempted from UBIT while the rest of the non-profits in other states
are not exempt.
Thank you for lending us your ear in this matter. Please advise of
any way our group might assist in the passage of this law. We would be
happy to contact other representatives if you feel that would be
helpful.
Sincerely,
Nancy Immel
American Legion Post 314
Winthrop, Minnesota 55396
July 26, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Congressman Houghton
We encourage you to help in the passing of H.R. 2237, as it is
important to the American Legion organization. The American legion
Membership consists of many wartime Members totaling 2.8 million people
nationwide.
The American Legion supports Children and Youth programs, Legion
baseball, Boy Scouts of America, Girl Scouts, needy families in local
communities, and also gives out Scholarships to young graduates to help
them in their education. The list could go on and on in ways the Legion
helps others people.
It is important that the IRS NOT tax non-profit organizations, such
as the American Legion, which are involved in charitable gambling so we
may continue to support these organizations in the future.
The American Legion would appreciate your support of H.R. 2237 and
your work to ensure that this important legislation is passed and
becomes law in 2002.
Thank you for the opportunity to provide written comments
concerning this important issue.
Sincerely
Lawrence Conklin
Member
Church of the Holy Trinity
Winsted, Minnesota 55395
July 22, 2002
Honorable Amo Houghton
Longworth House Office Building
Washington DC 20515
Dear Congressman Houghton,
I am the gambling manager for a small community in Winsted, MN, and
I have just found out about H.R. 2237. I'm writing today to ask you to
please help this bill become law. We have about 1000 Members at Holy
Trinity Parish, and we work very hard to keep out K-12 Catholic school
going. One of our means of raising funds is through charitable
gambling. As you know, we pay a lot of tax on this charitable gambling,
and that's why it is so important to us the H.R. 2237 is passed. We
need your help to make sure the IRS doesn't change its policy and begin
taxing licensed nonprofit organizations that are involved in charitable
gambling.
I agree that bingo should be exempt from UBIT tax, but I also think
that the exemption should carryover to other forms of charitable
gambling such as pulltabs, raffles and paddlewheels is conducted by
licensed, nonprofit organizations such as ours.
I think it is unfair that nonprofit organizations that are involved
in charitable gambling in North Dakota, for example, are exempted from
UBIT tax, but our organization in Minnesota has to pay it. Why can't
all charitable organizations in all states by exempt? I think it is
discriminatory.
I respectfully request that you support H.R.2237 and do whatever
you can to ensure that this important bill be passed into law in 2002.
Thank you for your time.
Sincerely,
Elaine M. Kahle
Gambling Manager
Clearbrook Community Club
Clearbrook, Minnesota 56634-0217
August 6, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton,
The Membership of the Clearbrook Community Club is happy to hear
that leglistlation may soon be enacted that will exempt all forms of
charitable gambling in Minnesota from federal UBIT taxation. This
exemption would put Minnesota on equal footing with our neighboring
state of North Dakota.
Enforcement of the existing UBIT regulations would cost our club
(and Community) about $20,000.00, 1/3 of our annual donations back into
the Community.
Thank you for your support and efforts related to passing H.R. 2237
in 2002.
Sincerely,
Jim Granley
Gambling Manager
Cottage Grove Athletic Association
Cottage Grove, Minnesota 55016
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC
Dear Congressman Houghton
I need to let you know the H.R. 2237 is important to me and my
organization the Cottage Grove Athletic Association. Our organization
supplies youth athletics opportunities to over 6,000 youth in our
community. We need action now this year to ensure that the IRS doesn't
change its policy and start taxing licensed non--profit organizations
involved in charitable gambling in the future. My organization and I
strongly support HR 2237.
I feel it is definitely appropriate that UBIT exemption for bingo
conducted by licensed non-profit should be expanded to include other
``games of chance'' such as pull-tabs, paddlewheels, raffles, tip
boards, and so forth. It is very UNFAIR that non-profit involved in
charitable in one state, North Dakota, are exempt from UBIT, and that
licensed non-profits in all other states doing similar activities are
not.
I would appreciate your support of HR2237 and working to ensure
that this important legislation be passed into law in 2002. I would
like to thank you for the opportunity to provide written comments.
Sincerely
Albert D. Boche, Jr.
Hamel Lions Club
Hamel, Minnesota 55340
July 18, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton,
I am writing to let you know that passing the H.R. 2237 bill is
very important to the charitable gambling operation of the Hamel Lions
Club of Hamel, Minnesota. This would allow the conducting of our pull-
tab operation to be treated as an unrelated trade or business, and
include pull-tabs as a ``game of chance''.
Our organization is able to do many great things in contributions
to our community: developing parks, assisting handicapped and disabled,
fire department equipment, children's programs, deaf, blind and
diabetic programs, and aid to the poor to name only a few. Paying UBIT
of 15-34% greatly effect the amount of money the Hamel Lions Club is
able to contribute back to the community. Our growing organization has
52 Members who all work very hard for our community's programs.
Our club feels it is very appropriate that UBIT exemption for bingo
conducted by licensed non-profits should be expanded to include other
``games of chance'' such as pull-tabs, paddlewheels, raffles, tip-
boards, and so forth. We also feel it is very unfair that non-profit
organizations involved in charitable gambling in one state (ND), are
exempted from UBIT, and that licensed non-profits in all other states
doing similar activities are not.
We would greatly appreciate your support of H.R. 2237 and working
to ensure that this important legislation be passed into law in 2002.
Thank you for the opportunity to provide our written comments on
this matter, it just takes more away from what we try to give back to
our communities.
Sincerely,
Lil Jungels
President
Hebert-Kennedy Post 3979 VFW
Cloquet, Minnesota 55720
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, D.C. 20515
Dear Congressman Houghton:
We would like you to know that H.R.2237 is important to Hebert-
Kennedy Post 3979 VFW in Cloquet, Minnesota with over 500 Members. We
need action this year of 2002 so that the IRS does not change it s
policy and start taxing licensed nonprofit organizations involved in
charitable gambling in the future.
It is appropriate that UBIT exemptions for bingo conducted by
licensed non profits should be expanded to include'' games of chance''
such as pull tabs, paddlewheels, raffles, tipboards, and so forth.
It is unfair that non profits involved in charitable gambling in
North Dakota are exempted from UBIT and that licensed non-profits in
all other states doing similar activities are not.
We certainly appreciate your efforts on behalf of H.R. 2237 to
insure that this piece of important legislation by passed into law in
2002.
Thank you for the chance to provide written comments. We appreciate
what you are doing.
Sincerely,
Louie Hubbell
Commander
Light Brigade, Inc.
Roseville, Minnesota 55113
July 22, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton,
Thank you for supporting and advancing H.R. 2237, a bill to amend
the Internal Revenue Code 1986 to provide that the conducting of
certain games of chance shall not be treated as an unrelated trade or
business, sponsored by Representative Jim Ramstad (R-MN).
The Light Brigade, Inc is a Minnesota regulated non-profit charity
that has raised over $2.8 Million in the past 12 years to support our
local school district (Mounds View School District 621) and the
surrounding area (Roseville, Arden Hills, Mounds View & New Brighton).
Our organization touches over 12,000 families by supporting education
programs, athletics and youth programs in our area.
We need action as soon as possible to ensure the IRS doesn't change
its policy and start taxing licensed nonprofit organizations involved
in charitable gambling in the future. It is definitely appropriate that
UBIT exemption for bingo conducted by licensed non-profits should be
expanded to include other ``games of chance'' such as pull-tabs,
paddlewheels, raffles, tipboards, and so forth.
We sincerely appreciate your support of H.R. 2237 and our local
school families and city citizens will thank you for preserving a great
community self-help program, the Light Brigade, Inc.
Respectfully
Donald Hewitt
Vice President and Gambling Manager
Merrick, Inc.
Maplewood, Minnesota 55109
15 July 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton:
On behalf of Merrick, Inc., I am submitting written comments for
the record on H.R. 2237.
Merrick, Inc., is a private, non-profit 501(c)(3) charitable
corporation licensed by the Minnesota Department of Human Services as a
Day Training & Habilitation (DT&H) provider. Established in 1964, we
began by serving 15 young adults who lived at home and needed services
beyond what the public schools were capable of providing. From this we
have expanded our service to nearly 300 people, employing 110
professional staff, maintaining a fleet of 45 vehicles, and developing
job sites with over 60 businesses in the Minneapolis and St. Paul area.
Most of the clients at Merrick have a primary diagnosis of mental
retardation (approximately 48%, 25%, 19%, and 8% in the mild, moderate,
severe, and profound range of retardation respectively) and range from
21 to 72 years of age with approximately 60% men and 40% women in the
program. A number of the clients are non-ambulatory, hearing impaired/
deaf, sight impaired/blind, do not communicate verbally, or have
special dietary concerns (i.e. G-Tubes, dietary restrictions, modified
diets, and so forth.). In addition, many clients have secondary
diagnoses that include autism, cerebral palsy, seizure disorders, and
other related conditions.
We currently operate three (3) charitable gambling sites that offer
games of chance that include pull-tabs, paddlewheels, raffles, and tip
boards. The proceeds from our charitable gambling operations are used
to fund client services such as self-advocacy groups, supplemental
transportation, communication programs, volunteer activities, unpaid
service days, and multiple social events. Any loss in these proceeds
directly effect client services. That is why we strongly support H.R.
2237 and respectfully request your leadership in passing this important
legislation.
Thank you for the opportunity to provide written comments.
Sincerely,
John Wayne Barker
Chief Executive Officer
Minneapolis Jaycees Charitable Foundation
Minneapolis, Minnesota 55404
July 15, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton:
I would like to let you know our organizations strong support for
H.R. 2237. The Minneapolis Jaycees Charitable Foundation represents
over 4,750 current and past Members of the Minneapolis Junior Chamber
by providing funding for community development programs that directly
impact inner city youth.
We believe the potential exists for the IRS to change its current
policy and begin to tax state licensed non-profit organizations
involved in lawful, charitable, gambling without the just protection
afforded by H.R. 2237. We also believe strongly that local civic and
charitable organizations are best suited and prepared to swiftly and
efficiently address needs within their own communities, for which these
funds are earned.
While Bingo and North Dakota non-profit groups have received
special exemption from Unrelated Business Income Tax (UBIT), it is time
to apply ``equal protection'' to all non-profits engaged in this
activity that helps our communities so much.
We thank you sincerely for the opportunity to provide written
comments on this vital issue. We would also ask for your personal
support of H.R. 2237 as this process unfolds.
Respectfully yours,
William C. Steele
Executive Director
Minnesota Youth Athletic Services
Columbia Heights, Minnesota 55421
Dear Chairman Houghton and Committee,
I am writing you today to urge the passage of H.R. 2237. Our
organization, the Minnesota Youth Athletic Services, is a 501c3 not-
for-profit organization that has supplemented our revenues via
charitable gaming since 1996. Last year, over 10% of our income was
derived from charitable gaming.
I have always been convinced that this income derived from
charitable gaming should be viewed as related business income, for the
following reason:
* * * LMonies derived from charitable gaming are used to help
pay referees, umpires, awards, program advertisements and
facility rent. Aren't all of those expenditures business
related to a youth sports organization? As I see it, the MYAS
is paying it's staff to produce youth sport camps, clinics,
leagues, tournaments, educational sessions and special events
that generate dollars for all of our overhead expenses. We are
not concerned with making a profit, but we are concerned about
``breaking even.'' In order for us to break even and to keep
our service fees at a reasonable rate, we need those funds from
charitable gaming. Please note that I said that we needed those
funds, I didn't say that we wanted those funds. And if those
funds are vital to sustain this organization, I fail to see how
they could be labeled as ``unrelated.''
Being a fiscal conservative myself, I would be the first person to
jump up and require truly unrelated business income to be taxed as
such, but if the money derived from charitable gaming is utilized to
promote and conduct the organizations primary purpose, I can't
understand why this money should be treated as UBIT. Those dollars are
necessary for us to survive and grow. Our charitable gaming income is
every bit as essential to our organization as the entry fees that we
collect.
Should you need any further comments, please feel free to contact
me at 763-781-2220 extension #14.
Thank You
Dan Klinkhammer
Executive Director
National Association of Fund-Raising Ticket Manufacturers
St. Paul, Minnesota 55104
July 25, 2002
Hon. Amo Houghton
Member of Congress
1111 Longworth House Office Building
Washington D.C. 20515
Dear Congressman Houghton and Members of the Subcommittee:
I am writing on behalf of the National Association of Fund-Raising
Ticket Manufacturers (NAFTM) in support of H.R. 2237. NAFTM is a non-
profit trade association comprised of companies that manufacture bingo
and ``games of chance'' products for use by licensed non-profit
organizations for charitable fund-raising. The thousands of non-profit
organizations in this country engaged in charitable gaming generate
more than $700 million dollars per year for charity, social service
organizations, veterans' assistance programs, conservation efforts,
community service projects, disaster relief, and a myriad of other
worthwhile purposes. We support these efforts and encourage the
subcommittee to support these efforts by passing H.R. 2237.
NAFTM strongly supports expansion of the unrelated business income
tax (UBIT) exemption for bingo games to include ``games of chance''
conducted by nonprofit organizations that are regulated by States other
than the State of North Dakota. Imposing unrelated business income tax
on the activities of a nonprofit organization whose sole purpose for
conducting ``games of chance'' is to generate funds for lawfully
approved purposes serves only to lessen the amount available for those
lawful purposes. With a sluggish economy and growing state and Federal
government budget deficits, non-profit organizations are more dependent
than ever on the revenue generated from non-government sources.
Charitable gaming is one of those sources. Eliminating the unrelated
business income tax on ``games of chance'' will have a minimal effect
on Federal tax collections, but a profound effect on those individuals
and groups that are the beneficiaries of charitable gaming proceeds.
Charitable gaming does not only generate money for charitable and
other lawful purposes. Another contribution that is unseen, but present
in the conduct of charitable gaming, is the commitment of hundreds of
thousands of veterans, wildlife enthusiasts, parent-teacher Members and
common citizens who volunteer to conduct charitable gaming activities
for the sole purpose helping their fellow Americans. The unseen
contribution of these generous people should not be ignored, but
rewarded by ensuring that all of the proceeds from their efforts are
available to fund lawful and charitable purposes.
NAFTM supports a definition of the term ``games of chance'' is that
encompasses bingo and the various other games permitted by state law
for non-profit fundraising purposes. The history of charitable gaming
is that it is based on tradition, local preference, and successful
revenue generation that is unique to each State. To attempt to create
another definition would have the potential of creating confusion and
discontent among the organizations whose successful work should be
supported.
Finally, NAFTM has no position on the issue of other changes to the
definition of unrelated trade or business in section 513 of the Code,
except that to the extent that these other issues cloud or delay
consideration of H.R 2237. It is our sincere hope that the Subcommittee
focuses on H.R. 2237 and takes supportive action as soon as possible.
Thank you for your consideration. If you have any questions, please
feel free to contact me.
Respectfully,
Mary B. Magnuson
National Ataxia Foundation
Minneapolis, Minnesota 55447-4752
July 18, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton,
I am pleased to learn that the Subcommittee on Oversight of the
Committee on Ways and Means is requesting written public comment
regarding H.R. 2237. This letter is a strong endorsement of H.R. 2237.
The National Ataxia Foundation is a Membership supported nonprofit
organization established in 1957 to help families suffering from
ataxia. Ataxia is an often fatal degenerative neurological disorder
which affects an estimated 150,000 Americans. The Foundation's main
purpose is to help these families through research, education, and
patient services.
In order for the Foundation to support these important programs
requires support from various sources, including charitable gambling.
The Foundation does not receive any government funding.
H.R. 2237 would exempt nonprofit organizations in paying unrelated
business income tax (UBIT) on profits gained from charitable gambling.
Those funds derived from charitable gambling significantly help the
Foundation to support meaningful programs for ataxia families across
the country. Currently only bingo is exempt from this tax. H.R. 2237
would exempt various games of chance including pull tabs, raffles,
tipboards, and paddlewheels.
It is not fair that under current law only one state in the union,
North Dakota, is exempt from UBIT for all forms of charitable gambling.
H.R. 2237 would correct this discrepancy.
Thank you for your support of H.R. 2237 and in helping to ensure
that this important legislation is passed into law this year.
My best regards,
Michael Parent
Director of Development
Nelsen-Horton American Legion Post 104
Litchfield, Minnesota 55355
July 17, 2002
Honorable Amo Houghton
1111 Longworth House Office Bldg.
Washington, DC 20515
Dear Congressman Houghton,
On behalf of the Nelsen-Horton American legion Post 104 located in
Litchfield, Minnesota with a Membership of (372 veterans) I would like
you to know that our interest in H.R.2237 is great. We believe that
action must be taken as quickly as possible, this year, to prevent the
IRS change in policy that would result in additional taxation of
nonprofit organizations involved in charitable gambling in the future.
Non-profit charitable gambling donations support worthwhile
activities in local communities. This support is vital, to small rural
communities such as ours, and has a positive impact on our community
quality of life.
We feel that it is right and proper for the UBIT exemption for
bingo conducted by non-profit organizations be expanded to include all
other legal ``games of chance'', such as pull-tabs, paddle-wheels,
raffles, tipboards, ect. . . ., conducted by non-profits.
It is difficult for us to understand why the non-profit
organizations in one state, North Dakota, are exempt from UBIT and
licensed non-profit organizations in all other states are not. This can
not be considered equal or fair.
We appreciate this opportunity to provide our opinion on this
important legislation and thank you for your support and hard work to
ensure H.R. 2237 is passed into law this year.
Sincerely
Everett Reilly Jr.
Commander
TO: Congressman Amo Houghton Chairman, Subcommittee on Oversight
FROM: Dick Lueben
Treasurer, North Country Snowmobile Club
P.O. Box 251
Bemidji, Minnesota 56619
218-751-9194
SUBJECT: LHR 2237 Concerning non-profit groups and Unrelated Business
Income Tax
Dear Congressman:
Our non-profit organization is registered with the state and is
licensed to sponsor legal gambling. Our operations net about
$150,000.00 annually after paying out prizes, the costs of conducting
the gambling and existing state and Federal taxes.
We use the profits of our gambling operations to help provide
approximately 500 miles of snowmobile trails in northern Minnesota
which are open for public use and are marked as public trails. In
addition to supporting public trails, we donate about $30,000.00
annually to the worthwhile needs of other local organizations. All
these processes are strictly controlled by the state's Gambling Control
Board.
Our state permits legal gambling to provide funds, which are raised
and spent locally on activities which local citizens think, are
deserving of support. Our efforts to take care of our local needs are
in danger of increasingly being siphoned off by state and Federal
governments, which have many other sources for the funds they need.
We ask your Subcommittee to protect us from potential changes in
IRS policy, which would cause groups such as ours to be subjected to
the Unrelated Business Income Tax. HR 2237 helps to accomplish this
goal.
Thank you,
Dick Lueben
Sibley Hockey Booster Club
West St. Paul, Minnesota 55118
Honorable Amo Houghton
1111 Longworth House Office Bldg.
Washington, DC 20515
Dear Congressman Houghton,
On behalf of the Sibley Hockey Booster Club I wanted you to know
that we are strongly in favor of the passage of H.R. 2237. We are an
organization of 100 members whose sole purpose is to support youth
hockey. It's very important to our continued existence that the IRS
doesn't change its policy and start taxing our nonprofit charitable
gambling proceeds.
It is definitely appropriate that UBIT exemption for bingo
conducted by licensed non-profits should be expanded to include other
``games of chance'' such as pull-tabs, paddlewheels, raffles,
tipboards, and so forth.
It is very UNFAIR that non-profits involved in charitable gambling
in 1 state, North Dakota, are exempted from UBIT, and that licensed
non-profits in all other states doing similar activities are not.
On behalf of all our clubs Members we would appreciate your support
of H.R. 2237 and working to ensure that this important legislation be
passed into law in 2002. Thank you for the opportunity to express our
concern.
Sincerely,
Frank L. Gerten
Gambling Manager
TapeMark Charity Pro-Am
West St. Paul, Minnesota 55118
July 15, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton:
I am writing to express my very strong support for H.R. 2237. As
President of the TapeMark Charity Pro-Am Golf Tournament, I represent 3
non-profit agencies serving over 50, 000 children and adults with
developmental and learning disabilities in Minnesota. These agencies
rely on funds generated through our charity golf tournament and
charitable gambling activities (bingo and pulltabs) to support their
constituencies in the areas of education, housing, employment, and
health care.
We believe it appropriate that the UBIT exemption for bingo
conducted by licensed non-profit organizations should be expanded to
include other ``games of chance'', such as pulltabs, raffles, and so
forth. We also believe that the law should treat licensed non-profit
organizations in all 50 states equitably; the current law exempting
North Dakota organizations from UBIT should be altered to include
organizations in all states doing similar activities.
Without H.R. 2237, we face significant cuts in the funds we are
able to distribute to our benefiting charitable organizations. In 2001,
our charitable donations totaled more than $312,000 for people with
learning and developmental disabilities.
We would greatly appreciate your support of H.R. 2237, and we thank
you for your efforts to pass this bill into law. I appreciate the
opportunity to provide comments on this important piece of legislation.
Sincerely,
Philip L. Callen
President
Upper Red Lake Area Association
Waskish, Minnesota 56685
Honorable Amo Houghton
1111 Longworth House Office Bldg.
Washington, DC. 20515
Dear Congressman Houghton,
I am the President of the Upper Red Lake Area Association located
in northern Minnesota. The purpose of our Association is to promote our
area and improve the economic and social interest of our citizens. We
use our gambling receipts from our pull tab sites to support our
schools, senior citizen programs, and opportunities for families in
need. Last year we gave over 87,000.00 dollars to these causes and it
has made a difference in our communities and lessened the burden of
government.
I am writing you in support of H.R. 2237 as it would preserve this
benefit to our community. We feel very strongly that this legislation
needs to be passed into law.
If we can be of further assistance to you or your Committee, or
need any other information, please feel free to contact me.
Thank you in advance for your consideration in this matter.
Sincerely
Al Otto
President
Vacationland Figure Skating Club
Brainerd, Minnesota 56401
July 26, 2002
Honorable Amo Houghton
1111 Longworth House Office Building
Washington, DC 20515
Dear Congressman Houghton,
On behalf of Vacationland Figure Skating Club in Brainerd,
Minnesota, I would like to strongly support H.R. 2237.
Our non-profit club serves 120 children in a 3-county area with
figure skating lessons, testing and opportunities for competitive
events and performances. Over the years we have used charitable
gambling proceeds from bingo, pulltabs and raffles to keep the figure
skating costs down for our Members and their families and to provide
additional services we couldn't do otherwise.
We support H.R. 2237 Unrelated Business Income Tax Bill and we need
action now to ensure that IRS doesn't change its policy and start
taxing us in the future. We support the expansion of the bingo
exemption to pulltabs, raffles and tipboards. Since North Dakota
currently has this exemption, it should be extended to the remaining
states.
We appreciate your support of H.R. 2237 and will let our
congressman and Senators know how important passing this bill into law
would be for us in 2002. Thank you for giving us a chance to comment on
it.
Sincerely yours,
Gloria Vande Brake
Gambling Manager