[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 
review and use by the Committee.
      
    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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
    \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).]
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    \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''.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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

                                
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