Little League rodeo

Dickinson Law Firm Des Moines, IA David Repp Iowa Taxation Law

Posted on 02/27/2017 at 07:54 AM by David Repp

The IRS already suffers from a bad reputation, and it certainly didn’t do itself any favors to all the aspiring cowboys and cowgirls when it denied nonprofit status to a rodeo company. PLR 201706-19. The rodeo was seeking tax exempt status under Section 501(c)(3) of the Code which allows people to deduct their contributions to the organization. To qualify for tax exemption under Code Sec. 501(c)(3), an organization must be organized and operated exclusively for religious, charitable, scientific, public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

Section 501(j)(2) defines a qualified amateur sports organization as any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports. The rodeos were primarily conducted in only one geographical area and thus were not national or international. Also, the rodeos gave cash prizes to the winners of events which the IRS concluded made the rodeo a “professional” event rather than amateur.

The distinction between a proper nonprofit, tax-exempt motive and one that is not can be narrow. Consider the facts and holdings of two baseball court cases:

In Hutchinson Baseball Enterprises v. Commissioner, 73 T.C. 144 (1979), nonacq. 1980- 2 C.B. 2, affd. 696 F.2d 757 (10th Cir. 1982), the organization funded and operated an amateur baseball team, leased and maintained baseball fields for the use of Little League, American Legion teams and a baseball camp, and provided coaches for Little League teams. The court held, and the Tenth Circuit affirmed, that the promotion, sponsorship and advancement of amateur sports is a charitable purpose within the meaning of section 501(c)(3).

In Wayne Baseball, Inc. v. Commissioner, T.C. Memo, 1999-304, it was determined that a highly competitive amateur baseball league did not qualify for exemption under 501(c)(3). Team members were recruited from a series of spring tryouts were comprised of players who each possessed a high degree of baseball skills. The team did not have a formal instructional program. Players relied on informal interaction to seek advice, self- teaching, and hands-on experience during games. No admission was charged to spectators who watched the games. Although spectators were allowed to watch the baseball games for free, the organization's activities did not promote the game of baseball in the surrounding community. Instead, the court found that organization's purpose was to provide a team for the enjoyment, recreation and social interaction of its players.  Tax-exempt status was denied. 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: Taxation Law, David Repp


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