WASHINGTON -- The National Tour Association is claiming victory for
tour operators and travel agents now that the Internal Revenue
Service has issued new tax rules to clarify when the travel and
tourism activities of a nonprofit group must be taxed as unrelated
business income.
The NTA said the new rules tighten loopholes that have allowed
nonprofit organizations to unfairly use their tax-exempt status to
package tours -- often promoted as educational programs -- that
directly competed with those offered by for-profit operators.
Additionally, the NTA said tax-exempt nonprofits that sell
travel packages benefit from federal subsidies and special postal
rates, which combined provided them with a significant marketing
and tax advantage over for-profit travel companies.
In determining whether certain activities are substantially
related, the IRS is going "to examine all of the specifics,
including how the tour is developed, how it is promoted and how it
is operated," said Jim Santini, NTA's Washington
representative.
"They can no longer avoid tax responsibility by merely slapping
the educational label on the tour," Santini said.
For instance, the new rules cited an example in which an
educational tour packaged by a nonprofit organization included
specific activities to allow participants to "socialize
informally."
Depending on the instance, the rules noted that such activity
"does not contribute importantly" to the "educational purpose" of
the tour and would be view as unrelated business income.
The rules indicate that the IRS will view the overall package,
how it is marketed and its individual components in determining
whether the tour is substantially educational or commercial in
design.
"That is going to come as a real shock to some of the nonprofits
that engage in commercial-like tours that thought all they had to
do was slap a label of education on it and they would be
tax-exempt," Santini said.
The NTA is part of a coalition of trade groups, including ASTA,
that has pushed for clarification of the Unrelated Business Income
Tax laws for more than a decade.