WASHINGTON -- Travel industry groups and nonprofit organizations
clashed over whether the Internal Revenue Service needs to clarify
when nonprofits must pay taxes on their commercial tour and travel
enterprises.
Testifying before a panel of IRS officials, representatives of
industry and small-business groups called for tighter regulations,
arguing that nonprofits use their tax-exempt status to compete
unfairly with taxpaying firms. But witnesses for educational
institutions disagreed, arguing the travel and tour programs they
market primarily to alumni and students are not designed to compete
with those sold by for-profit tour operators and travel agents.
The IRS convened the hearing after it issued a proposed rule
last April that the industry claimed had failed to clear up the
sometimes-ambiguous regulations concerning the unrelated business
income taxes (UBIT) of nonprofits.
Janet Buehler, testifying for PricewaterhouseCoopers, an
accounting firm representing some 250 colleges, said the tours
marketed by her clients emphasize education and include lectures by
experts in various fields of study. Consequently, Buehler said, the
"tours are more expensive than for-profit [tours]. So we are truly
not competing with for-profits," which market comparatively
less-expensive packages designed to appeal to a wider audience.
Buehler added that many of the colleges she represents use
for-profit tour operators to run their tours.
Joel Newman, a law professor at Wake Forest University in
Winston-Salem, N.C., said the IRS has "done all that can be done"
with its proposed rule because the line between for-profit and
nonprofit tours has blurred into a gray area. "Tax-exempt [tours]
are being increasingly commercial," said Newman, while for-profit
tours are becoming educational, with both appealing to affinity
groups with specific interests. Tightening the regulations, Newman
said, could unfairly jeopardize the activities of well-established
nonprofits such as elder hostels, which offer educational
experiences but provide no class credits.
But David Burton of the Small Business Regulatory Council said
it might be beneficial if well-established nonprofits such as elder
hostels failed to meet IRS regulations because it would further
clarify what activities do not comply. Burton said any tour
activity that falls into the gray area between nonprofits and
for-profits, as suggested by Newman, should be presumed taxable
"because of the ambiguous nature of tour and travel."
To illustrate how ambiguous nonprofit travel packages have
become, Jim Santini, Washington representative for the National
Tour Association, held up two colorful ads for Sandals Resorts. One
ad appeared in a consumer travel magazine promoting the Caribbean
resorts as "the hottest all-inclusives for the very cool." A copy
of the same ad, Santini said, was mailed at a nonprofit postal rate
to consumers by a nonprofit called Continuing Education Abroad.
Santini cited other examples, such a "chocolate lovers" tour and an
excursion for baseball fans, where nonprofit travel packages have
strained the definition of educational tour. Current rules
"encourage nonprofits to engage in for-profit" enterprises, Santini
said.
Dan Mastromarco, executive director of the Travel Council for
Fair Competition, said concise IRS rules, with a specific checklist
of examples, would help establish perimeters for nonprofit travel
enterprises.