May 7, 1998 | Read Time: 2 minutes
The I.R.S. has proposed new rules to explain when universities, museums, and other tax-exempt groups can sponsor travel tours without paying income tax on revenue from the trips. Non-profit organizations must pay the unrelated-business income tax on income from activities that are not “substantially related” to their charitable mission.
Travel-industry representatives have accused some non-profit groups of competing unfairly by sponsoring trips that have little or no educational purpose.
The I.R.S. proposal stops short of laying down firm rules for when the unrelated-business tax must be paid. Instead, it gives examples to suggest how the agency would treat different kinds of charity-sponsored travel arrangements.
In one example, a university alumni association offers tours for members and their guests that include no scheduled instruction or curriculum related to the destinations. Revenue from such a program would be taxed, the guidelines state.
In another example, an advocacy group could avoid taxes on trips for members who meet with Washington policy makers and attend briefings related to the group’s mission, even though the trips produce a profit for the organization.
The National Tour Association, which represents nearly 4,000 members of the tourism industry, says the new guidelines fall short of the detailed regulations it wants.
“We are looking for a more definitive breakdown of what constitutes a legitimate educational tour and what is outside of the orbit of exemption and, therefore, is subject to taxation,” says Jim Santini, the association’s Washington representative.
Over the years, the I.R.S. has made a number of rulings on travel activities among non-profit groups, but confusion has lingered over what kind of tour operations are exempt from tax.
Marc Owens, director of the agency’s Exempt Organizations Division, said that the I.R.S. is auditing more than 85 charity-sponsored travel operations. The audit is designed to determine if there are problems in the way groups account for travel revenue, he told a seminar on tax-exempt organizations sponsored by the Georgetown University Law Center.
The I.R.S.’s proposed regulations were published in the April 23 issue of the Federal Register, Pages 20,156-158. Comments about the proposal — and requests for a public hearing — must be submitted to the I.R.S. by July 22.
Comments should be mailed to: CC:DOM:CORP:R (REG-121268-97), Room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington 20044.
Comments also may be sent to the I.R.S. electronically by following the instructions on the revenue service’s World-Wide Web site at http://www.irs.ustreas.gov/prod/tax_regs/comments.html.
