(10-09-2019 08:27 PM)MWC Tex Wrote:  https://www.irs.gov/irm/part7/irm_07-025-026

Part 7. Rulings and Agreements
Chapter 25. Exempt Organizations Determinations Manual
Section 26. Amateur Sports Organizations
7.25.26 Amateur Sports Organizations
7.25.26.1 (04-08-1999)
Overview

1. The Tax Reform Act of 1976 amended IRC 501©(3) to exempt from federal income taxation organizations organized and operated exclusively to foster national or international amateur sports competition, provided they do not furnish athletic facilities or equipment. The statute was amended in 1982 by adding IRC 501(j).

2. IRC 501(j)(1) provides generally that a "qualified amateur sports organization" that otherwise satisfies the requirements of IRC 501©(3) will qualify as exempt regardless of whether it provides athletic facilities or equipment and regardless of whether its membership is local or regional in nature. A "qualified amateur sports organization is" defined in IRC 501(j)(2) as an organization organized and operated exclusively to foster national or international amateur sports competition if it is also organized and operated primarily to conduct or to support and develop amateur athletes for national or international competition in sports.

3. Conforming changes were made to the charitable contribution provisions of IRC 170, 2055, and 2522. IRC 501(j) is effective retroactively to October 5, 1976, the date of the original amateur sports legislation under IRC 501©(3).

7.25.26.2 (04-08-1999)
Qualification under IRC 501©(3) or IRC 501©(4)

1. Sports activity is not in and of itself an exempt activity under IRC 501©. However, amateur sports organizations may qualify for IRC 501©(3) exemption under any of three different rationales.

a. An organization may be educational within the meaning of IRC 501©(3) if it teaches sports to youth or by being affiliated with an exempt educational organization. Such educational organizations may also provide facilities and equipment. (This is where/why colleges athletic depts are considered exempt)

b. An organization that develops, promotes, and regulates a sport for youths may be charitable within the meaning of IRC 501©(3) as combatting juvenile delinquency or lessening the burdens of government. See Rev. Ruls. 59–310, 1959–2 C.B. 146; and 80–125, supra. These organizations, like those that qualify as educational, may also provide facilities and equipment. In The Media Sports League, Inc. v. Commissioner, T. C. Memo 1986–568, the Tax Court dealt with an organization that arranged football, softball, volleyball, and other games among its members with membership open to all persons over age twenty-one without regard to their skills in the sport. The organization offered members informal instruction in the fundamentals of each sport, but members were not required to receive instruction or to participate in any athletic activities. The Tax Court held that the organization was not exempt from federal income taxation under IRC 501©(3) because the social and recreational interests of its members constituted a substantial purpose, which is not an exempt one under IRC 501©(3). The Court cited its own case of Hutchinson Baseball Enterprises, Inc. v. Commissioner, 73 T.C. 144 (1979) aff’d. 696 F. 2d 757 (10th Cir. 1982), holding that "the promotion, sponsorship, and advancement of amateur and recreational sports is a charitable purpose within the meaning of section 501©(3)," and found that "the furtherance of amateur athletics is one of the [organization’s] goals." The distinction appears to be one of whether the organization has as a substantial purpose the social and/or recreational interests of its members who are primarily casual athletes rather than the organization’s fostering serious sports competition. The Service nonacquiesced in the Hutchinson decision in 1980–2 C.B. 2. The Tax Court followed the Hutchinson case in J. David Gladstone Foundation v. Commissioner, 77 T.C. 221 (1981) .
Nevertheless, the Service will not follow the decision in the Hutchinson case.

c. The organization is organized and operated to foster national or international amateur sports competition and no part of its activities involve the provision of athletic facilities or equipment. (ie NCAA)

2. Similar organizations that cannot or choose not to meet the requirements of IRC 501©(3) may qualify for exemption under IRC 501©(4). See IRM 7.25.4.

7.25.26.3 (04-08-1999)
Qualification Specifically under IRC 501(j)

The intention of IRC 501(j) is to relieve certain organizations from the prohibition in IRC 501©(3) against the provision of facilities or equipment. To meet the requirements of IRC 501(j) the organization must not only meet the general requirements of an IRC 501©(3) organization that "fosters national or international sports competition," but must also be a "qualified amateur sports organization" under IRC 501(j)(2). IRC 501(j) requires the organization to "conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports."
Frequently, the distinction between the IRC 501©(3) and the IRC 501(j) provisions is blurred. Organizations that "foster national or international sports competition" generally do so by conducting national or international competition or by supporting or developing amateur athletes for such competition. Typically, the amateur sports organization will promulgate official rules and standards of play; charter and supervise teams; provide coaching, equipment, and facilities; organize inter-team competition; and promote and advertise a sport. These activities are typical of "qualified amateur sports organizations." Thus, the IRC 501©(3) prohibition on the provision of athletic facilities and equipment is effectively negated for the typical amateur sports organization.

7.25.26.7 (04-08-1999)
Compensation of Athletes

Some organizations provide financial support for athletes who are in the organization’s athletic training programs. The forms of support may include stipends, payment of living expenses, housing, and scholarships. Aside from the question of inurement or private benefit under IRC 501©(3), whenever the national governing body of the sport involved does not consider the type of support paid to the athletes as destroying the athletes’ eligibility to participate in competitions as amateurs, the Service will also recognize such athletes as amateurs in the application of IRC 501(j). Such an organization fits the definition of an "amateur sports organization" within the ambit of the Amateur Sports Act of 1978, which establishes the United States Olympic Committee and regulates the United States’ participation in the Olympic Games. The Congressional intent underlying both that Act and IRC 501(j) is similar. Under circumstances where such payments do destroy the amateur status of an athlete under the rules of the relevant sanctioning body, the organization cannot qualify the exemption under IRC 501(j).

[Since the NCAA considers NIL as damaging amateur status the IRS will not recognize those athletes as amateurs but professional.]

Remember, the NCAA is a body of over a thousand colleges and not just the P5 schools

7.25.26.8 (04-08-1999)
Digest of Published Rulings

Semi-professional baseball club—The nonprofit organization distributed approximately 95 percent of the net gate receipts among the players as players’ splits or shares pursuant to individual contracts entered into between the corporation and the players. The operation of a semi-professional baseball club is ordinarily a commercial activity and not exempt from federal income taxation under IRC 501©(4) . Rev. Rul. 55–516, 1955–2 C.B. 260, distinguished by Rev. Rul. 69–384, 1969–2 C.B. 122.

(Can't give athletics gate receipts of college games)

Interscholastic athletic association—An organization that directs and controls interscholastic high school athletic competition; prescribes eligibility rules for contestants and penalties for the violation of such rules and for violation of the rules of play in various sports; conducts sectional, district, and sate meets or tournaments; arranges schedules for contests; trains and assigns game officials; and makes suitable awards in the state meets is exempt from federal income taxation under IRC 501©(3) as organized and operated primarily for educational purposes. Rev. Rul. 55–587, 1955–2 C.B. 261.

Operation of recreational facilities for children and other residents of a community—A non-profit corporation organized for the purpose of establishing, maintaining, and operating a public swimming pool, playground, and other recreation facilities for the children and other residents of a community is exempt from federal income taxation under IRC 501(a) as charitable within the meaning of IRC 501©(3) but acquiescence in the holding in Isabel Peters v. Commissioner, 21 T. C. 55, which action replaces a previous nonacquiescence, 1955–1 C.B. 8, does not constitute agreement with all the reasons given for such holding. Rev. Rul. 59–310, 1959–2 C.B. 146.

Training for Olympic and Pan American Games—An organization created essentially to provide advanced training to suitable candidates in the techniques of racing small sailboats in national and international competition to improve the caliber of candidates representing the United States in the Olympic and Pan American Games and other international racing events qualifies for exemption from federal income taxation under IRC 501©(3) as educational organizations. Rev. Rul. 64–275, 1964–2 C.B. 142.

Teaching a particular sport to children—An organization teaching a particular sport to children by holding clinics conducted by qualified instructors in schools, playgrounds, and parks; by encouraging student participation in tournaments; by arranging for attendance by players and instructors at state tournaments; and by providing free instruction, equipment, and facilities is exempt from federal income taxation under IRC 501©(3) as educational. Rev. Rul. 65–2, 1965–1 C.B. 227; amplified by Rev. Rul. 77–365, 1977–2 C.B. 192.

Stimulating sports activity by youths—A nonprofit organization that stimulates the interest of youth in the community in organized sports may qualify for exemption from federal income taxation under IRC 501©(4). The organization furnishes free admission to youths at sporting events. It does not conduct sports activities itself but does sponsor various essay contests, awarding prizes to the winners. The prizes usually consist of trips to sporting events in other cities and the chance to participate in the broadcast of sports programs by local radio and television stations. Rev. Rul. 68–118, 1968–1 C.B. 261.

Amateur baseball association—An organization created to maintain an amateur baseball association made up of baseball teams with amateur players of college age is exempt from federal income taxation under IRC 501©(4). Rev. Rul. 55–516, 1955–2 C.B. 260, distinguished. Rev. Rul. 69–384, 1969–2 C.B. 122.

Promoting and regulating a sport for amateurs—An organization engaged in promoting and regulating a sport for amateurs is not exempt from federal income taxation under IRC 501©(3) but is exempt under IRC 501©(4). The organization had no regular teaching program. Rev. Rul. 70–4, 1970–1 C.B. 126. Distinguished by Rev. Rul. 80–215, 1980–2 C.B. 174.

Community sports activity—An otherwise qualifying non-profit organization conducting clinics, workshops, lessons, and seminars at municipal parks and recreational areas to instruct and educate individuals in a particular sport is operated exclusively for educational purposes and qualifies for exemption under IRC 501©(3). Rev. Rul. 77–365, 1977–2 C.B. 192, amplifying Rev. Rul. 65–2, 1965–1 C.B. 227.

Promoting sports for children—An otherwise qualifying organization formed to develop, promote, and regulate a sport for individuals under 18 years of age by organizing local and statewide competitions, promulgating rules, organizing officials, presenting seminars, distributing a newsletter, and otherwise encouraging growth of the sport qualifies for exemption under IRC 501©(3). This organization limits its activities to individuals under the age of 18 years. Rev. Rul. 80–215, 1980–2 C.B. 174, distinguishing Rev. Rul. 70–4, 1970–1 C.B. 126.

The sale of exclusive broadcasting rights to athletic events by an organization created as a national governing body for amateur athletics does not constitute an unrelated trade or business where the organization sponsors, supervises, and regulates programs in a number of different sports and arranges for and coordinates open competition for amateur athletes at the local, state, regional, and national levels. The revenue ruling does not directly discuss the qualification of organizations sponsoring athletic competition but suggest that such organizations can qualify under IRC 501©(3) without indicating whether the organization discussed qualifies by virtue of the "foster[ing] national or international amateur sports competition" language in that section. Rev. Rul. 80–295, 1980–2 C.B. 194.

Yikes! All I know is, Congress writes the tax code and if it wanted to tax the NCAA, it could. I'm confident that if that bill were to progress, all necessary bases would be touched.