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Sept. 15 — The NCAA's tax-exempt status isn't at risk after moving championship games out of North Carolina in protest of the state's so-called bathroom law, lawyers who specialize in nonprofit tax issues told Bloomberg BNA.
Rather, the National Collegiate Athletic Association, a tax code Section 501(c)(3) organization, was completely within its right to make the judgment call, said David Trimner, a principal at CliftonLarsonAllen LLP.
“There is nothing that prevents a nonprofit organization from taking its business wherever it pleases, for whatever reason it deems appropriate,” he said Sept. 15.
The Atlantic Coast Conference, also a 501(c)(3) organization with 15 member universities, announced Sept. 14 it would follow suit and move eight neutral-site championships out of the state because of the March law, which says individuals may only use restrooms in government buildings that correspond to the sex on their birth certificate. Critics have said the law discriminates against transgender individuals, and both organizations said it is inconsistent with their values.
But the decision to move the games throws the organizations' exemptions into question, Rep, Richard Hudson (R-N.C.) said in a Sept. 14 statement.
“This blatant political move—less than two months before the election—brings into question their tax exempt status. This is an avenue we intend to explore,” he said. His office didn't return requests for additional comment.
Hudson may try to argue that athletes will suffer as a result of the decision, or that the organizations should focus solely on athletics, Trimner said. But those tactics won't do much more than perhaps win him good political will with constituents, he said.
“There’s nothing he is going to be able to do to harm the NCAA or force them to change their behavior,” Trimner said. “He wants to be able to go back to his voters and say ‘I took a stand and I made a stink about something that's important to you. But he's not going to get anywhere with it.”
Senate Finance Committee member Richard Burr (R-N.C.) said the NCAA and ACC decisions shouldn’t trigger inquiries into their tax-exempt status. The issues simply aren’t connected, he told Bloomberg BNA on his way to a vote Sept. 15.
“I’m interested in having a tax structure going forward that’s reformed, that’s competitive and that’s fair,” Burr said. “If in the debate on taxes that tax-exempt status comes up, I’m sure we’ll debate it.”
Burr said he hadn’t spoken with Hudson about the suggestion to explore the NCAA’s tax-exempt status.
The argument that yanking the championships constitutes political activity is incorrect and “suggests to me that like many laypeople, he is confusing political activity with legislative activity,” said Deborah Kosnett, a tax principal at Tate & Tryon.
Legislative activity, which the IRS considers lobbying, is acceptable for 501(c)(3) organizations as long as it doesn't make up the bulk of their activity. The Internal Revenue Service considers lobbying to include efforts to influence legislation at the federal, state or local level (126 DTR G-3, 6/30/16).
“At a very, very, very long reach you could argue that it’s lobbying of a sort, but I would argue that no, it's merely the organization’s reaction to a law that was passed,” she said in reference to the NCAA.
The National Basketball Association also moved its next All-Star Game from Charlotte, N.C., because of the law, a decision Gov. Pat McCrory (R) criticized, according to the Wall Street Journal.
The NCAA didn't return a request for comment. It has restarted the bidding process to pick new locations for seven championships—including women's soccer, men's basketball and women's lacrosse—and hopes to pick the locations by Oct. 7. Its Board of Governors said North Carolina laws “make it challenging to guarantee host communities could deliver on the commitment of promoting an inclusive atmosphere for all student-athletes, coaches, administrators and fans if the events remained in the state,” according to a Sept. 14 statement.
The IRS requires all 501(c)(3) universities to follow racial nondiscrimination policies in order to maintain their tax status, according to Revenue Procedure 75-50. By extension, schools may also be sensitive to lesbian, gay, bisexual and transgender issues, Kosnett said.
The NCAA is a Section 509(a)(3) supporting organization, according to its latest available Form 990, Return of Organization Exempt From Income Tax, meaning its exempt purpose must be in support of the colleges and universities that it backs. Thus, the decision to move the games “was probably done in sensitivity to the universities that it supports,” she said.
With assistance from Aaron E. Lorenzo in Washington.
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