Considered one of comic Steve Martin’s extra well-known skits is “The way to be a millionaire and by no means pay taxes.” The punchline is “First, you get one million {dollars}.” After which, he says, when the IRS asks why you didn’t pay taxes, you simply say two easy phrases, “I forgot.”
Effectively, in Hollywood you may make greater than $135 million yearly and pay no taxes by internet hosting an annual TV present referred to as the Academy Awards.
The Academy of Movement Image Arts and Sciences (AMPAS), which has hosted the Oscars since 1929, is a nonprofit tax-exempt membership group. And due to some very beneficiant provisions in nonprofit tax legislation, nonprofits like AMPAS can pocket hundreds of thousands in TV rights and licensing charges and pay no earnings taxes. Tax records show that almost 88 p.c of AMPAS’s 2021 revenues got here from TV broadcast rights.
The Oscars usually are not the one tax-free award present. The nonprofit National Academy of Recording Arts and Sciences, which hosts the Grammys, pocked greater than $75 million in broadcast, sponsorship, and ticket sale revenues in 2021 and paid no earnings taxes on these proceeds.
Equally, the Academy of Tv Arts and Sciences, which hosts the Emmy Awards, earned more than $19 million on its 2021 primetime broadcast. The Country Music Association booked $29 million in tax-free licensing earnings for its 2021 award present, greater than twice the $13 million earned by the Academy of Country Music on its award present. The Display Actors Guild earned $10.5 million in broadcast rights from its award present in 2021.
Mixed, these award exhibits collected greater than $280 million in revenues tax-free. Not solely did these nonprofit organizations pay no earnings taxes on the earnings, however TV networks received to deduct the licensing charges as a value of doing enterprise. Which means the total $280 million was absolutely exempt from federal taxes. That is what economists name double-non-tax earnings.
That is all authorized due to the relaxed guidelines written into an obscure tax code provision referred to as the unrelated enterprise earnings tax (UBIT). UBIT requires nonprofits to pay earnings tax on income derived from sources unrelated to their major mission. The rule was created within the Nineteen Fifties to cease nonprofits from buying business companies and residing off the income, such because the 1946 case during which New York College bought C.F. Meuller pasta firm with the intent of benefiting from the income generated by macaroni gross sales.
Whereas for-profit companies should pay earnings tax on income earned from licensing and promoting broadcast rights, nonprofits are exempt on the speculation that “The sale of the rights and broadcasting of the occasions contribute importantly to the group’s exempt goal,” in accordance to the IRS.
However the Academy of Movement Image Arts and Sciences is a unique sort of nonprofit than New York College or your native meals financial institution. Its nonprofit standing falls beneath the 501(c)(6) part of the tax code, which is reserved for chambers of commerce, commerce associations, enterprise leagues, {and professional} sports activities associations. So, we are able to consider AMPAS because the chamber of commerce for the film business or the Skilled Golfers Affiliation of filmmakers. (Coincidentally, the Professional Golfers Association booked $143 million in match income in 2021, which was additionally exempt from UBIT.)
UBIT guidelines had been supposed to forestall nonprofits from profiting by proudly owning business companies, however the guidelines successfully enable nonprofits to be companies and compete with companies. Tightening the principles wouldn’t imply the tip of the Oscars, the Emmys, or the Nation Music Awards; it might merely put them on a degree enjoying area with for-profit award exhibits such because the Individuals’s Alternative Awards, Billboard Music Awards, and now the Golden Globe Awards.
The Golden Globe Awards was hosted by the nonprofit Hollywood Overseas Press Affiliation (HFPA). However after a current scandal, HFPA sold the Globes to Dick Clark Productions and Eldridge Industries, who’re turning the occasion right into a for-profit enterprise.
With Washington operating $2 trillion deficits, it’s time to overhaul these guidelines and ask if subsidizing any televised award present is one thing taxpayers ought to proceed to help.
Scott Hodge is president emeritus of the Tax Basis and writer of the forthcoming ebook, “Taxocracy: What You Don’t Know About Taxes and How They Rule Your Day by day Life.”
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