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NHRA faces possible federal tax inquiry

The National Hot Rod Association's tax-exempt status could soon be under IRS scrutiny.

An anonymous complaint was filed with the agency's Exempt Organizations Division contending that the drag racing group's activities are identical to those organized by for-profit automobile entertainment companies.  

"Public information reveals that the NHRA operates like a commercial business by providing specific services to its members --whether in the form of prize money to winners or payments to race track operators or other private groups benefiting from the racing events," said Marcus S. Owens, a senior member in the Washington, D.C., law firm Caplin & Drysdale.  

Dragster by Lugo_iStock Photo by Lugo/iStock

Owens wrote the nine-page complaint letter on behalf of a client that wishes to remain anonymous.

In the document, Owens said a large portion of NHRA's revenue, totaling approximately $122 million in 2008, is derived through cash received at drag racing events, activities normally organized by for-profit entities such as NASCAR or the International Hot Rod Association (IHRA).

NHRA spokesman Jerry Archambeault released a statement saying the racing series was granted exempt status by the IRS decades ago. 

"In its annual tax returns filed with the IRS, NHRA has clearly laid out its operations," said Archambeault. "Claims that NHRA is not operating properly are baseless and not supported by any action from the IRS."

In an interview with Forbes' Informer blog, Owens described his client as a "long-time NHRA member" with no connection to the NHRA's primary for-profit rivals, the National Association of Stock Car Auto Racing (NASCAR) or the International Hot Rod Association (IHRA). "The client feels strongly the members are being duped," Owens said.

Now in IRS hands: Owens, a former director of the IRS Exempt Organizations Division, said the Division's examination office in Dallas will appoint a committee of senior agents to review the complaint.

If the agents determine the NHRA should be audited, the case would be sent to a revenue agent group, most likely near the association's headquarters in Glendora, Calif., to review its finances and activities.

Should the IRS determine that the NHRA has been operating as a for-profit business in violation of its tax-exempt status, the organization could be taxed on its revenue for as long as it's been acting like a business.

Motorsports world reactions: In addition to the Informer item, you can read more on the NHRA situation in Drag Racing Online, SportsFi, That's Racin' and

I look at some more positive parts of the NHRA in my upcoming motorsports column for a couple of Randall-Reilly trucking magazines. That article will be out in March.

Until then, you can check out my previous Views From The Grandstands and Crazy Woman Driver columns.

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