The Internal Revenue Service has recently received an anonymous complaint challenging the tax-exempt status of the National Hot Rod Association.

The complaint contends that the drag-racing organization’s activities mimic 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, former director of the exempt organizations division at the IRS and now a senior member in the Washington law firm Caplin & Drysdale, in a statement.

Owens, who wrote the complaint on behalf of a client that wishes to remain anonymous, also noted that a large portion of the 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.

The letter further identifies other issues, including questionable governance structures and compensation practices. While the association boasts an 80,000-member roster, members do not possess voting rights to elect an independent board of directors to approve compensation and other matters pertaining to its officers and directors.

At present, compensation is determined by a “personnel committee,” who are likely to be selected and paid by NHRA officials. Based on the NHRA’s 2008 tax filings, two of the association’s executives received compensation well beyond industry standards. Thomas Compton, the association’s president and board member, received $771,632 in total compensation. Dallas Gardner, chairman of the NHRA board, received $319,073 for one single hour of work per week, according to the complaint. Comparable data indicates that average total compensation paid to CEOs at the 10 largest trade associations in the United States was $642,447 in 2006 for full-time positions.

The association disputed the claims in the complaint. “NHRA was granted exempt status by the IRS decades ago and has operated accordingly ever since,” the NHRA said in a statement to the Associated Press. “In its annual tax returns filed with the IRS, NHRA has clearly laid out its operations. Claims that NHRA is not operating properly are baseless and not supported by any action from the IRS.”

Last year, a group called Playoff PAC challenged the tax-exempt status of the college footbowl Bowl Championship Series (see Group Files IRS Complaint Against Bowl Games). Four members of Congress later wrote to IRS Commissioner Doug Shulman asking him to investigate the claims (see Lawmakers Back Request for IRS to Investigate College Bowls).

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