NHRA being Investigated by the IRS

[JF]

Interesting that the client is an "amateur racer", I take it that it's a Sportsman racer, and, it's not a Pro or dejected sponsor.

Or a legal ploy to confuse someone trying to find out who the client is.

 

[Muddy]

Whoever or whatever they are they put some serious cash up to hire that law firm and have them do enough research to write the letter. They must really have a problem with NHRA or someone at NHRA to be willing to spend their own money for this action. Either that or they want to purchase it for a discounted price after the dust clears.

 

[TR]

Whoever or whatever they are they put some serious cash up to hire that law firm and have them do enough research to write the letter. They must really have a problem with NHRA or someone at NHRA to be willing to spend their own money for this action. Either that or they want to purchase it for a discounted price after the dust clears.

Never thought about the purchase thing, but you may be on to something there.

Rick

 

[ProNitro Pete]

Interesting that the client is an "amateur racer", I take it that it's a Sportsman racer, and, it's not a Pro or dejected sponsor.

Paul, The definition of Amateur is a person who engages in a study, sport, or other activity for pleasure rather than for financial benefit or professional reasons.
a Professional is following an occupation as a means of livelihood or for gain.

If you look at this in legal, classification in this context, an amateur could be most anyone.........that does this for pleasure rather than financial benefit.

There we go- A Bigger Pot, now isn't that more comfortable?

 

[Paul]

I wonder what Paul Titchener has to say about this...

I'm not the one that initiated the filing of this complaint, although if I had the time and resources to have done it I would have seriously considered doing so. Right now I'm jammed to the max just keeping food in my kids mouths.

It appears that its someone who currently is a competitor and I can't blame them for wanting to stay anonymous. I believe the NHRA currently has statues stating that they can exclude from membership and participation anyone who pursues activitities "detrimental to the NHRA".

As I've stated in past posts, out of curiosity I dug probably deep as a non-attorney can go to get an understanding of how the NHRA is organized and run and whether they are currently compliant with the 501(c)6 requirements that they must operate under.

I came to the conclusion that it appeared that they were on very thin ice in a lot of areas and thus I think there is a reasonable chance that his filing may have a serious impact on them.

One thing that is a little scary is that the current directors have full access and control of all the financial assets of the NHRA and could shoot through these pretty fast in an effort to fight off this challenge.

The best case from this activity would be that the 80's era membership vote that the current board members pulled off to take away members voting rights gets revoked. This would allow NHRA members to periodically elect the board members, my memory is that the original NHRA incorporation papers stated that this was to occur every 3 years.

Candidly, this is not necessarily the best way to operate a large racing organization, but I think it would be far superior than the current "locked in for life" management approach, its clearly not working well.

 

[Paul]

Whoever or whatever they are they put some serious cash up to hire that law firm and have them do enough research to write the letter. They must really have a problem with NHRA or someone at NHRA to be willing to spend their own money for this action. Either that or they want to purchase it for a discounted price after the dust clears.

John, an important thing to keep in mind is that since the NHRA is a 501(c)6 organization, there are are strict limits on the sale of any assets of the NHRA. They are currently fully owned by the NHRA non-profit corporation itself (there are no private owners) and by law, these assets can only be sold if that sale directly benefits the NHRA members. In addition, that benefit must be in compliance with the original charted mandate of the NHRA, which was to provide "safe competitive environments for drag racing", it can't be a simple financial compensation.

If the current board members get removed, its very unlikely that a sale of the NHRA assets would also come out of that, its out of compliance with the laws the NHRA must comply to. This is one of the key issues that made the attempted sale of the "Pro" divisions of the NHRA a few years ago a very messy and risky deal (it also could have been challenged).

I think if the current board members get removed, the most likely outcome would be a monitored re-organization of the NHRA, hopefully with a membership vote to elect new board members.

So if you want to be optimistic, start thinking about who you would nominate for these positions.

 

[Muddy]

Paul, that's assuming the IRS leaves it in the exempt status. Should they revoke that status (and its happened more than one would think) all bets are off. Unsure of what the procedure is beyond that point. I think the IRS could find that some of their actions did in fact eliminate the eligibility for that status. Then the questions are can they correct the actions to save the status and do they have the bucks to pay the assesments or do they have to liquidate? Please understand I'm not an expert but so have some experience.

 

[Paul]

Paul, that's assuming the IRS leaves it in the exempt status. . .

John, I'm only speculating also, but it would seem unlikely that if the board members are found to have violated some clear IRS guidelines that the IRS would force a re-organization that would in any way directly benefit those board members.

Keep in mind that as is the case with most non-profits, the NHRA currently has no owners, its a free standing corporation, with strict limits on how its assets can be sold, they can only be sold if that sale directly benefits its members.

If the NHRA was forced to become a for profit organization then its ownership would have to be assigned to some one, and in that case the only thing that makes sense is to assign the ownership to its members, as they are the ones that are designated to benefit from any transfer of its assets.

It wouldn't make any sense to hand this ownership over to the current board members.

But who knows, this is some complicated stuff, but if this really goes anywhere I'd be very surprised if the current board members benefit from it in any way.

One other observation, the attorney that filed the letter is no lightweight, he appears to be highly experienced and respected specifically in the area of non-profit corporation law. With this kind of reputation its very unlikely he would have accepted this task if he didn't feel that there was a reasonable chance of a successful outcome, so there is a significant chance that this could have a serious impact on the NHRA.

The guy the initiated this activity was pretty smart, rather than attempting any lawsuit based attempt to challenge the NHRA that would be very expensive he realized that there was an opportunity to have the IRS do the dirty work for him.

His cost was then just hiring an appropriate attorney to assess the situation and prepare the letter that was filed. I'm sure this activity wasn't cheap, but it was way less than any lawsuit based approach, and it looks like he did a nice job in selecting an appropriate attorney.

 

[The Little Lizard]

One other observation, the attorney that filed the letter is no lightweight, he appears to be highly experienced and respected specifically in the area of non-profit corporation law. With this kind of reputation its very unlikely he would have accepted this task if he didn't feel that there was a reasonable chance of a successful outcome, so there is a significant chance that this could have a serious impact on the NHRA.

The guy the initiated this activity was pretty smart, rather than attempting any lawsuit based attempt to challenge the NHRA that would be very expensive he realized that there was an opportunity to have the IRS do the dirty work for him.

His cost was then just hiring an appropriate attorney to assess the situation and prepare the letter that was filed. I'm sure this activity wasn't cheap, but it was way less than any lawsuit based approach, and it looks like he did a nice job in selecting an appropriate attorney.

Yes, the claiment obviously has some sophistication, it would be average and reasonable that this wasn't a simply bottom end of the ladder stock eliminator guy from Rancho Cucamonga, CA (not that their is anything wrong with those folks). It would be my impression that they had substiantial experience in such matters. They knew where to go, and what party with internal IRS experience could assist them in their efforts. The firm is in Washingtion, D.C., such awarenss of such resources would be indicative of advanced knowledge (interfaced with this type of legal resourse in the past). The party seems to have a high level of sophistication and education or access to such parties. It could be an individual with business/corporate experience, and substantial means.
It would be my impression that they were in to that letter for 3-5K. Senior partner $400-500 and hour, 3 hours initial consult to include document submission review. Couple hours for the boiler plate case law/statute cut and paste and analysis. 2-4 hours final document preperations, and final consultation. One can kind of do the math on it. Who knows with the IRS will do? Maybe nothing, or just some areas of concern that may be corrected or rectified? I haven't heard anyone entertain the notion that the claiment maybe doing this on another parties behalf?



P.S. I don't nessessarily put a lot of weight on the assertion the claiment is a "Sportsman Racer", that term could easily be played around with symantically, i.e. The claiment participates in a sport, drag racing is a sport, he's a man who drag races, all men who particiapate in the sport of drag racing are sportsman racers. (I'm sure you get the idea).

 

[Von Halen]

Yes, the claiment obviously has some sufistication, it would be average and reasonable that this wasn't a simply bottom end of the ladder stock eliminator guy from Rancho Cucamonga, CA (not that their is anything wrong with those folks). It would be my impression that they had substiantial experience in such matters. They knew where to go, and what party with internal IRS experience could assist them in their efforts. The firm is in Washingtion, D.C., such awarenss of such resources would be indicative of advanced knowledge (interfaced with this type of legal resourse in the past). The party seems to have a high level of sufistication and education or access to such parties. It could be an individual with business/corporate experience, and substantial means.
It would be my impression that they were in to that letter for 3-5K. Senior partner $400-500 and hour, 3 hours initial consult to include document submission review. Couple hours for the boiler plate case law/statute cut and paste and analysis. 2-4 hours final document preperations, and final consultation. One can kind of do the math on it. Who knows with the IRS will do? Maybe nothing, or just some areas of concern that may be corrected or rectified? I haven't heard anyone entertain the notion that the claiment maybe doing this on another parties behalf?



P.S. I don't nessessarily put a lot of weight on the assertion the claiment is a "Sportsman Racer", that term could easily be played around with symantically, i.e. The claiment participates in a sport, drag racing is a sport, he's a man who drag races, all men who particiapate in the sport of drag racing are sportsman racers. (I'm sure you get the idea).

Really?

 

[The Little Lizard]

Really?

Uhhh..., Yep!

 

[Randy]

IMO the brass of the NHRA overpaid.If they take 50% of salaries away from those who are overpaid ,they could update their facilities they own or run that are currently dumps (for example Atlanta).

Or if it turns out bad enough and the IRS siezes NHRA and all it's properties, the high bidder at auction could pick up the Glendora headquarters and turn it into a dental office. And the NHRA race tracks like IRP and the rest could be sold to developers who will make shoppng centers and housing tracks out of them.

It's a slippery slope when you let government officials decide how much you should be able to make. Be carefull what you wish for.

RG

 

[Muddy]

It would be my impression that they were in to that letter for 3-5K. Senior partner $400-500 and hour, 3 hours initial consult to include document submission review. Couple hours for the boiler plate case law/statute cut and paste and analysis. 2-4 hours final document preperations, and final consultation. One can kind of do the math on it. Who knows with the IRS will do? Maybe nothing, or just some areas of concern that may be corrected or rectified? I haven't heard anyone entertain the notion that the claiment maybe doing this on another parties behalf?

QUOTE]

Having a very limited knowledge of that firm I would be surprised if you could get that letter created and then signed by the heavywight who signed it for that amount. I guessing that would cost 20K plus by that firm and individual. At least that was my experience with comparable firms and partners of that stature although the subjects were vastly different. JMO and I could be wrong especially since I seem to remember you stating your a lawyer.

 

[The Little Lizard]

JMO and I could be wrong especially since I seem to remember you stating your a lawyer.

Nope, but do have some law school under my belt. Also all the males on my dad's side of the family are, or were attorney's except me and one of my cousins. My father even had an employee and co-worker that he trained that worked under him. It might be a name people recognize, currently seated Sacramento County Superior Court Judge Robert Hight, namesake and uncle of John Force's son-in-law Funny Car racer Robert Hight. I believe Robert's uncle who he came to live with, was the most instrumental in pointing him at an early age towards high performance motorsports and drag racing. At least sometime after my father shared my experiences with the sport with Bob. My cousin Stephen F. Clayton seems to be most active of our family in the field at this time, at weblink

Resume - stephenclaytonlaw.com

Now back to the thread topic

 

[Toejam]

Or if it turns out bad enough and the IRS siezes NHRA and all it's properties, the high bidder at auction could pick up the Glendora headquarters and turn it into a dental office. And the NHRA race tracks like IRP and the rest could be sold to developers who will make shoppng centers and housing tracks out of them.

It's a slippery slope when you let government officials decide how much you should be able to make. Be carefull what you wish for.

RG

Makes you wonder what the NHRA haters will think should this all come to pass!

 

[Taunsie]

This whole thing could verywell end up as a "lose , lose situation" mess. Maybe the compensation is high, but if it were a normal for profit business grossing a hunderd and twenty million dollars a year, those executive compensations would seem normal. Bet Vic Edelebrock sees more than that with his company at approx the same gross sales ( before current conditions). I think where the real problem lies is that there are really no real "members" with equity rights. As I recall in the old days each member had a vote and therefore may have been an equity owner. Since this was disbanned, there is really no equity owner of NHRA. There used to be Mutual Saving and Loan Associations where the depositors were actually owners, that still may be the case with credit unions. If NHRA was deemed a for profit business, so be it, they would just have to pay taxes on thier profit and the executive compensations could erase 100 per cent of that and no taxes would be paid. But, the asset base is where the problems are. If the assets were to be sold, let's say to a new for profit NHRA, ( owned by current directors) how would the proceeds be distributed. with no equity members, it really brings up a sticky situation. Plus if the current directors were to purchase NHRA for the amount HD Partners offered or thereabouts, how could they service the debt created for the purchase?? Even at a fair interest of 6 per cent, the interest payment alone on 100 million dollars would be almost impossible to service. If the IRS actually investigates this and finds that the NHRA is not in compliance could they force a reorganization of ownership of assets?? Assuming they have 80,000 members , that would make each membership card worth approx, $1,250. It would somewhat emulate the ownership of the Green Bay Packers at that point. I guess the reorganized "association" could then just keep on going with some oversight by the new "owners"

Like I initially said this may create a lose -lose mess. also who gets to drive the company Bently

 

[vegasnitro]

This whole thing could verywell end up as a "lose , lose situation" mess.

This I agree with 100%. Whenever lawyers and the government get involved, they are the only ones who win. While I do not agree with everything NHRA does, I dread what the future may hold if the lawyers and IRS move forward on this.

 

[Muddy]

I'm not an avocate of what's happening but my bet is that someone or something steps up and provides a "?HRA" for people to race and spectate at. There's just too much money involved. Whether it's better or not (if it happens at all) remains to be seen.

As far as how it should be structured we all should remember that beauty is in the eyes of the beholder and it's impossible to make all of the various interest's happy even part of the time.

 

[Rajunz]

see none of this would have happen if they hadn't started the countdown

sorry couldn't resist.

It will be interesting to see how this plays out. While some changes would be good, I wouldn't want them to happen at the expense of damaging NHRA

Obviously an act of a vindictive person, sadly the ones that are likely to suffer the most from this are the racers, and fans with higher ticket prices at the gate. Definitely not a good thing for the sport regardless...........

 

[Muddy]

Obviously an act of a vindictive person, sadly the ones that are likely to suffer the most from this are the racers, and fans with higher ticket prices at the gate. Definitely not a good thing for the sport regardless...........

Time will tell