NHRA being Investigated by the IRS

[mw6789]

Jeremy Gutierrez, I beg to differ with you on any number of fronts.

1. You are oh-so-wrong about the press release. Of COURSE they’d put out a press release without knowing if NHRA was operating fraudulently or not. The concept of a PRESS RELEASE is to generate publicity for something, and in this instance it’s the darn law firm, not this letter to the IRS.
2. Marcus S. Owens, whose signature is at the bottom of the complaint letter, is NOT a partner in the firm. He’s merely a practicing member of that firm.
3. You have no clue as to how much money the client paid the firm to produce this letter, but your figure of $100,000 appears far too high. It doesn’t cost that much to retain the services of a quality law firm – unless you’re facing an OJ Simpson-type situation.
4. You are absolutely right. “this is more serious than most people can imagine.”


Jon Asher

Jon--My wife is a managing partner in a large law firm. She laughed at the $100K figure thrown out.

 

[mw6789]

Jon Asher and I have had every conceivable conversation regarding the NHRA, and I agree that while most aren't happy with the Job Tom Compton and Graham Light hve done. Who would do better? Don't say racers, racers care about what benefits their class and nothing else!

That would be my question, Joe, in all of this---who would do better????

 

[Muddy]

Paul I don't the votings rights issue is complicated at all. In order to vote you should a competition number, race at three races in the year, and a paid up member in good standing. If you have skin in the game you are more likely to vote with some kind thought process that would benefit you and the people you race with. The voting rights issue is the biggest issue to me. I have research the subject and whether it be for profit (shareholders) or Non Profit (members) each instance it clearly indicates that accountability rest with the shareholders/members. We have none of that with the NHRA. All we do is pay ana listewn to what they tell us they are doing for the sport. No annual statements and no reports on how well or bad their are doing. I know of no other businneses that are publicly held or a non profit that does not the keep their shareholders/members in the loop.

Having the racers vote would be the end of NHRA. Wally wasn't an idiot and that's why they don't. There could however be an competitor board made up of one racer rep from each eliminator catagory. This board could make recommendations to the director of competition. Perhaps the competitor who finished 5th in national points would be selected. This would be for rule changes only, no protest decisions or arbitration for violations. JMO

 

[Pinocchio]

Jon--My wife is a managing partner in a large law firm. She laughed at the $100K figure thrown out.

Laughed because it was too high OR too low?

 

[Paul]

Having the racers vote would be the end of NHRA.

Wow, one thing amazing about this group of people is how much little faith they have in each other.

John, you wouldn't be voting on every little issue, which I agree would be a disaster, you would have membership votes every 3 years to elect the various board members.

Do you seriously think that's too much for the actual competing NHRA members to pull off reasonably well?

Wally wasn't an idiot and that's why they don't.

Well he did originally set the organization up in the original incorporation papers so that the racing members were to elect board members every 3 years.

Apparently those elections were never held (can anyone confirm that?) so perhaps he changed his mind or with the rapid growth maybe they lost track of the original intent and never got around to it.

 

[BigDaddyB]

Thanks Paul that was my intent. The Competition Committee is a good idea. The NFL has one. It could be a mix of competitors and their expertise would only needed in rule making, technnical issues( engine, chassis, etc) I think all of the rulings should from the CEO with him consulting with the committee and his decisions are final.

 

[SundayNiagara]

Apparently those elections were never held (can anyone confirm that?)

I've been around the sport more than 50 years and I never heard of it.

 

[Bill]

I've been around the sport more than 50 years and I never heard of it.

Ditto...

 

[BigDaddyB]

Well if it has not been done in 50 yrs then its about time that the members rectify that circumstance. Should this thing blossom into a reorganization of the NHRA the membership should have some input into how the reorganization is done. Don't know how members on this forum but if takes writing letters/emails or whatever, its time to voice the desires of the membership.

 

[Paul]

Ditto...

Here's what the original NHRA Bylaws said regarding membership voting rights.

"The annual meeting or any special meeting of the members shall be held at a time and place to be fixed by the Board of Directors. One of the purposes of the annual meeting shall be the election of a Board of Directors. Notice of all meetings of the members shall be mailed to each member at least five days prior to the date fixed for such meeting".

Thus there were supposed to be annual elections for the NHRA Board of Directors. As it appears that these elections were never held, it looks like NHRA was out compliance regarding member input into the corporation right out of the box.

The Board of Directors can modify the companies bylaws, but my understanding is that any modification that modifies members voting rights (such as not having the elections at all) requires an approval by vote of the majority of the members.

Looking back through my documents, I also ran across a copy someone sent me of the 1981 cover letter that asked members to approve modifications to the companies bylaws, these are the modifications that removed members voting rights. Here's what the cover letter said:

Dear NHRA Member:

Since its origin in 1951, the NHRA has been operating as a non-profit organization, incorporated in California.

Recent changes in California's corporation laws required modifications to our bylaws, and further require that modifications in our bylaws be circulated to the membership for review and ratification.

In order to comply with this new law, we need your cooperation. A copy of the bylaws is inclosed, along with a self-mailer ballot which we would like you to fill out and return.

In order to be counted, your ballot must be received by March 25, 1981. Further, the law requires that 7,000 NHRA members vote on these bylaws, and at least three-fourths of those voting must vote favorably for the adoption of the bylaws.

We will appreciate your prompt response and we thank you for your cooperation.

Note there is zero mention in this letter of any modification to members voting rights, it positions the modifications as a necessity forced by California. As I have posted previously, I think this was deception to the point of being shady.

 

[SundayNiagara]

Besides Wally Parks and I believe, attorney Bob Gottlieb, who else signed the original charter back in 1951?

 

[BigDaddyB]

Here's what the original NHRA Bylaws said regarding membership voting rights.

"The annual meeting or any special meeting of the members shall be held at a time and place to be fixed by the Board of Directors. One of the purposes of the annual meeting shall be the election of a Board of Directors. Notice of all meetings of the members shall be mailed to each member at least five days prior to the date fixed for such meeting".

Thus there were supposed to be annual elections for the NHRA Board of Directors. As it appears that these elections were never held, it looks like NHRA was out compliance regarding member input into the corporation right out of the box.

The Board of Directors can modify the companies bylaws, but my understanding is that any modification that modifies members voting rights (such as not having the elections at all) requires an approval by vote of the majority of the members.

Looking back through my documents, I also ran across a copy someone sent me of the 1981 cover letter that asked members to approve modifications to the companies bylaws, these are the modifications that removed members voting rights. Here's what the cover letter said:

Dear NHRA Member:

Since its origin in 1951, the NHRA has been operating as a non-profit organization, incorporated in California.

Recent changes in California's corporation laws required modifications to our bylaws, and further require that modifications in our bylaws be circulated to the membership for review and ratification.

In order to comply with this new law, we need your cooperation. A copy of the bylaws is inclosed, along with a self-mailer ballot which we would like you to fill out and return.

In order to be counted, your ballot must be received by March 25, 1981. Further, the law requires that 7,000 NHRA members vote on these bylaws, and at least three-fourths of those voting must vote favorably for the adoption of the bylaws.

We will appreciate your prompt response and we thank you for your cooperation.

Note there is zero mention in this letter of any modification to members voting rights, it positions the modifications as a necessity forced by California. As I have posted previously, I think this was deception to the point of being shady.

I did little research, I qualify this statement because I'm not a coporate attorney, the coporate laws of California say something different from what I'm hearing from you members who there from the start. It bears investigation. What I ascertain was that the Board could not amend the Bylaws in regards to voting or transfer. Section 5150-5130. Now if this true then there has to be further explanation why the mebership does not have say in the Board of Directors due their behalf. An if a Board was supposed to electeed every 3 yrs then there should have been an election in 54, 57, 60, 63,66,69,72,75, 78, 81. Does anybody remember electing a Board of Directors in those years.

 

[SundayNiagara]

My mistake! It was Wally Parks, Ak Miller & Marvin Lee who signed the articles of incorporation. Source: NHRA.com.

 

[Paul]

Ditto...

I did little research, I qualify this statement because I'm not a coporate attorney, the coporate laws of California say something different from what I'm hearing from you members who there from the start. It bears investigation. What I ascertain was that the Board could not amend the Bylaws in regards to voting or transfer. Section 5150-5130. Now if this true then there has to be further explanation why the mebership does not have say in the Board of Directors due their behalf. An if a Board was supposed to electeed every 3 yrs then there should have been an election in 54, 57, 60, 63,66,69,72,75, 78, 81. Does anybody remember electing a Board of Directors in those years.

Bruce, one thing to keep in mind that makes this more complicated is that the California corporate laws that the NHRA should have complied with changed a fair amount between '51 and today, so its not easy to answer whether or not some of the changes and things they did were legal given the requirements in place at that time. However, based on what I've seen I believe they likely were not in compliance at several points in their history.

How much significance that has as far as the IRS is concerned is something I guess we're going to find out. Its possible the IRS is only concerned about tax issues and doesn't care about any abuse of member's rights, but who knows.

If that's the case then any change would probably require a concerted effort by a majority of the current members to engage in a lawsuit, which would not be an easy thing to pull off.

Regarding the elections every 3 years, as I warned I was going from memory on that, as shown in the bylaws in the previous post, originally their intent was to have elections every year.

Mark, answering your question, the original articles of incorporation were signed by Wally Parks, Akton Miller and Marvin Lee.

 

[BigDaddyB]

Here's what the original NHRA Bylaws said regarding membership voting rights.

"The annual meeting or any special meeting of the members shall be held at a time and place to be fixed by the Board of Directors. One of the purposes of the annual meeting shall be the election of a Board of Directors. Notice of all meetings of the members shall be mailed to each member at least five days prior to the date fixed for such meeting".

Thus there were supposed to be annual elections for the NHRA Board of Directors. As it appears that these elections were never held, it looks like NHRA was out compliance regarding member input into the corporation right out of the box.

The Board of Directors can modify the companies bylaws, but my understanding is that any modification that modifies members voting rights (such as not having the elections at all) requires an approval by vote of the majority of the members.

Looking back through my documents, I also ran across a copy someone sent me of the 1981 cover letter that asked members to approve modifications to the companies bylaws, these are the modifications that removed members voting rights. Here's what the cover letter said:

Dear NHRA Member:

Since its origin in 1951, the NHRA has been operating as a non-profit organization, incorporated in California.

Recent changes in California's corporation laws required modifications to our bylaws, and further require that modifications in our bylaws be circulated to the membership for review and ratification.

In order to comply with this new law, we need your cooperation. A copy of the bylaws is inclosed, along with a self-mailer ballot which we would like you to fill out and return.

In order to be counted, your ballot must be received by March 25, 1981. Further, the law requires that 7,000 NHRA members vote on these bylaws, and at least three-fourths of those voting must vote favorably for the adoption of the bylaws.

We will appreciate your prompt response and we thank you for your cooperation.

Note there is zero mention in this letter of any modification to members voting rights, it positions the modifications as a necessity forced by California. As I have posted previously, I think this was deception to the point of being shady.

Paul I would agree over the last 60 yrs the laws have changed in some regard but I went directly to the California website today an I would think that would be the most current law applicable to Non Profit coporatons in California as 2011.

 

[BigDaddyB]

Question to the forum, Now what is the membership valued at excluding ND, should want to op out of the 52 issues which seems to me a valued added produch such as getting Internet Explorer with Microsoft Windows.

 

[Paul]

Paul I would agree over the last 60 yrs the laws have changed in some regard but I went directly to the California website today an I would think that would be the most current law applicable to Non Profit coporatons in California as 2011.

Bruce, what I meant was this-

Going all the way back, the original articles of incorporation stated that the board members were to be elected annually by the members.

Those votes apparently never happened. It may be that the board at that time modified the NHRA bylaws to eliminate these annual votes, or they may have decided just not to follow the bylaws and not hold the votes.

As you have probably seen, by today's California code, making a bylaw modification that modifies members voting rights without having a member vote to approve the change would be illegal, as well would be not conducting the company in compliance with the bylaws (ie not conducting the votes).

But was a member voting right modification like this illegal under the California code of the 50's when it occurred?

And if it was illegal then, what are the potential ramifications of that today?

Only a pretty experienced attorney in this area could answer those questions, perhaps the individuals behind the IRS letter have also had their attorney look into this.

 

[Muddy]

How much significance that has as far as the IRS is concerned is something I guess we're going to find out. Its possible the IRS is only concerned about tax issues and doesn't care about any abuse of member's rights, but who knows.QUOTE]

Based on my 20 + years experience the IRS doesn't give a darn about anything other than tax issues (spell that $$$$) and will only get involved in member rights if it helps win a tax assessment that's appealed in court.

 

[Paul]

Based on my 20 + years experience the IRS doesn't give a darn about anything other than tax issues (spell that $$$$) and will only get involved in member rights if it helps win a tax assessment that's appealed in court.

John, you may well be right about that.

But even so, you would think that if they find the NHRA in significant lack of compliance with the 501(c)6 guidelines that in addition to any financial penalty they impose that they would require that the NHRA get back in compliance. It doesn't seem like they would let them just run the show like they own it again.

And that potentially opens the door to an edict that the NHRA must really begin acting like the business league designation of a 501(c)6.

Maybe this is an optimistic viewpoint, but forcing them to really operate like a true business league could bring some level of real member control back into play.

 

[Muddy]

Their threat would not be about member rights but current tax obligations. They could take away the current not-for-profit status or simply assess liability and leave it to NHRA to take action to come in compliance under the implied threat of future tax liability. This is an over simplication but I can promise you the IRS doesn't care about member rights except as it limits tax liability.