Allied Charities of Minnesota is working to resolve the issues raised by the IRS' ST.
PAUL EXEMPT ORGANIZATION (EO) GROUP IN REGARDS TO LAWFUL PURPOSE
EXPENDITURES (LPEs) MADE TOWARD REAL PROPERTY TAX PAYMENTS.  We
were placed on notice last fall that such "A9" LPE payments are considered by the local
EO Unit as conveying private inurement. This new position (which the IRS had the
Gambling Control Board publish in the January 1999 Gaming News) is a product of their
"literal interpretation" of the law (now that EO, rather than the Excise Tax Division of the
IRS, has jurisdiction over such taxes).  Basically, the IRS EO Unit is now saying that
such payments constitute a dollar-for-dollar reduction of members' individual dues (at
least for veterans organizations or fraternals not operated under a  closed door' policy).
Since, in the logic of the IRS, the gaming proceeds paid toward real property taxes really
effect a "dues reduction" for each member of the licensee, this is equivalent to dollars
from gaming proceeds going to each member's pocket which equals impermissible
"private inurement". In the presence of such "private inurement", the relevant
EXCEPTION from application of the gaming excise tax fails, and the IRS then requires
Forms 730 and 11-C taxes be paid (again, this is for non-closed door membership groups
who are making real property tax payments under A9, or indeed, paying certain other
LPE's such as Gambling Control Board-authorized facility repairs).

 Those of you who read our hand-out on this subject from the annual convention (which
was mailed to you late in December) or who read January 1999 Gaming News' IRS
article on this point, know that IRS' St. Paul EO policy states that you may be subject to
Form 730/11-C taxes even if the IRS had previously made refunds of such taxes to you in
agreement that no "private inurement" was present under their past interpretation. It is
especially troubling that the IRS' now-revamped measure of "private inurement" will
apparently impose upon some licensees to Form 730/11-C taxes not just on present and
future months, but also on open periods FROM THE PAST (and at least one ACM
member has had a 1996-1997 audit in which such liability is being assessed!)

 While the relevant questions in light of this situation are "when is this change effective?"
and "how does a taxpayer file now in order to protect itself today?" we have not yet
achieved ANY satisfactory answers from the IRS on these points. (Basically, the IRS eyes
this not as a change but a correction of their past mishandling of the issue, which they
think was advantageous to us, so why are we complaining? . . . Also, without any
challenge ever having been made to this characterization of MN LPE's as conveying
private inurement, they are not sympathetic that we are entitled to "protection" should
they eventually be proven wrong.)

 ACM is considering how to challenge the validity of the IRS' new position, and fairly
apply same to past periods. The ACM Board would like to test whether the IRS' revamped
position can be upheld as a matter of law. ACM's position on appropriate definitions of
"private inurement" (which is that real property tax payments and all other
statutorily-mandated LPE's under Minnesota Statutes Chapter 349 are incapable of
conveying "private inurement" as same is defined in both the excise tax and exempt
organization provisions) has been brought to the attention of both the District Managers
who the St. Paul EO Group reports to, as well as the National Office.

 In late February our tax counsel (Eve Borenstein) made an in-person visit to Technical
and Compliance officials at the IRS' MidStates Key District Office (EO) in Dallas. Given
the vast problems this sector of Minnesota taxpayers has endured from the IRS' excise
tax collection division in the past (everything from vast over-collection of Forms 730 and
11-C taxes to uneven development and application of their eventual posture on what
remittances from gaming accounts convey "private inurement"), she asserted our
position (and its legitimate chance of prevailing!) including our belief that EO should
neither impose nor collect tax under their now-revised posture until substantial
authority (case law or EO National ruling) is developed! To this end, ACM continues to
pursue an administrative agreement with the IRS which would apply to ALL Minnesota
exempt organizations conducting Chapter 349 gaming.

 The irony of this situation, in light of the Internal Revenue Service's new mission
statement, cannot be lost. Per the IRS' own Web-page, their new mission "represents a
new direction ... a customer-oriented organization". And what is that mission? To
"Provide America's taxpayers top quality service by helping them understand and meet
their tax responsibilities and by applying the tax lawwith integrity and fairness to all".
The IRS EO Division must see that imposing gaming excise taxes now, on a sector with
10 years of experience witnessing the failure of the IRS to understand and explain
Minnesota licensees' appropriate gaming excise tax responsibilities, is premature. Their
goal of applying the law accurately need be undertaken not only credibly (after
determining WHAT that law is), but with every assurance that same be applied with
integrity and fairness!

 Allied Charities of Minnesota's position on Lawful Purpose Expenditures remitted to
licensees' own "benefit":

 THE LPE DEFINITIONS SET BY MINNESOTA'S LEGISLATURE NEITHER CONVEY
NOR AUTHORIZE (NOR WERE THEY INTENDED TO BRING ABOUT) THE
TRANSFER TO MEMBERS OF DOLLARS OR MONETARY BENEFITS FROM GAMING
PROCEEDS. NO INUREMENT TO THE BENEFIT OF MEMBERS OR OTHER PARTIES
RELATED TO A LICENSEE HAS BEEN CREATED IN THE LEGISLATURE'S
DEDICATION OF GAMING PROCEEDS TO LPEs. THE LAWFUL PURPOSE
EXPENSES MINNESOTA'S LEGISLATURE AFFORDS PRIORITY TO -- DIRECT
SUPPORT OR CONDUCT OF COMMUNITY BENEFIT AND/OR CHARITABLE
ACTIVITIES, AS WELL AS THE SATISFACTION OF TAX AND AUDIT BURDENS
IMPOSED BY GOVERNMENTAL JURISDICTIONS ON LICENSEES -- REPRESENT
THE STATE'S PROMOTION OF, AND MAINTENANCE TOWARD, THE END RESULTS
INTENDED TO BE EFFECTED THROUGH THIS FUNDRAISING MECHANISM. THE
LEGISLATURE'S DEDICATION OF LPEs TOWARD TAX LIABILITIES (INCLUDING
REAL PROPERTY TAXES OF THOSE CONDUCTING GAMING FROM THEIR OWN
PREMISES) OPERATES TO INSURE THAT LICENSEES WILL NOT HAVE THEIR
ABILITY TO GENERATE FURTHER DOLLARS TOWARD THE COMMUNITY
BENEFIT AND/OR CHARITABLE END RESULTS PROMOTED BY THIS STATUTE
IMPEDED BY TAX DELINQUENCIES.