IRS Issues

An important message about the HCCA and the IRS
by Richard Cutler
Updated March 5, 2013 (at the top)

Posted March 5, 2013:

As stated in January, the Horseless Carriage Educational Institute (HCEI) was approved by the IRS as a 501(c)3 organization. That Board has met and is laying out plans.

We did receive additional questions from the IRS regarding the Horseless Carriage Club Association (what we're referring to as the "new" HCCA) and a response was provided in March. Most of the questions are related to unrelated income from outside of the Club as there is a percentage we are not allowed to exceed.

At this point, we think we'll be fine, but the 501(c)7 status we're seeking has not been granted so the next step of asset transfer is still on hold.

I think there are two things that bear repeating:
1. Lifetime memberships should not be affected because of the efforts of your Board to protect that status.
2. When we are all done, we will be able to say, "doing business as Horseless Carriage Club of America" so the old name will not fade away.

Below are all the previous updates in chronological order.

Previously posted 2011:
As has been touched upon in the Horseless Carriage Gazette and meetings, the HCCA is having difficulties with the IRS. Since changes in the status are happening quickly, the web site seems to be the best way to keep you up to date. There is much detail. I can only give a brief summary here.
In 2006 the Horseless Carriage Club applied for a 501(c)(3) not for profit status that would allow donations to the HCCA to be tax deductable. Prior to that the HCCA had the potential of at least two major gifts that went elsewhere because we did not have the tax deductable status. In 2007 the IRS granted us that status.

In 2010, the IRS decided to perform an audit on the HCCA. During the process, the IRS agent determined that the HCCA wasn't living up to the definition of "charity" for the public benefit. In our case that is education.
While the HCCA has been doing everything it said it would do in the original application, the agent disagreed. Frank Hurley, our president in 2010, and his team put together as much proof as possible that we are living up to our educational mission to the public and not just within the confines of HCCA membership. This was not enough.
In May of 2011, we received notification that our 501(c)(3) status was being revoked. We had 30 days to submit an appeal, which we have done. We understand that this appeal process will take some time. Time we are using to organize a multi-pronged defense.
When an organization with a 501(c)(3) status goes out of business, ALL assets must be turned over to another 501(c)(3) organization that has a similarly approved mission.

With the revocation of the 501(c)(3), the HCCA is essentially put out of business. This is obviously completely unacceptable.
I will keep you up to date as there is "breaking news", and there will be some additional explanation in the Horseless Carriage Gazette. In the mean time, I feel we have a good game plan and with the assistance of our attorneys we will be developing a detailed approach to a hopefully satisfactory negotiated settlement. Your HCCA Board is not sitting back. This issue is foremost in everyone's mind.

Posted July 18, 2011:
We have not heard from the IRS as to who the appeal agent will be assigned to our case. Our current thinking is that we might have a hearing this coming December, but we simply don't know. In the mean time, the HCCA will continue to function with no changes to our operation or in our longer-range plans. We are not out of business. Tours are being scheduled, the 2012 budget is being prepared, the 2012 annual meeting and convention is scheduled for February and our very special 75th birthday party will be held in Colorado Springs over the 4th of July.

Posted September 29, 2011
We still do not know who the appeal agent is or the schedule. In a letter of response to the HCCA appeal letter from the original agent, there is a strong hint that we are still seen as a 501(c)(7) not for profit "social" club. Of course we think we are as well. Not waiting for our appeal to be heard and then scrambling, we are moving forward on two fronts. One is to set up a new 501(c)(3) organization to deal with education exclusively and a "new club". This is a little complicated.

Think of the HCCA as being made to go away by the IRS. So we reinvent ourselves in the mean time. As a place-holder we're seeing if "Horseless Carriage Club International" is a name we can use. If we can, we're going to file all the papers we need to set that up with the same rules, by-laws etc. as the current HCCA. This gives us an option if the negotiations with the IRS don't go well.

Eventually we could maintain the new name or go back and see if the HCCA name is available (which it should be!) and then change our name back. There are options being considered as well, but are not at all developed. If your head is spinning, welcome to this new aspect of the club.

As said before, we're still in business and we're doing all we can to keep the HCCA interesting and growing.

March 2012:

The HCCA Board was reorganized at the February annual meeting and convention. During the reorganization, we decided it was best not to change the HCCA IRS negotiating team at this time so I will continue in that role of behalf of the HCCA. The other members of the negotiating team are also unchanged with our attorney and CPA staying involved.

There is no new earth shattering news on the IRS front as of right now. There have been a couple of informal discussions between our attorney and the IRS appeals agent in anticipation of a more meaningful conference call. We hope to have that soon.

As said previously, your Board has been planning for the worst while hoping for the best. It is probably time to be little more specific. One of the things we have done is establish a new organization called the Horseless Carriage Educational Institute (HCEI). This will be a new 501.c.3 organization dedicated to education exclusively. Their first Board meeting was held in February. So why would we do this?

There are a couple of reasons. First, if the HCCA is, in fact, forced to go out of business (absolute worst case scenario), we will have a new friendly, though arms length away, organization identified where we could send our assets. Of course, we recognize there are other options as well. Secondly, in the long run, the HCEI could focus on education and the HCCA can focus on what it does best, touring.

Next, the HCCA is setting up a new organization on paper called the Horseless Carriage Club Association (or as we've been calling it the "new HCCA"). This would be a holding organization with our old 501.c.7 designation so we can continue as a group with hopefully little noticeable change to our membership. Notice I said "holding". If the old HCCA goes away, the new HCCA can apply for the old name as it would then be available.

If all this sounds like a bunch of BS, you might be correct and hopefully we'll not have to jump through any more ridiculous hoops to get to where we want to go. But it is better to have things in place in case we need them and not use them instead of wishing we had options and didn't have them. (Hope for the best, plan for the worst)

This has all been a lot work over the past year. And while it has been a lot of work, your Board continues to hope that it will prove unnecessary. Wish us good luck!

Posted May 29, 2012

Another Board meeting has come and gone and we are still waiting for an official letter from the IRS appeals agent. Unofficially, it looks like the current HCCA will have to dissolve. However, I prefer to say "'evolve" into the "NEW" HCCA". If that is the case, there will be many questions that we'll need to have answered by the IRS as the devil is in the details. That official letter will be critical!

If the HCCA in it's current form dissolves, our assets will go to one or both of the two new organizations we've established. Along with the assets will be our obligations (or liabilities) as well.

One "liability" is the money the HCCA has collected for lifetime memberships, about 10% of our members. Last year, Gil Fitzhugh undertook a huge effort to quantify the amount money needed to meet our obligations to this special group and with that actuarial study completed, the Board identified that sum as a "liability" that will be part of our ongoing discussions with the IRS.

Other aspects of our organization are being reviewed including our logo, merchandise, insurance etc. All with the goal of continuing as an organization no matter what we're called.

While no one likes dealing with this IRS issue, your Board has no intention of giving up. We have learned a lot through this ordeal and are doing everything we can think of to avoid any hardship to the membership as we continue to plan for the future. WE ARE STILL IN BUSINESS and plan to stay that way!

Posted July 30, 2012

We still have not received our official letter from the IRS appeals agent. In fact they requested more time up to December 13, 2013 to respond to our appeal. In the mean time, I feel confident that your HCCA Board has things well lined up for whatever the IRS says and we're in a good position to argue towards a reasonable settlement.

We have been getting a number of calls from concerned regional groups. That is understandable if you're not directly in the loop. It is the fear of the unknown. All I can do, however, is try to reassure the members that your Board is not sitting idly by. The Board continues to be proactive laying out options to the possible IRS final position with goal of making whatever transition that is required to be as seamless as possible.

For example: You MAY get a new membership card that says "Member of the Horseless Carriage Club Association dba Horseless Carriage Club of America (HCCA)". Members would still get the Gazette, continue to have access to the web site, and the office would stay the same. Current Life Members would still be Life Members. In other words, we think any changes wouldn't be discernable by most.

As I keep saying, "we are still in business (as the HCCA)" and we are planning well out into the future. National tours are being encouraged, Board elections are still occurring, and our membership continues to grow! The worst thing we can do worry about things over which we have no control. Instead we'll implement those things where we do have control.

If you were at the Colorado Springs tour, you saw a very dynamic HCCA. We plan on keeping it that way.

Posted September 26, 2012:
I would be thrilled if I could write that the IRS issues have been resolved. I can't. In fact there has been no word from the IRS since they sent a letter requesting more time to respond to our appeal letter up to December 13, 2013.

So while we are "patiently" waiting, I thought it might be a good idea to summarize where we are:

What we have NOT done is give up. The Board did not fold while complaining that the "sky is falling". We have taken an engineering approach to analyze and solve the problem. With the exception of those measures considered prudent under the IRS cloud, the Club is functioning nicely. National tours are being approved. Regional groups are forming. Membership is up!

What your Board has done to protect the Club against a worst case scenario is form the Horseless Carriage Club Association ("new" HCCA) as a 501(c)7 organization. Bylaws were written and paperwork submitted. This is a recognized organization in California and we're waiting for IRS approval (they are late on this as well). If we're successful in negotiations with the IRS, this organization will not be needed.

We have formed the Horseless Carriage Educational Institute (HCEI) as a 501(c)3 organization. This group has already had some meetings, but is essentially waiting in the wings for any IRS fallout if they are needed.

I'm asked constantly what's the difference between the 501(c)7 designation and the 501(c)3 designation. Both are not-for-profit. Both can accept donations. However, donations to a (c)7 are NOT tax deductable where they are tax deductable under (c)3 designations. A (c)7 is usually a social organization. A (c)3 organization is required to provide a community service of some kind.

The Board mantra these days is "we're still in business." With that in mind, we hope the membership sees little difference in the services they receive.

Posted December 3, 2012:

In my last posting I said the IRS wanted until December 13th to provide the HCCA with its response to the appeal. We sorta got that with a 5 page form. I say "sorta" because our attorney and I agree it says nothing. They didn't even put our name on it.

Apparently this is something of a standard MO for the IRS and they will be told that this not something that is acceptable. This is also a standard MO. (Games!)

What this essentially means is that they are confirming that we are no longer a 501(c)3 organization and are a for profit organization. That's what was said before. We have been filing with the IRS as if we were a for profit organization just to be safe, so no big deal there.

We do have applications into the IRS for the new 501(c)3 organization (HCEI) and the new 501(C)7 organization (we've come to call the "new" HCCA). These should have been approved by now, but haven't. Because they have not, we're not in a big rush to get the appeal and agreement with the IRS finalized.

So what is the current prognosis? This is not confirmed, but we think the "new" HCCA will be approved and all assets and liabilities of the old (current) HCCA will be transferred to the new HCCA. We will carry on with some kind of name manipulation that could include "dba Horseless Carriage Club of America".

The 501(c)3 organization (HCEI) will be there if we need it for fund transfers, but if not for that purpose, I hope it can take on a life of its own and provide the education we would like with tax deductable donations!

The bottom line remains, we are still in business. Your Board of Directors has done, and will continue to do, all that is needed to keep us in business. Our name may change, maybe more than once, but we're not going anywhere. Our goal is to make any required transition as seamless as possible with no interruptions in service or benefits.

Posted January 1, 2013:

We can start off the New Year with some good news. The IRS has approved the new 501(c) (3) not for profit organization known as the Horseless Carriage Educational Institute (HCEI). The HCEI Board will be meeting in February to lay out plans. We are still waiting for more information on the existing HCCA status and the approval from the IRS on the new 501(c)(7) HCCA, but with the HCEI approval, the HCCA now has something to fall back on if required.

In the mean time, the HCEI has a mission statement and can start raising tax deductable funds to promote education of the history of early automobiles!