S.C. Businessman Battling IRS in Free-Market Fight

June 27, 2014

Investigative Reports

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IRS BuildingAs the Internal Revenue Service faces tough questions these days about thousands of missing emails from the then-director of the IRS division accused of targeting conservative groups, Skip Hoagland is waging his own national battle involving the massive tax-collection agency.

The longtime Hilton Head Island businessman, whose company, Domains New Media LLC, invests in internet domain names, claims the IRS is not doing its job when it comes to enforcing federal tax laws for chambers of commerce and convention and visitor bureaus nationwide.

Hoagland contends that chambers of commerce and convention and visitor bureaus (CVBs) across the country – several of which in South Carolina receive millions of dollars in public funding and pay six-figure salaries to their leaders, records show – are competing with local advertising media businesses by siphoning big chunks of advertising and marketing dollars from other businesses.

The end result is some local advertising media businesses that are chamber members have been forced to close, Hoagland says.

In documents filed with the IRS Whistleblower Office – copies of which Hoagland provided to The Nerve– Hoagland said he believes that many chambers and CVBs are “in violation of their non-profit status” as permitted under federal law and have “failed to pay their fair share” of federal taxes, known as “unrelated business income tax,” which generally tax-exempt organizations are required to pay for certain profit-making activities.

“Explosive increases in internet sales and marketing has accelerated this state of affairs dramatically in recent years and there has been a transformation in these organizations to a for-profit business model,” Hoagland wrote in a document submitted to the IRS. “These chamber of commerce and convention and visitors bureau entities have changed course in recent years in recognition of these profit making opportunities.”

Hoagland provided The Nerve with a list of 78 chambers, CVBs and other similar organizations nationwide, which he initially asked the IRS two years ago to investigate, based in part on the amount of revenues over the prior three years – generally $12 million – as reported on their federal income tax returns. He says the number of organizations making the list has since increased to more than 100.

Included on that list from South Carolina are the Hilton Head Island-Bluffton Chamber of Commerce, Myrtle Beach Area Chamber of Commerce, Charleston Area Convention & Visitors Bureau, Charleston Metro Chamber of Commerce, and the South Carolina Chamber of Commerce.

But although the initial filing is two years old, the IRS has taken no enforcement action to date, Hoagland says.

“The bigger crime is the IRS is doing nothing to enforce these non-profit codes, causing millions of uncollected tax monies by these chambers profiting from ad sales and paying no taxes – completely abusing our system and not contributing … to help pay for roads, schools and our military,” Hoagland told The Nerve.

In an email Wednesday to IRS analyst Lev Glikman, Rob Martin, an accountant at Sadowski & Company in Savannah, which is assisting Hoagland, said, “We are frustrated by the lack of IRS support for this program.”

“As an additional measure intended to protect Mr. Hoagland’s claims – please be advised that we intend to resubmit all of the above claims individually through the Washington office,” Martin wrote. “We believe that we have submitted more than 6,000 pages of documents. We will move forward to obtain individual claim numbers for each entity in violation.”

Martin in a separate email told The Nerve that “(w)e have had detailed and ongoing conversations with IRS staff” at their offices in Washington, D.C., Manhattan and Ogden, Utah, noting, “Mr. Hoagland’s claims remain pending.”

Contacted this week by The Nerve, Eric Smith, an IRS spokesman in Washington, D.C, declined comment on Hoagland’s filings, saying only, “We are barred by law from commenting on a particular disclosure.” He referred The Nerve to online IRS reports on whistleblower cases.

Under federal law, if an IRS whistleblower complaint results in the identification of more than $2 million in owed taxes, penalties and interest, the person making the complaint is entitled to receive an award worth between 15 percent and 30 percent of the total proceeds that the IRS collects, according to the agency’s website.

No individual award amounts were listed in the agency’s fiscal 2013 report to Congress, though 130 awards were “paid in full” that year.

Publicly Subsidized Chambers

In a written response this week to questions from The Nerve about Hoagland’s claims, Brad Dean, president and CEO of the Myrtle Beach Area Chamber of Commerce said his organization “fully adheres to all local, state and federal laws as well as regulations set forth by the IRS.”

Dean said the chamber owns a for-profit corporation, called the Myrtle Beach Area Commerce Center, which he noted was “formed to capture and report unrelated business income and any related income taxes.”

Citing the federal law dealing with nonprofit organizations engaging in for-profit projects, Dean said his organization “recognizes that certain elements of its marketing and advertising activities fall within this definition.”

“The Chamber, in conjunction with its external auditors and other professional consultants have addressed this issue and continues to refine and enhance its systems, processes and reporting of UBIT (unrelated business income tax) since the formation of the Commerce Center in a comprehensive effort to comply with the Internal Revenue Code and related regulations,” Dean said.

The chamber’s year-end financial report for 2013 shows that it took in nearly $39.1 million in total revenues, about $29 million of which, or 74 percent, was public funds. The nearly $26.7 million listed as “net assets released from restrictions” in the “Local Government Support” category was derived from the “1% Local Option Tourism Development Fee imposed by the city of Myrtle Beach,” Jim Wright, the chamber’s executive vice president of finance, told The Nerve in a written response Thursday.

In addition, the report listed approximately $4.7 million in “net assets released from restrictions” through the S.C. Department of Parks, Recreation and Tourism.

Dean’s total compensation in 2013 was $417,036, according to the chamber’s annual federal income-tax return reviewed by The Nerve.

The Myrtle Beach chamber isn’t the only such organization in the Palmetto State that receives heavy public funding. The Hilton Head Island-Bluffton Chamber of Commerce, for example, received nearly $6.3 million in total revenues for the fiscal year that ended June 30, 2013, $4.4 million of which, or about 71 percent, was generated through “Visitor and Convention Bureau (VCB) projects,” according to the chamber’s annual financial report.

Funding for the VCB, a chamber division, is provided by “membership investment, the state of South Carolina, Beaufort County, the Town of Hilton Head Island and Town of Bluffton through accommodations taxes (ATAX) and the Department of Parks, Recreation and Tourism (PRT) funds,” the report noted.

As of June 30, 2012, the total compensation for chamber President and CEO Bill Miles was $351,003, according to the chamber’s most recently available federal income tax return reviewed by The Nerve.

Miles declined comment in a written response Thursday evening to The Nerve. In January 2013, Hoagland, through his company, filed a lawsuit in Beaufort County against the chamber, contending that it is a public body under the state’s open-records law because it receives public funding and must release detailed financial information of its operations. That suit is pending.

High-Paid Chamber Leaders

Otis Rawl, president/CEO of the South Carolina Chamber of Commerce; and Bryan Derreberry, president/CEO of the Charleston Metro Chamber of Commerce, did not respond this week to written and phone messages from The Nerve seeking comment.

An assistant for Helen Hill, executive director of the Charleston Area Convention & Visitors Bureau, toldThe Nerve that Hill was unavailable for comment this week. The organization’s federal income tax return shows that for the fiscal year that ended last June 30, it received nearly $12.5 million in revenue, $8.3 million of which, or 66 percent, came from government grants.

Following is the total annual compensation for those chambers’ leaders, according to the organizations’ most recently available federal income tax returns reviewed by The Nerve:

  • Rawl : $244,542 (as of Sept. 30, 2013);
  • Derreberry: $235,619  (as of June 30, 2012); and
  • Hill: $217,309 (as of June 30, 2013).

Outside South Carolina, the five top-compensated chamber leaders on Hoagland’s list provided to The Nerve were as follows, based on those organizations’ federal income-tax returns:

  • Thomas Donohue, president/CEO, U.S. Chamber of Commerce, Washington, D.C.:  $4,761,900 (2010);
  • Sam Williams, president/CEO (retired in 2013), Metro Atlanta Chamber of Commerce:  $798,757 (2012);
  • William Pate, president/CEO, Atlanta Convention & Visitors Bureau:  $745,423 (2012);
  • Robert Wonderling, president/CEO, Greater Philadelphia Chamber of Commerce:  $663,336 (2013); and
  • Joseph Terzi, president/CEO, San Diego Convention & Visitors Bureau (now called the San Diego Tourism Authority):  $591,731 (2013).

Hoagland says the public has a right to know what their local chamber leaders make and other details about their chamber’s finances. The 66-year-old says he plans to keep fighting for more transparency – and making as much noise about it as possible.

Besides taking out full-page ads in local newspapers, Hoagland has a website dedicated to his cause, StopChamberAbuse.com, and also announced he was launching two other websites to serve Hilton Head Island businesses and tourism – and to compete with the Hilton Head Island-Bluffton Chamber of Commerce.

Plus, Hoagland told The Nerve, “We fully intend on filing more lawsuits until all this abuse, violations and corruption is cleaned up in South Carolina.”

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.