Oscar Law: The Nonprofit Structure of the Organizations Behind the Awards

Years ago, I was in Miami for some sort of academic conference at the same time one of the television or music academies was filming an awards ceremony in downtown Miami.  I am almost certain it was the Latin Grammy Awards.  I found a 2003 NY Times article that seems to confirm my recollection.  I watched the comings and goings from my hotel balcony.  It started when some workers rolled out a bright red carpet and soon, a gaggle of what appeared to be paid groupies qued up on both sides of the carpet, four or five deep it seemed.  They were quiet and well-behaved until a black limousine arrived, from which one or two people dressed in elegant evening wear emerged.  As if on cue, the groupies began screaming and hollering, maneuvering for photos and autographs. 

It was early evening and the tropical Miami sunshine was bright.  Still, entertainment media gathered around with microphones, their camera crews with portable lamps.  The stars stopped for photographs and then each in turn shared some televised laughter and soundbites with the reporters.   Meanwhile, the black limousine rolled off only to return a few minutes later with another somebody or two, and the whole process repeated itself.  That went on for a few hours and I knew then that all the world really is a stage.  There were only two or three limos actually, and had it not been for the paid groupies, I doubt there would have been much of a crowd.  It was all staged.  The few limos, hired by the production company it appeared, rotated to the back of the hotel to pick up stars who were apparently told where to park their regular cars, and then drove back to the front to drop them off near the venue’s entrance.  As if they had actually driven downtown in their normal chauffer driven limos.  

The memory returned because Reid Weisbod and Jordan Bondurant have an interesting article coming out entitled “Oscar Law” that ought to make for good beach reading this summer.  It is more than scholarly, with all the footnote bells and whistles the law review editors insist upon.  But it is an entertaining read, as well.  Like one of those good long New Yorker articles.  Its a descriptive piece accented by various, sometimes laugh inducing vignettes regarding the on stage, behind the scenes and sometimes petty conflicts engaged in by all the beautiful people who gather at the ceremonies.  Like Bono accepting his award and saying on stage and on air, “this is really really fucking brilliant,” a “fleeting expletive” leading to a whole new FCC rule and two Supreme Court opinions.  They use the piece to describe all the various bodies of law that converge around the Oscar, Emmy, Golden Globe, Tony and Grammy awards.  A big part of the convergence is tax law.  Here is an interesting extract in that regard:

All major award-granting academies employ an organizational structure that bifurcates operations between awards operations and philanthropic activities. They carry out their primary corporate purpose—producing an annually televised ceremony to bestow awards for outstanding industry achievements—through a nonprofit entity entitled to federal tax-exempt status under 26 U.S.C. §501(c)(6) as a business league. Philanthropic activities—promoting education and literacy of the performing arts—are accomplished through charitable nonprofit entities that are federally tax-exempt under 26 U.S.C. §501(c)(3).  Bifurcation allows the academies to cherry-pick the benefits of each tax-exempt status. For instance, a business league can derive tax-free income from noncharitable award-related operations that would not be tax-exempt under §501(c)(3). Conversely, a charitable nonprofit entity can solicit tax exempt philanthropic contributions that are also tax-deductible for donors, but the same gifts would not be tax-deductible for donors if given to a §501(c)(6) entity. 

The Academy of Motion Pictures’ organizational structure offers a nice illustration of bifurcation’s tax advantages: As noted, the Academy uses a §501(c)(6) entity for all Oscar-related activities while maintaining a host of §501(c)(3) charitable nonprofit entities for its philanthropic work. In 2022, the Academy’s (c)(6) business league generated more than $80 million in tax-free income from its award show operations.  Additionally, the Academy’s charitable nonprofit entities solicited $41 million in tax-free income from donors who were entitled to itemize their charitable gifts as deductions on their own income tax returns.  The Academy’s combined net income of roughly $121 million was entirely tax-free.

Bifurcation also enables academies to engage in lobbying activities through (c)(6) entities without running afoul of political action restrictions that apply to (c)(3) entities. That is because treasury regulations expressly permit (c)(6) entities to engage in political lobbying: “a business league [is entitled to tax-exempt status] even though its sole activity is directed to the influencing of legislation which is germane to such common business interest.” In contrast, §501(c)(3) statutorily prohibits charitable nonprofit organizations from devoting a “substantial part of [its] activities [to] carrying on propaganda, or otherwise attempting, to influence legislation” and from participating or intervening in “any political campaign on behalf of (or in opposition to) any candidate for public office.” Some academies have used their (c)(6) entities to lobby for legal reforms on behalf of their industry. For example, in 2015, the Broadway League touted a successful lobby campaign seeking special federal tax incentives for theater investors.

There is much more of interest, tax and otherwise, but I have already quoted enough.  After you read the article you can add to the ooohhs and ahhhs when you have your next watch party.  Yeah, you can captivate your guests with your knowledge of the tax structure behind the Oscars.  They’ll love that.  

darryll k. jones