My favorite news story from last week: it turns out that ten years ago, a group of dog owners in Tribeca installed a lock on a public New York City dog park, and started charging people a membership fee—$120 a year—if they wanted to use the (public!) park. They created a list of rules, most of which focused on keeping others out, and, if you violated the rules, you were kicked out, and apparently had to let your dog play with other proletariat dogs. (N.b.: this state of affairs lasted ten years, until the city finally cut the lock and reopened the park to the public.)
This story has everything: self-absorbed and self-righteous New Yorkers; a funny thing I read on Twitter while sitting in church Sunday; a bit on this week’s Wait Wait Don’t Tell Me. And, perhaps more importantly, a tax angle. See, these snooty, selfish New Yorkers did something more than hijack a public space—they formed a tax-exempt organization to manage it.
Dog Owners of Tribeca Inc.’s 2016 Form 990 reports that it is exempt under section 501(c)(3) as a private foundation. In 2016, it had $10,440 of revenue that seems to have been almost exclusively membership fees.[fn1] (If its full revenue was $120 memberships, that means it had 87 members that year.) And it spent about $6,000 more than it brought it on cleaning, repairs, insurance,[fn2] power washes, and supplies.
Anyway, this whole thing raises three (tax) questions in my mind:
First, shouldn’t Dog Owners of Tribeca lose its exemption? In Bob Jones, the Supreme Court held that illegality or violations of fundamental public policy were incompatible with tax exemption. I imagine that stealing public land and excluding the public from that land is illegal (at least as illegal as encouraging people to protest through trespass). And I’m sure that public policy discourages taking public lands. So, given that Dog Owners of Tribeca has been acting illegally or, at least, against public policy since its inception, it should never have qualified for exemption.[fn3]
Second, if it wasn’t exempt, its members shouldn’t get a deduction for their membership interests. I mean, maybe they shouldn’t have anyway, since there was a quid pro quo: in exchange for their $120, they got access to the park. But that rarely prevents members of, say, museums from deducting some portion of their donations. And, while I have no idea how many of the members deducted their membership interests, I suspect that at least some did. While the statute of limitations is only three years, if a person was a member for the last three years, deducted her membership fee, and was in the top tax bracket (which is at least plausible: the average household income in Tribeca is north of $200,000), she would owe an additional $143, plus interest and penalties.
Third, Dog Owners of Tribeca probably owes taxes on its revenue. If it were a tax-exempt organization, of course, it could exclude any income other than UBTI. But the Ninth Circuit has held that membership fees paid to a non-stock corporation must be included in the corporation’s gross income.[fn4]
[fn1] Note that the revenue it reports on page 1 is less than the public support it reports on Schedule A Part III.
[fn2] I don’t know a ton about insurance, but wouldn’t an insurance company require, you know, some kind of evidence that they owned the property? Unless it was some kind of D&O insurance, of course.
[fn3] How did it get an exemption? Well, it certainly didn’t tell the IRS its charitable purpose was to keep the unwashed masses out of a public space. Rather, it said it was formed to “assist the city of New York in cleaning and maintaining the Warren Street Dog Park — a city park.” It acknowledged in its IRS filings that the park was public!
[fn4] See, e.g., Affiliated Gov’t Emp. Distributing Co. v. Comm’r,322 F.2d 872 (9th Cir. 1963); U.S. v. Federal Emp. Distributing Co., 322 F.2d 891 (9th Cir. 1963).
One thought on “Dog Owners of Tribeca”
If it was a public park, and they put a padlock on it, why wouldn’t someone with bolt cutters just keep taking their lock off? Are NYC residents that timid?