Complaint filed with the IRS says Summerfest operator should forfeit tax-exempt status

The main gate at Henry Maier Festival Park.

Last updated on April 1st, 2022 at 11:28 am

A complaint recently filed with the IRS against Summerfest’s operator claims the nonprofit Milwaukee World Festival Inc. operates as a commercial entity that leverages its tax-exempt status to “engage in anti-competitive behavior.”

The complaint, first reported Wednesday by Urban Milwaukee, contends MWF should forfeit its 501(c)(3) status, which is given to organizations that are operated exclusively for charitable, religious, educational, and other tax-exempt purposes.

MWF, which was founded in 1965 as a 501(c)(3) corporation, annually hosts Summerfest and a series of other events outside the festival dates and maintains Henry Maier Festival Park, the 75-acre property on Milwaukee’s lakefront. It states that its mission is to “promote an understanding of different ethnic cultures, the histories and traditions of various nationalities, harmony in the community, civic pride and provide a showcase of the performing arts.”

The complaint alleges MWF’s “deliberate and intense” competition with for-profit concert promoters and venues for performers and customers demonstrates it operates as a commercial enterprise, in violation of its IRS status. The complaint was filed by an unnamed complainant and written by attorney Edward Greim of Kansas City-based Graves Garrett LLC, according to Urban Milwaukee. Greim could not be reached for comment Wednesday.

In particular, the complaint highlights MWF’s partnership with for-profit FPC Live, a subsidiary of LiveNation, which promotes concerts held on the festival grounds.

“Ostensibly benefitting from its tax-advantaged position and its ability to solicit tax-deductible donations from the public, MWF has positioned itself as the biggest player in the Milwaukee concert venue and promotion market,” the complaint said. “It has further positioned itself to become even more competitive with for-profit firms by requiring its performers to agree to restrictions on playing at other venues as a condition of performing and by engaging in strategic partnerships with for-profit firms to strengthen its grip on performance venues in the area …”

The complaint alleges MWF is “known to require performers to agree to contractual provisions in which the performers agree not to host other shows for a period of time … prior to Summerfest,” allowing it to corner the market on performers for the summer and early fall months. Those practices create scarcity and drive up prices in the market, the complaint said.

“(T)hey are a far cry from the altruistic expansion of access to music and culture that that a 501(c)(3) aims to promote,” it said.

In a statement Wednesday, MWF said the complaint “mischaracterizes facts in a way that unfairly and inaccurately depicts how MWF operates.”

“The IRS has previously examined MWF operations and found that MWF continues to qualify for exemption from federal income tax. The organization has not significantly changed its operations since the most recent review,” the statement said, adding that MWF would cooperate if contacted by the IRS regarding the complaint.

The complaint comes amid the recent controversy generated by the FPC Live two-venue facility planned for the MWF-owned surface lot west of the Summerfest grounds in the Third Ward. While the project to some is anticipated to boost to the city’s profile as a live music and entertainment destination, others have raised questions about its impact on existing entertainment venues, including those owned by The Pabst Theater Group and The Rave/Eagle’s Club.

The complaint argues MWF’s proposed arrangement with FPC Live and real estate holding company Marquee Ventures LLC for the new facility would give the organizations control of venues with capacities ranging from 100 to 23,000 people.

“It will control talent from its inception, playing in coffee shop back rooms, until it matures to marquee venues for crowds in excess of 23,000,” which has the effect of stifling competition in the market, the complaint said.

Other concerns raised in the complaint included MWF’s pay for employees and contractors, 12 of whom make more than $100,000 annually, and its relatively small group of volunteers (10 in 2020). President and chief executive officer Don Smiley received an average compensation of $1.2 million annually from 2016 to 2020. Those compensation practices are out of line with other nonprofits, the complaint alleges.

This week, Summerfest unveiled its headliners for the 2022 festival, which will be held over three weekends in late June and early July. Attendance was down significantly last year due to the festival’s move to September, COVID-related entry restrictions and the emerging delta variant, officials said. The festival was canceled for the first time in its history in 2020 because of the pandemic. This year will be the first time the weekend-only format will be held in the summer months.

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