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Complaint to IRS accuses Summerfest owner of abusing tax status

Posted at 6:48 PM, Apr 01, 2022
and last updated 2022-04-04 12:26:03-04

MILWAUKEE — A new complaint to the IRS alleges the company that runs Summerfest has been abusing its nonprofit status for years and is moving to compete against for-profit music venues in the city.

Over 12 pages, the filing details evidence, it claims, that Milwaukee World Festival Inc. (MWF) is in effect run as a for-profit business.

The company, established in 1965, is listed as a 501(c)(3), which means it doesn't pay taxes because of it's charitable mission.

According to tax documents in the filing, that 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, activities and recreation for the public and employment opportunities for the youth of the community."

But the complaint, drafted and filed by Kansas City-based law firm Graves Garrett, suggests MWF shifted its focus to profit years ago.

“An organization begins to diversify its revenue streams, and begins to act not really for the public interest, but for the specific monetary good of the organization itself," said Eddie Greim, an attorney at Graves Garrett.

According to the documents, one example MWF has drifted from its roots — CEO Don Smiley's salary.

The filing shows he made more than $970,000 in 2017 and in 2020 nearly $1.3 million.

By comparison, the complaint says the director of the Wisconsin State Fair, also a non-profit, made about $140,000.

But concerns in the filing extend beyond high CEO salaries.

The law firm writes that MWF is leasing land it owns to Frank Productions Company Live and global music promoter Live Nation. The plan, according to the complaint, is that those companies will build for profit-venues on that land to compete with existing local venues of various sizes.

In addition to larger Summerfest venues, the new venues, the filing alleges, would help in seizing market control from other for-profit promoters.

"No one wants them [MWF] to be pulled apart and damaged in anyway. But you know, you also need Summerfest to be more cognizant of the needs of the city around it and not just on itself," said Gary Witt, CEO of the Pabst Theater Group.

Witt said he's not behind the complaint to the IRS.

"We're very good at what we do. And if we were a sports team I wouldn't want to play against us," said Witt.

The filing also claims that in a further attempt to seize market control, Summerfest requires talent not to perform in Milwaukee up to six months before their schedule appearance at Summerfest.

In response to the allegations, Milwaukee World Festival released this statement:

"Milwaukee World Festival, Inc. has operated for 54 years to fulfill the non-profit mission set forth in its Articles of Incorporation, which include the promotion of an understanding of different ethnic cultures and nationalities, and the provision of a showcase for performing arts. We are confident that our operations are in furtherance of that mission.

The referral to the IRS 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.

If contacted by the IRS regarding this referral, we will, of course, cooperate and provide any additional information the IRS requests."