Originally published on Forbes.com Sept 26th, 2014
I may have missed the Miss American Pageant on September 14th. I also may have missed John Oliver’s subsequent Last Week Tonight piece where he analyzed the Miss America Organization claim that they are responsible for $45 million in scholarships. After all we all know that girls go to college to get more knowledge. I did not , unlike most everybody else in the world, miss the IRS release of Private Letter Ruling 201438030 (Obviously CharitablePlanning.com whom we can thank for the link also noticed). To be totally honest PLR 201438030 might have nothing to do with Miss America, since private letter rulings are redacted, but the internal evidence that the organization, which I will call Your Hometown Pageant (YHP), is part of the Miss America empire is pretty strong.
Things Not Looking So Great For Miss America Organization
Why the Miss America Organization, which seems to be the mother-ship of the whole enterprise, is not, itself, handing out millions of dollars in scholarships is pretty clear from its most recent Form 990. MAO had expenses in excess of revenue of $431,763 for 2012 and $165,927 for 2011. It also had a loss in 2010 and just a small profit in 2009. From 2009 to 2012 net assets slid from $873,895 to $61,418. Scholarships, which are included in the expenses, have gone down, amounting to $339,000 split among 256 recipients for 2012. That, of course, is not the whole story. There are the various organizations that determine who will be Miss Alabama, Miss Alaska and so on to Miss Wyoming. I could find some, but not all of them on guidestar.org. For example, there is the Miss PA Scholarship Organization Inc which grossed $176,709 in 2013, of which $41,093 went for scholarships.
But That’s Not All
A problem that MAO has in raising scholarship money is that it cannot receive tax deductible contributions. MAO and many of the state groups are exempt under Code Section 501(c)(4):
Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare ….
In order to collect tax deductible contribution you need a 501(c)(3):
“religious, charitable, scientific, testing for public safety, literary or educational purposes or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals”
Despite its branding emphasizing scholarships MAO would have a hard time falling under “educational” with less than 5% of its revenue going to scholarships.
Which brings us to the Miss America Foundation Inc which according to its 990 raised $332,621 and handed out $143,000 in scholarships. The Foundation as a 501(c)(3) can receive deductible contributions. There are similar organizations at the state level such as the Miss Minnesota Education Foundation.
I don’t think the state level foundations are how MAO is getting to $45 million, but it does seem like a pretty clever technique to get more scholarship money.
The Miss America Connection
The need for the foundations, if they want to get tax deductible dollars, is illustrated by what happened when what I call YHP applied for exempt status. The qualifications to compete in YHP line up pretty well with Miss America.
1. Must be a high school graduate or successfully completed the GED testing program for high school equivalency for entry into college or a university degree program by the end of July before preceding the National Finals;
2. Must be a citizen of the United States at the time she enters her first pageant;
3. Never been married or pregnant;
4. Must not be an adoptive parent of a child;
5. Must be in good health and able to participate fully and without limitation in all program activities;
6. Must be of good moral character and not been in any act of moral turpitude
Among the various items of YHP literature cited in the ruling is this:
You submitted literature stating that you are the Miss C preliminary contest and an advertisement stating “You are invited to compete for the title of Miss C with an opportunity to move onto world’s leading provider of scholarships “H”. (Emphasis added)
“World’s leading provider of scholarships for young women” is the trope of the Miss America brand that John Oliver was questioning.
Why YHP Does Not Qualify Under 501(c)(3)
Let us count the ways.
You have also not established you meet the operational test as per Section 1.501(c)(3)-1(a)(1) of the regulation because you are operating for substantial non-exempt purposes in contravention to Section 1.501(c)(3)-1(c)(1)of the regulations. The information you provided shows: * You are operating for the private benefit of H as shown by the fact you use H’s materials, policies and eligibility requirements, and judging standards; in addition, you are providing H with qualified candidates to the pageants it operates. * You are operating for the private benefit of the contestants because all contestants receive at least a “nominal scholarship” for participating in your beauty pageant; this illustrates these awards are not scholarships within the meaning of the regulations. * You are operating for the private benefit of the winner of your beauty pageant because she receives a larger “scholarship” and mileage compensation but is under contractual obligations to you and H. * You substantially engaged in putting on a beauty pageant; this also serves a substantial non-exempt purpose as a recreational outlet for participants and community members.
The mysterious “H” is either the Miss America Organization or some other 501(c)(4) organization that runs a national beauty pageant and claims to be the world’s leading provider of scholarships.
The $45 Million Question
I don’t have the time to fully explore how MOA comes up with its $45 million number. There is a response to John Oliver’s piece. They seem to imply that maybe there is not really $45 million being spent. They point out that John Oliver confirmed that they are the still the largest provider of scholarships to young women as far as he could tell. Maybe I’m being picky here, but I don’t know that that is really true even if they really did hand out $45 million. According to its Form 990, Smith College provided $63,024,048 in scholarships in 2012 and that’s just the first place I decided to look.
More to the point if you look at the list of scholarships on their website, it is, well, kind of underwhelming. Miss America, herself, gets $50,000, but there are very few young women getting as much as $10,000 and most are getting less than $5,000. This is particularly troubling when you consider it is possible, although arguably not necessary, to spend quite a few dollars in pursuit of the dream. All in all, there are probably better ways to support women’s higher education than the Miss America Pageant.
John Oliver suggested just as an example the Society of Women Engineers, which apparently got a bump in donations thanks to his mention. Here is the Form 990 for their endowment fund. Of course I would have mentioned The Educational Foundation for Women in Accounting, but that’s just me.