It is not unkosher only because the IRS wrote a letter allowing the Shubert Foundation to maintain this structure in 1969 when the tax code was amended to generally forbid such structures. The Foundation argued that to force it to sell the Organization would endanger the American theater. In 1969, that argument had more weight than it might hold now.
The IRS decision is unusual. As the Times reported:
'Even today, few people seem aware of the Shubert tax ruling. After it was recently brought to his attention by a reporter, John Edie, the counsel for the Council on Foundations, the foundation trade organization, expressed surprise. "I've been here for 12 years, and this is the first exemption I've heard of," he said. "This is pretty amazing."'
The New York Times article for background: http://www.nytimes.com/1994/07/11/us/irs-ruling-wrote-script-for-the-shubert-tax-break.html
What is bothersome is the Shubert Organization/Shubert Foundation is overseen by no one. An NFP is theoretically run in service of its community and thus must expose much about its finances. The community can support or not support the organization, in part based on that information. Typical public data points are the earnings from the NFP of any board members, any contracts with companies owned or managed by board members, and the salaries and identity of the top five earners. The IRS report for the Shubert Foundation shows payments to only two members of its board, the president who gets $90 k for an estimated 5 hours work per week ($346 an hour, not a lot for a NYC lawyer, for example), and the Assistant Director/Executive Director who is paid about $334k for an estimated 40 hrs (only $160 per hour).
However, all the members of the board of the Shubert Organization are directors of the Shubert Foundation. How much are they paid from the Organization? No one knows--but themselves. If the Organization was a publicly held corporation, some reporting would be done to benefit the shareholders' decision making. If it was a privately held corporation, the owners would surely know and approve such salaries. There is no oversight.
It is not criminal but the interlocking ownership is a moral hazard.
Having written that, it is undeniably true that the Shubert Foundation/Organization did much to keep Broadway theater alive in the terrible 1970s-1980s. Maybe only a nfp organization could have. After all, the Nederlanders sold the Mark Hellinger to the Times Square church in 1991.
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