The regulations define a business league as an association of persons, including legal entities such as trusts and corporations, having a common business interest. Its purpose is to promote the common business interest and not to engage in a regular business of a kind ordinarily carried on for profit. Its activities are directed to the improvement of business conditions of one or more lines of business rather than the performance of particular services for individual persons. These regulations have been held to have the effect of law by virtue of successive reenactments of the statutory provision. See Retailers Credit Association of Alameda County v. Commissioner, 90 F.2d 47 (9th Cir. 1937).

Chambers of commerce and boards of trade are organizations of the same general type as business leagues, and the requirements for exemption of business leagues are the same for these organizations. See Reg. 1.501(c)(6)–1. However, chambers of commerce and boards of trade direct their efforts at promoting the common economic interests of all the commercial enterprises in a given trade community. See Rev. Rul. 73–411, 1973–2 C.B. 180.

An organization must meet certain basic tests in order to be exempt under IRC 501(c)(6).

Business leagues rely, at least in part, on membership dues as a source of revenue. See IRM 7.25.6.4. To the extent that an organization receives income from nonmembers, the members are relieved of their burden of paying dues. In a case decided before 1950, the Tax Court held that net earnings inured to the members through a reduction in dues made possible by earnings from a business ordinarily carried on for profit. See National Automobile Dealers Association v. Commissioner, 2 T.C.M. (CCH) 291 (1943). However, the unrelated business income tax provisions (IRC 511–515), which were added by the Revenue Act of 1950, are specifically applicable to IRC 501(c)(6) organizations. Thus it is clear that since 1950 exempt business leagues may receive business income without necessarily losing exemption. The receipt of business income by the business league does not in itself constitute inurement, even though it may indirectly benefit the members. If such income were distributed directly to the members, however, there would be inurement of income to the benefit of individuals and exemption would be lost.

Where an exempt business league engages in related income producing activities or services with nonmembers as well as members, it is not unusual to provide the goods or services to members at a reduced price. Such an arrangement does not necessarily result in inurement of income to members.

In the following cases the organizations are exempt although they receive income from nonmember sources. In each of these cases, the activity producing the income is related to the organization’s exempt purpose, and the income from the activity is considered to be membership support:

Where an exempt business league derives revenue from sources other than membership dues, it becomes necessary to determine whether the income producing activity is an unrelated trade or business. See 7.25.6.8 (concerning the unrelated business income tax) and IRM 7.27.4 (Taxation of Unrelated Business).

For exemption purposes, a line of business is a trade or occupation, entry into which is not restricted by a patent, trademark, or other means that allow private parties to restrict the right to engage in the business.

An organization formed by members of a particular industry that contracts with various research organizations to develop new and improved uses for existing products of the industry is exempt under IRC 501(c)(6). No services are performed by the organization for any particular member, nor are any of the organization’s patents and trademarks licensed to any member on an exclusive basis. See Rev. Rul. 69–632, 1969–2 C.B. 120.

An association of licensed dealers in a certain type of patented product does not qualify as a business league where the association owns the controlling interest in a corporation holding the basic patent, is engaged mainly in furthering the business interests of its member-dealers, and does not benefit people who manufacture competing products of the same type covered by the patent. See Rev. Rul. 58–294, 1958–1 C.B. 244. In addition, an association of dealers selling a particular make of automobile that engages in financing general advertising campaigns to promote the sale of that make is not exempt because it is performing particular services for its members rather than promoting a line of business; i.e., the automotive industry as a whole. See Rev. Rul. 67–77, 1967–1 C.B. 138.

An organization whose members represent diversified businesses that own, rent, or lease computers produced by a single computer manufacturer does not qualify for exemption under IRC 501(c)(6). This organization is distinguishable from the one described in Rev. Rul. 74–147, 1974–1 C.B. 136. While members of both organizations have a common business interest concerning the use of computers, the organization in Rev. Rul. 74–147 directs its activities to users of computers made by diverse and competing manufacturers, while this organization directs its activities to users of computers made by one manufacturer. See Rev. Rul. 83–164, 1983–2 C.B. 95.

In National Muffler Dealers Association v. U.S., 440 U.S. 472 (1979), the Supreme Court held that an association of a particular brand name of muffler dealers did not qualify for exemption because the association was not engaged in the improvement of business conditions of a line of business. This effectively settled a question raised in Pepsi-Cola Bottlers’ Association, Inc. v. United States, 369 F.2d 250 (7th Cir. 1966), where the court held that an association of the bottlers of a particular brand of soft drink was promoting a line of business. The government had contended that it was not promoting a line of business since the entire soft drink industry rather than a particular brand was the line of business. The Service then reiterated its position in Rev. Rul. 68–182, 1968–1 C.B. 263.

The Service has prevailed in other litigation concerning the scope of a line of business.

Advertising that carries the names of members generally constitutes the performance of particular services for members. Thus, an association of the merchants in a particular shopping center whose advertising material contained the names of the individual merchants is denied exemption (see Rev. Rul. 64–315, 1964–2 C.B. 147) as is an association created to attract tourists to a local area, but whose principal activity is the publication of a yearbook consisting largely of paid advertisements by its members (see Rev. Rul. 65–14, 1965–1 C.B. 236). In another case, exemption was denied an association that published catalogues that listed only products manufactured by the members. See Automotive Electric Association v. Commissioner, 168 F.2d 366 (6th Cir. 1948).

On the other hand, an organization formed to promote the business of a particular industry and that conducts a general advertising campaign to encourage the use of products and services of the industry as a whole is exempt notwithstanding that such advertising to a minor extent constitutes the performance of particular services for its members. See Rev. Rul. 55–444, 1955–2, C.B. 258. An association of apple growers that engaged in promoting the sale of apples grown in the state was held exempt since its purpose was to promote the industry as a whole and not members of the organization and to improve a line of business, even though its benefits were limited to a particular geographic area. See Washington State Apples, Inc. v. Commissioner, 46 B.T.A. 64 (1942), acq., 1942–1 C.B. 17.

An association of plywood manufacturers owned a trademark that was licensed for use only by its members. Advertising sponsored by the association did not contain the names of individual manufacturers, but did refer to the trademark. The court found that the trademark was analogous to the industrywide advertising approved in Washington State Apples, Inc. v. Commissioner, supra, and that the trademark was only an incidental part of the advertising, which extolled the virtues of plywood in general. See American Plywood Association v. United States, 267 F. Supp. 830 (W.D. Wash. 1967).

The finding in the plywood manufacturers case is distinguished in Rev. Rul. 70–80, 1970–1 C.B. 130, which holds that a nonprofit trade association of manufacturers, whose principal activity is the promotion of its members’ products under the association’s required trademark, does not qualify under IRC 501(c)(6).

Likewise, a shopping center merchants’ association whose membership is restricted to, and required of, the tenants of a one-owner shopping center and their common lessor, and whose activities include promotional affairs and advertising to publicize the center, does not qualify as a business league or chamber of commerce under IRC 501(c)(6) because these activities are directed to promoting the general business interest of its members only, rather than of the industry as a whole. See Rev. Rul. 73–411, 1973–2 C.B. 180.

The publication of ordinary commercial advertising for products and services used by the legal profession in a bar association’s journal is unrelated trade or business under IRC 513 because it is commercial in nature and does not contribute importantly to the association’s exempt purposes. The publication of legal notices, however, promotes the common interests of the legal profession and thus is not on unrelated trade or business under IRC 513. See Rev. Rul. 82–139, 1982–2 C.B. 108.

In the following situations exemption was denied because the organization’s primary activities were found to constitute the performance of particular services for individual persons:

In the following cases an activity carried on by a business league was found to benefit the common business interest even though there was also an incidental benefit to individual members that, standing alone, might have appeared to be a particular service to individuals:

An organization that qualifies for exemption may incur liability for unrelated business income tax on its business activities. See IRM 7.27.4.

Under certain circumstances, income received from trade show activity conducted at a convention, annual meeting, or trade show will not constitute unrelated trade or business income. See IRM 7.25.6.9.

An exempt business league may engage in business with its own members so long as this is not its primary activity. A business league that manages its members’ employee welfare programs is subject to unrelated business income tax on the fees it receives from its members. (See Rev. Rul. 66–151, 1966–1 C.B. 152.) In these situations the question may arise whether furnishing goods and services to members will constitute particular services, as discussed in IRM 7.25.6.8(5) and IRM 7.25.6.7.

An exempt retail food merchants’ association that regularly carries on as a minor portion of its activities a coupon redemption service for its members is engaged in unrelated trade or business. See Rev. Rul. 68–267, 1968–1 C.B. 284.

The income from the operation of a park and shop plan in which patrons of particular member merchants receive stamps entitling them to free parking is unrelated business income. See Rev. Rul. 79–31, 1979–1 C.B. 206.

A language translation service, provided by an exempt trade association that promotes and develops trade relations between business entities located in the U.S. and the government of a foreign country, is unrelated trade or business within the meaning of IRC 513. See Rev. Rul. 81–75, 1981–1 C.B. 356.

An IRC 501(c)(6) organization, created by a chamber of commerce to encourage business development in a particular area, obtains a mortgage to help finance the construction of a building that is leased to an industrial tenant at less than the fair rental value. The leasing of the property is substantially related to the organization’s exempt purpose of attracting industry to the community. For this reason, the property does not constitute debt-financed property within the meaning of IRC 514(b)(1). See Rev. Rul. 81–138, 1981–1 C.B. 358, amplifying Rev. Rul. 70–81, 1970–1 C.B. 131.

For examples of advertising constituting unrelated trade or business, see 6.7.2.

The publishing of trade journals has been found to constitute the performance of particular services where the journals are mainly catalogues of the product of members. See IRM 7.25.6.7.2.

However, exemption was recognized for an association of wholesalers of shoe supplies, one of whose principal functions was the publication of a magazine containing information of interest to the entire industry, and distributed free to shoe repairmen. The court found that the magazine was not a sales medium for individual members and was not a business of a kind ordinarily carried on for profit. See National Leather & Shoe Finders Association v. Commissioner, 9 T.C. 121 (1947), acq., 1947–2 C.B. 3.

See exhibits to IRM 7.27.6 (concerning computation of unrelated business income tax) for a discussion of advertising in trade publications.

If an organization’s sole purpose or activity is to conduct a sales facility for its members or the suppliers of its members, it is not entitled to exemption. In Rev. Rul. 58–224, 1958–1 C.B. 242, an organization’s sole activity is to conduct an annual trade show only for the purpose of bringing buyers and sellers together. The show is not held in conjunction with a convention or annual meeting. The organization is not exempt under IRC 501(c)(6). IRC 513(d), described in IRM 7.25.6.9, does not affect the holding in Rev. Rul. 58–224..

IRC 162(e)(2) provides that in the case of a business taxpayer no deduction is allowed for expenditures for participation or intervention in a political campaign on behalf of any candidate for public office, or in connection with any attempt to influence the general public or segments thereof with respect to legislative matters (otherwise known as "grassroots" lobbying), elections, or referendums. Also, deductions are not allowable for expenses in connection with direct attempts to influence legislation that is not of a direct business interest to the taxpayer. If a substantial part of the activities of a trade association, labor union, or similar organization consists of one or more of the above activities, a deduction is allowed only for that portion of a member’s dues to the organization that the taxpayer can clearly establish is attributable to other activities. See Reg. 1.162–20(c)(3).

Members may deduct dues to an organization that are attributable to expenses for appearances before, submission of statements to, or sending communications to members of legislative bodies with respect to legislation or proposed legislation of direct interest to the member, and communications of information between the member and the organization with respect to their proposing, supporting, or opposing legislation of direct interest to either the organization or a member. See Reg. 1.162–20(c)(2)(i) and (c)(3).

Since there is a prohibition on the deductibility of dues used for "grassroots" lobbying, the activities that constitute "grassroots" lobbying must be determined. For example, media ads must be analyzed to determine whether they were produced in connection with any attempt to influence the general public, or segments thereof, with respect to legislative matters, elections, or referendums. This determination can be difficult at times, since the regulations under Reg. 1.162–20(a)(2) make clear that expenses for institutional or "good will" advertising are generally deductible. "Good will" advertising, for example, includes ordinarily allowable expenses incurred to bring the organization’s name before the public. Similarly, institutional advertising expenses, such as those incurred for the purpose of presenting views on economic, financial, social, or other subjects of a general nature that do not directly or indirectly propose, support, or oppose legislation are also ordinarily deductible. The problem is determining whether the advertising is entirely of a general nature or an attempt through words, phrases, pictures, etc. to develop a "grassroots" point of view regarding the promotion or defeat of legislation or a referendum. The line in some cases is very fine.

Rev. Ruls. 78–111, 112, 113, and 114, 1978–1 C.B. 41–44 discuss grassroots lobbying and analyze examples of non-deductible grassroots lobbying expenditures. While only Rev. Ruls. 78–113 and 114 deal specifically with IRC 501(c)(6) organizations, the analysis in all four revenue rulings is applicable to the determination of whether a particular activity is grassroots lobbying.

The examination of any IRC 501(c)(6) organization should include a thorough review of the organization’s legislative and political activities.

IRC 527(f) imposes a tax on any direct political expenditures of an organization exempt under IRC 501(c)(6). IRC 527(f)(3) permits an exempt IRC 501(c) organization to spin its political activities off into a separate segregated fund which would then be subject to IRC 527. If an organization is primarily engaged in political activities, it is not described in IRC 501(c)(6). For further discussion, see IRM 7.27.11 (concerning political organizations).

A professional society may also qualify for exemption under IRC 501(c)(3) if its purpose is to advance the profession by engaging in exclusively educational or scientific activities.

An organization may not be classified under IRC 501(c)(3) if it has substantial noncharitable and noneducational purposes and activities, regardless of the number or importance of truly charitable or educational purposes it may otherwise have. See Rev. Rul. 71–504, 1971–2 C.B. 231 and Rev. Rul. 71–505, 1971–2 C.B. 232.

Rev. Rul. 71–506, 1971–2 C.B. 233, describes a professional society that does qualify under IRC 501(c)(3).