A local association of employees under Internal Revenue Code section 501(c)(4) is an organization whose membership is limited to employees of a designated person or persons in a particular municipality, and whose net earnings will be devoted exclusively to charitable, educational or recreational purposes. The organization must meet the following requirements:
- It must be of a purely local character;
- It must limit its membership to employees of a designated person or persons in a particular locality;
- Its articles of organization, constitution or bylaws must devote its net earnings exclusively to charitable, educational, or recreational purposes; and
- No part of its net earnings may inure to the benefit of any private shareholder or individual.
An organization is of a purely local character if its activities are confined to a particular community, place or district, irrespective of political subdivision. If the activities are limited only to the borders of a state, the organization cannot be considered to be purely local in character.
A local association of employees that has established a system of paying retirement and/or death benefits to its members will not qualify for exemption, because paying these benefits is not considered as being for charitable, educational or recreational purposes. Similarly, a local association of employees that is operated primarily as a cooperative buying service for its members in order to obtain discount prices on merchandise, services and activities does not qualify for exemption.