Member services cost business league its exemption

Plain-English summary

An organization had been recognized as a business league under § 501(c)(6). It later developed and expanded a strategic initiative that provided particular services to members and constituted a business activity unrelated to its exempt purposes. The IRS found that the organization was providing substantial services to members and therefore no longer qualified under § 501(c)(6). It revoked the favorable determination letter and required the organization to file Form 1120 for future tax years.

Ruling snapshot

• Question: Did the organization's expanded member-service activities remain consistent with exemption under § 501(c)(6)?
• Outcome: revocation
• Key authorities: IRC §§ 501(a) and 501(c)(6)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: August 1, 2016

Number: 201646005 Taxpayer Identification Number:

Release Date: 11/10/2016 Person to Contact:

UIL: 501.06-00 Employee Identification Number:

Employee Telephone Number:
CERTIFIED MAIL

Dear

This is a final adverse determination regarding your exempt status under section
501(c)(6) of the Internal Revenue Code (the Code). Our favorable determination
letter to you dated January 12, 19XX, is hereby revoked and you are no longer

exempt under section 501(a) of the Code.

The revocation of your exempt status was made for the following reason[s]: In or
around 20XX, you developed a new strategic initiative that constituted particular
services to members and was a business activity unrelated to your exempt
purposes. This activity was expanded in or around 20XX and in later years
further expanded to include new services resulting in your organization providing
substantial services to members. As such, you are not an organization described
in section 501(c)(6).

You are required to file income tax returns on Form 1120. You should file these
income tax returns with the appropriate Service Center for all future tax years, in
accordance with the instructions on the forms.

You may also be eligible for help from the Taxpayer Advocate Service (TAS).
TAS is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a
hardship, or you've tried but haven't been able to resolve your problem with the
IRS. If you qualify for TAS assistance, which is always free, TAS will do


everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

If you have any questions, please contact the person whose name and telephone
number are shown in the heading of this letter.

Sincerely,

Margaret A. Von Lienen
Director, Exempt Organizations Examinations

Enclosure:
Publication 892