Hockey officiating scheduler primarily served individual members

Plain-English summary

An association sought recognition as a tax-exempt business league under Section 501(c)(6). It scheduled trained hockey officials for member rinks, billed the rinks, collected the fees, and redistributed nearly all of the money to its officiating members. Scheduling fees produced about 98 percent of its revenue, while mentoring, clinics, and seminars were secondary activities. The IRS denied exemption because the association primarily performed particular services and arranged employment opportunities for individual members instead of improving conditions across a line of business. The IRS also found private inurement because the scheduler and treasurer, both governing-body members, received percentages of scheduling revenue without stated compensation limits.

Ruling snapshot

• Question: Did the association qualify as a tax-exempt business league under Section 501(c)(6)?
• Outcome: Denied.
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 61-170; Rev. Rul. 71-175; Indiana Retail Hardware Ass'n., Inc. v. United States.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Appeals Office

San Jose Appeals, MS-7100 Person to Contact:
55 S. Market St., Suite 440

San Jose, CA 95113

Release Number: 201820019
Release Date: 5/18/2018 Refer Reply to:

In Re:
EO Determination

Tax Period(s) Ended:
All

UIL:
501.06-01

Certified Mail

Dear

This is a final adverse determination that you do not qualify for exemption from federal income tax under
Internal Revenue Code (the “Code”) section 501(a) as an organization described in Section 501(c)(6).

We made the adverse determination for the following reason(s):

You are not operated for exempt purposes within the meaning of Internal Revenue Code
§ 501(c)(6) and Treasury Regulation § 1.501(c)(6)-1. You negotiate fees with the rink
members, schedule and send member officials to the games, collect fees and redistribute
almost all of the collected revenues to the officiating members, as your primary activities;
thus, your activities are not directed to the improvement of business conditions of one or
more lines of business. You primarily engage in activities which constitute the
performance of particular services for individual persons who are your members.

You're required to file Federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return.
Mail your form to the appropriate Internal Revenue Service Center per the form’s instructions. You can
get forms and instructions by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM
(800-829-3676).

We'll make this letter and the proposed adverse determination letter available for public inspection under
Code section 6110 after deleting certain identifying information. We have provided to you, in a separate
mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents
attached that show our proposed deletions. If you disagree with our proposed deletions, follow the
instructions in Notice 437.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of section 7428 of the Code in either:

• United States Tax Court,
• The United States Court of Federal Claims,
• The United States District Court for the District of Columbia.

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed
this determination letter to you. Contact the clerk of the appropriate court for rules and the appropriate
forms for filing petitions for declaratory judgment. You can write to the courts at the following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

Note: We will not delay processing income tax returns and assessing any taxes due even if you file
petition for declaratory judgment under section 7428 of the Code.

Please refer to the enclosed Publication 892, How to Appeals an IRS Determination on Tax -Exempt
Status.

You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is
not a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer
Advocate cannot reverse a legally correct tax determination, or extend the time fixed by law that you have
to file a petition in a United States Court. The Taxpayer Advocate can, however, see that a tax matter
that may not have been resolved through normal channels get prompt and proper handling. If you want
Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit www.irs.gov/advocate
for more information.

If you have any questions, contact the person at the top of this letter.

Sincerely,

Appeals Team Manager

Enclosure: Publication 892

Department of the Treasury
Internal Revenue Service

Cincinnati, OH 45201

Date: July 19, 2017

Employer ID number:
Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend:

X = State
Y = Date of formation
Z = Organization

UIL:

501.06-01
501.06-02

Dear

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(6) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(6) of the Code? No, for the reasons stated below.

Facts
You were incorporated in the state of X on Y for the purpose of providing trained and qualified officiating
services to amateur hockey organizations in your geographical area.

Membership is voluntary and available to any individual who has met the certification requirements established
by Z. A ‘member rink’ is any ice skating facility in your regional area that hosts Z sanctioned games, which are
scheduled by various hockey organizations or tournaments. Fees charged to member rinks are based on the type
of game, age level and skill level of the players involved.

You do not create or schedule any league, tournament or individual game, rather various organizations contract
with the member rinks to book ice time to host games. You simply provide the service of scheduling certified
officials. You bill member rinks for your services, collect the funds and then redistribute the funds to the
individual member officials.

You mentor new officials and evaluate all member officials, to strengthen their officiating skills. You also
provide annual clinics and seminars, which focus on rule changes and updates from Z. You provide qualified,
trained officials for member rinks based on levels of efficiency. Game assignments are made by your scheduler
based on schedules provided by the rinks.

Membership dues and scheduling fees are your only sources of income. Scheduling fees account for
approximately 98% of your annual revenue with the remainder coming from membership fees. Expenses consist
of paying members for their officiating services and administrative costs. You pay your scheduler, a member of

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your governing body, 4.75% of the funds received from scheduling fees and your treasurer receives 2%. You
did not indicate if there was a cap on how much compensation they could receive.

Law

Section 501(c)(6) of the Code provides, in part, for the exemption from federal income tax of business leagues,
which are not organized for profit and no part of the net earnings of which inures to the benefit of any private
shareholder or individual.

Treasury Regulation Section 1.501(c)(6)-1 provides that a business league is an association of persons having
some common business interest, the purpose of which is to promote such common interest and not to engage in
a regular business of a kind ordinarily carried on for profit. It is an organization of the same general class as a
chamber of commerce or board of trade. Thus, its activities should be directed to the improvement of business
conditions of one or more lines of business as distinguished from the performance of particular services for
individual persons. An organization whose purpose is to engage in a regular business of a kind ordinarily
carried on for profit, even though the business is conducted on a cooperative basis or produces only sufficient
income to be self-sustaining, is not a business league.

Rev. Rul. 61-170, 1961-2 C.B. 112, describes an association composed of professional private duty nurses
and practical nurses which operated a nurses’ registry primarily to afford greater employment
opportunities for its members. The association was not entitled to exemption as a business league described
in section 501(c)(6) of the Code because its primary purpose was the operation of a regular business of the kind
ordinarily carried on for profit and it was engaged in rendering particular services for individual persons rather
than promoting the general business conditions of the nursing profession.

Rev. Rul. 71-175, 1971-1 C.B. 153, ruled on a nonprofit organization whose principal activity was the operation
of a telephone-answering service for member doctors. Providing a telephone-answering service the organization
relieved the individual members of securing this service commercially, resulting in a convenience or economy
in the conduct of the medical practice of its individual members. Therefore, the organization was rendering
particular services for individual persons as distinguished from the improvement of business conditions in the
medical profession and public health area generally. Thus, the organization was not exempt under Section
501(c)(6) of the Code.

In Indiana Retail Hardware Ass’n., Inc. v. United States, 177 Ct. Cl. 288, 366 F.2d 998 (1966), the Court held
that when conducting particular services for members is a substantial activity of an organization, the
organization will be precluded from exemption under Section 501(c)(6) of the Code.

Application of law

To be exempt under Section 501(c)(6) of the Code, your activities must be directed to the improvement of
business conditions of one or more lines of business, and not inure to the benefit any private shareholder or
individual. You operate primarily to provide employment scheduling services for your members, which is a
private benefit to your members and does not improve business conditions as described in Treas. Reg. Section
1.501(c)(6)-1. Additionally, two members of your governing body receive a percentage of your scheduling
revenue as compensation with no stated limit, which inures to their benefit. Therefore, you are not exempt under
Section 501(c)(6).

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

3

You are providing a service that affords your members employment opportunities similar to the organization
denied exemption in Rev. Rul. 61-170. By providing these employment services, you are serving the private
interests of your members and do not qualify for exemption under Section 501(c)(6) of the Code.

As noted in Rev. Rul. 71-175, rendering particular services for individuals is distinguished from the
improvement of business conditions of a particular line of business. By providing employment services, you are
providing services for the economy and convenience of your members, and not for the overall improvement of a
line of business. Therefore, exemption under section 501(c)(6) of the Code is precluded.

You are similar to the organization described in Indiana Retail Hardware Ass’n., which failed to qualify for
exemption under Section 501(c)(6) of the Code because conducting services for members is a substantial
activity. Because your primary activity is arranging employment opportunities for your members, you are not
exempt under Section 501(c)(6).

Conclusion

Based on the information provided, you fail to qualify for exemption under Section 501(c)(6) of the Code
because you provide services to your members which furthers their private interests and are not directed toward
the improvement of business conditions of one or more lines of business. Additionally, the payment of two of
your governing body members a percentage of your revenue without a set limit inures to their benefit.
Accordingly, you do not qualify for exemption under Section 501(c)(6).

If you don’t agree
You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you
must send a statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone
number

• A copy of this letter highlighting the findings you disagree with
• An explanation of why you disagree, including any supporting documents
• The law or authority, if any, you are relying on

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization, or your authorized representative

• One of the following declarations:
For an officer, director, trustee, or other official who is authorized to sign for the organization:

Under penalties of perjury, I declare that I examined this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

4

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if he or she hasn’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you provided a basis for us to reconsider our determination. If
so, we’ll continue to process your case considering the information you provided. If you haven’t provided a
basis for reconsideration, we’ll forward your case to the Office of Appeals and notify you. You can find more
information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-
Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court at a later date because
the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest
Please send your protest statement, Form 2848, if needed, and any supporting documents to the applicable

address:

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your statement and supporting documents to the fax number listed at the top of this letter. If
you fax your statement, please contact the person listed at the top of this letter to confirm that he or she received
it.

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from you
within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on your
income tax filing requirements.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

5

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If
you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K