Volleyball officials association denied business-league exemption

Plain-English summary

An association of volleyball officials sought exemption as a business league under section 501(c)(6). It trained officials and promoted consistent officiating, but it also coordinated, scheduled, and assigned members to paid middle-school and high-school matches. Schools paid the officials, and each official paid the assigning secretary for scheduled matches. The IRS concluded that arranging employment opportunities was a particular service and private economic benefit for individual members rather than an activity improving conditions for an entire line of business. The association therefore did not qualify for exemption, and the denial became final after no protest was filed.

Ruling snapshot

• Question: Did the officials 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. 56-65; Rev. Rul. 58-224; Rev. Rul. 61-170; Rev. Rul. 68-264

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Date:
May 6, 2019

Employer ID number:

Number: 201931010
Release Date: 8/2/2019 Contact person/ID number:

Contact telephone number:
Form you must file:

Tax years:

UIL: 501.06-00, 501.06-01

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(6) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

You must file federal income tax returns for the tax years listed at the top of this letter using the required form
(also listed at the top of this letter) within 30 days of this letter unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z


Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034, Proposed Adverse Determination under IRC Section 501(a) Other Than 501(c)(3)
Redacted Letter 4040, Final Adverse Determination under IRC Section 501(a) Other Than 501(c)(3) - No

Protest

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z


Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date:

March 12, 2019
Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
B = Date 501.06-00
C = State 501.06-01

D = Association

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(6).
This letter explains the reasons 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 formed as an unincorporated association on B in C. According to your Bylaws, you operate under the
authority of the state association, D, and are formed for “the promotion of the welfare of .” You do
this by recruiting, assisting, and encouraging an adequate membership of outstanding men and women to serve
as well-trained officials for the benefit of the school systems and youth of the area which you service.
You also do this by improving the quality, efficiency, consistency, and uniformity of officiating by providing
planned training programs, study meetings, practice sessions, and rules interpretations through which new and
prospective officials shall be instructed and experienced officials can increase their knowledge and officiating
skills.

Your Bylaws state that in order to be a member, an individual must also be a member of D and pay their dues to
both you and D. No member may, or have anyone on their behalf, approach any coach, school, or organization
with the intent to solicit officiating assignments for his/her personal benefit. Members are required to maintain
availability via your current assigning system. Your officials are required to dress in full uniform, which is
designated by D, at all contests.

Your members provide officiating services for middle and high school volleyball games. Your members elect
an executive board consisting of a president, vice-president, secretary, treasurer, and assigning secretary. The
assigning secretary, based on matches submitted by a school districts, assigns matches based on skill level and
availability of a member/official. Each school district pays the official for services provided. Each member
directly pays the assigning secretary a set amount per scheduled match.


2

Your Standard Operating Procedures set forth minimum requirements that members must meet to officiate
different levels of matches. Your procedures also address match cancellations, switching/transferring
assignments, leaves of absence, and rules examination. It also details dues, assessments, fees, and fines if a
member does not adhere to your policies.

You indicated that your revenue sources have changed in the last few years. You provided financial data for a
prior year showing that other than some incidental amounts, such as interest income, your revenue was derived
from assigning fees collected, membership dues, and scrimmage revenue. You also provided more recent
financial data, which indicated that about half of your revenue was from membership dues and the other half
from scrimmage fees. You indicated that now the school district pays the officials directly (rather than using

you as a pass through) except for scrimmage days. You said depending on the number of members and the
number of schools/districts conducting scrimmages in any given year, your income sources could vary.

Law

Section 501(c)(6) of the Code provides for exemption of business leagues, chambers of commerce, real estate
boards, boards of trade, and professional football leagues (whether or not administering a pension fund for
football players), 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 states 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. 56-65, 1956-1 C.B. 199, holds that a local organization whose principal activity consists of furnishing
particular information and specialized individual services to its individual members engaged in a particular
industry, through publications and other means to effect economies in the operation of their individual
businesses, is performing particular services for individual persons. Such organization is not entitled to
exemption under Section 501(c)(6) of the Code as a business league, even though it performs functions that are
of benefit to the particular industry and the public generally.

Rev. Rul. 58-224, 1958-1 C.B. 242, held that an organization which operated a trade show as its sole activity,
primarily for the purpose of rendering particular services to individual persons was not entitled to exemption as
a business league under Section 501(c)(6) of the Code. The organization's sole activity consisted of staging an
annual merchandise show (primarily exhibits by manufacturers), under the sponsorship of the chamber of
commerce. The ruling concluded that the activities of the organization substantially served the exhibitors and
retailers as a convenience and economy in the conduct of their businesses by providing selling opportunities for
the distributors, which was found to be considered rendering particular services for individuals as distinguished
from the improvement of business conditions generally.

Rev. Rul. 61-170, 1961-2 C.B. 112, describes a nurses' association which maintained an employment registry
primarily for the employment of members is not entitled to exemption as a charitable organization or as a

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K


3

business league since its primary purpose was the operation of a regular business of a kind ordinarily carried on
for profit and it is engaged in rendering particular services for individual persons rather than promoting the
general business conditions of the nursing profession.

Rev. Rul. 68-264, 1968-1 C.B. 264, defined a particular service for the purpose of Section 501(c)(6) of the Code
as including an activity that serves as a convenience or economy to members of the organization in the
operation of their own businesses.

In Apartment Operations Ass'n v. Commissioner, 136 F.2d 435 (1943), the court determined that the
organization was not exempt from tax as a business league. The organization was made up of apartment owners.
It did not meet the description of a business league because it regularly carried on business of a kind ordinarily
conducted for profit. It performed particular services for individual persons such as the furnishing of credit
information, the supplying of an apartment shopping service, the making of arrangements for direct purchases
by members at discount, and similar activities.

In Indiana Retail Hardware Ass’n., Inc. v. United States, 177 Ct. Cl. 288 (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 benefit any private shareholder or individual. As
stated in Treas. Reg. Section 1.501(c)(6)-1, the purpose of a business league is to promote a common interest
with activities 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. You operate primarily to
provide a service to your members by arranging employment opportunities, which causes impermissible private
benefit.

You are similar to the organizations described in Rev. Rul. 56-65 and 58-224 in that you are formed to promote
the economic interests of your members by providing them with employment opportunities.

You coordinate, schedule, and assign your member officials to volleyball games and tournaments. You are
similar to the organization in Rev. Rul. 61-170 because you were formed to provide employment opportunities
for your members. By providing these employment services, you are serving the private interests of your
members and do not meet the qualifications for exemption under Section 501(c)(6) of the Code.

Providing employment opportunities for your members provides a convenience that they would otherwise not
have without your operation. Given that your primary activity is directed at providing a particular service to
your members, you are similar to the situation described in Rev. Rul. 68-264 and not exempt under Section
501(c)(6) of the Code.

The organizations in Apartment Operations Ass'n. and Indiana Retail Hardware Ass’n. failed to qualify for
exemption under Section 501(c)(6) of the Code because conducting services for their members was a substantial

activity. Because your primary activity is arranging officiating jobs for your members, you are not exempt
under Section 501(c)(6).

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K


Conclusion
Based on the information provided we conclude that you are not operated as a business league described in
Section 501(c)(6) of the Code. Your operations provide specific services to members and allow a convenience
and private economic benefit. Therefore, you do not qualify for exemption under Section 501(c)(6).

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.

If you don't agree
You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a

protest within 30 days of the date of this letter. You must include:

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

• A statement of the facts, law, and arguments supporting your position

• A statement indicating whether you are requesting an Appeals Office conference

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

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, 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 they haven’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 gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
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 later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2).

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K


Where to send your protest
Send your protest, Form 2848, if applicable, 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
Mail Stop 6403 550 Main Street, Mail Stop 6403

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest 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 they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (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 if 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 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K