IRS denies exemption to a general business networking group

Plain-English summary

A membership organization of professionals from different trades and businesses applied for exemption as a business league under section 501(c)(6). Members met weekly to exchange referrals and grow their own businesses, and the organization also held quarterly community volunteer events. The IRS found no common business interest tied to a particular industry or trade and no program aimed at improving conditions for one or more lines of business. It also found that the group did not operate like a chamber of commerce because its activities primarily promoted members' businesses rather than the general economic welfare of a trade community. The IRS denied exemption, and the denial became final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Does a cross-industry networking and referral group qualify as a business league under section 501(c)(6)?
• Outcome: denied
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Ruls. 70-244 and 73-411

Full text (IRS public release)

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

Date: November 26, 2019

Release Number: 202008009
Release Date: 2/21/2020
UIL Code: 501.06-00, 501.06-01

Employer ID number:
Contact person/ID number:
Contact telephone number:
Form you must file:
Tax years:

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.

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

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

Date: August 28, 2019

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

Legend:                         UIL:

B = Date                        501.06-00
C = Date                        501.06-01
D = State

y dollars = Amount
z dollars = Amount

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 applied for exempt status by filing Form 1024 requesting exemption under Section 501(c)(6) of the Code.

Previously, you were never recognized for exemption but had filed Form 990’s. You were subsequently
revoked for failure to file Form 990 for three consecutive years on B.

You were formed on C in D under D’s nonprofit statute Your specific purpose is to provide quality business
opportunities to your fellow professionals and give back to your community. You are a membership
organization that is open to business professionals in your community, who are interested in growing their
businesses through networking. Members either own their own company or work for a company in a different
trade or business as well as represent a different profession or trade. Your members meet weekly and exchange
referrals.

You charge each member y dollars to become a member. Each member is then required to pay quarterly
membership dues of z dollars. This is your only source of support. Outlays consist of meeting expenses.

You also have quarterly community events where you volunteer time to a specific group, charity, or individual
in need. Finally, your members provide assistance in time and funds to other non-profit organizations in your
community.

Law
Section 501(c)(6) of the Code provides exemption from federal income tax for business leagues 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 defines a business league as an association having a common
business interest, whose 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.

In Revenue Ruling 70-244, 1970-1 CB 132, the organization's membership consists of business and
professional persons in the community. Its articles of incorporation state it was formed to bring together
members and their guests to exchange ideas for improving business conditions within the community. It does
not have any specific program directed to the improvement of business conditions in the community. Since this
organization has no program designed to improve business conditions of one or more lines of business, it is held
that the organization is not exempt from federal income tax under Section 501(c)(6) of the Code.

Revenue Ruling 73-411, 1973-2 C.B. 180, describes an organization that was not structured along industry or
business lines but was composed of and restricted to various types of businesses and commercial endeavors
comprising a shopping center. Therefore, its right to exemption, if any, had to rest on its characterization as a
chamber of commerce or board of trade or similar organization. The revenue ruling further indicated that 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. In the case of a chamber of commerce or similar
organizations, the common business interest is usually the general economic welfare of a community. The ruling
held that organization did not qualify for exemption under Section 501(c)(6) of the Code a business league or
Chamber of Commerce because its activities were directed to promoting the general business interests of its
members.

Application of law
You are not described in Section 501(c)(6) of the Code and Treas. Reg. Section 1.501(c)(6)-1 because the facts
show you are not formed to promote the common business interests of a particular industry or trade, but rather
you are formed to benefit your members’ business interests. For example, your membership is available to
owners and employees of all businesses, trades, and professions in your community. Your members also
represent a different profession or trade. Your primary activity is meeting weekly to provide networking
opportunities for members to build their businesses. Accordingly, you have not shown that your members have
a common business interest other than the desire to grow their businesses. This precludes you from qualifying
under Section 501(c)(6) of the Code.

You are similar to the organization in Revenue Ruling 70-244. For example, your primary activity is
conducting weekly meetings to provide networking opportunities to members. Furthermore, you did not specify
any region or area from which your members are selected or any connection members have to any particular
profession or locality. Since you have not described any programs designed to improve business conditions of
one or more lines of business, but instead you primarily provide networking opportunities for members, you do
not qualify under Section 501(c)(6) of the Code.

Like the organization in Revenue Ruling 73-411, you are not structured along any particular industry or
business lines. You are composed of various types of businesses. Therefore, to meet exemption under Section
501(c)(6) of the Code, you must depend on being characterized as a chamber of commerce. Your members
represent businesses. Your primary activity is providing networking opportunities through weekly meetings to
these members to help them build their businesses. Therefore, you are not primarily operated for the general
welfare of the community and consequently, you are not described in Section 501(c)(6) of the Code.

Conclusion
Your members have no common business interest other than the mutual desire to grow their businesses.
Furthermore, your activities are not primarily directed to the improvement of business conditions of one or
more lines of business nor for the common economic interests of all the businesses in a given trade community
as in the case of a chamber of commerce. Therefore, you not meet the requirements for exemption under
Section 501(c)(6) of the Code.

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).

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