Business networking group denied business-league exemption

Plain-English summary

A business networking organization limited membership generally to one representative from each business classification. Members held weekly meetings, delivered self-promotional presentations, and exchanged referrals intended to grow their individual businesses. The IRS concluded that the members shared no common business interest beyond increasing their own sales and that the organization's activities promoted private member interests rather than improving conditions in a line of business. It also found that the group was not a chamber of commerce because membership was not generally open to all businesses in the community. The IRS therefore issued a final determination denying exemption under section 501(c)(6).

Ruling snapshot

• Question: Does the networking organization qualify as a business league or chamber of commerce under section 501(c)(6)?
• Outcome: denied
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 59-391; Rev. Rul. 73-411

Full text (IRS public release)

Internal Revenue Service
Independent Office of Appeals Person to

IRS Name:
Employee ID number:
Telephone:

Fax:
Employer ID number:

YH) Department of the Treasury Date: 12/11/19

Release Number: 202010004
Release Date: 3/6/2020 Uniform issue list (UIL):
501.06-00, 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)

of the Code.

We made the adverse determination for the following reasons:

Your membership is limited to one representative from each line of business. Your members have no common
business interest other than a mutual desire to increase their individual sales. Your activities are not directed to
the improvement of business conditions of one or more lines of business, but rather to the promotion of the

private interests of your members. You are also not a board of trade or a chamber of commerce. Such
organizations are directed at promoting the common economic interests of all the commercial enterprises in a
given trade community. Therefore, you do not meet the requirements of Section 501(cX6) of the Code.

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 Section
6110 of the Code after deleting certain identifying information. We 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.

We'll make this letter and the
6110 of the Code after deleti

437, Notice of Intention to D
proposed deletions. If you disagree with our proposed deletions, follow the instructi

If you decide to contest this determination, you can file an action for declaratory judgment under the

provisions of Section 7428 of the Code in either:

* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

Letter 1371 (Rev. 12-2017)
Catalog Number 40683R

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 US Court of Federal Claims US District Court for the District of Columbia

400 Second Street, NW 717 Madison Place, NW 333 Constitution Avenue, NW
Washington, DC 20217 Washington, DC 20005 Washington, DC 20001

Note: We will not delay processing income tax returns and assessing any taxes due even if you file a petition for

declaratory judgment under Section 7428 of the Code.

Please refer to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status, for
more information about the Appeals process.

You also have the right to contact 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 877-777-4778.

TAS assistance is not a substitute for established IRS procedures, such as the formal appeals process. TAS
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,

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

Sincerely,

Timothy D. Jarvis,
Appeals Team Manager
Enclosures:
Publication 892

Letter 1371 (Rev. 12-2017)
Catalog Number 40683R

Department of the Treasury
Internal Revenue Service

Cincinnati, OH 45201

Date: September 17, 2018

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend: UIL:
X = State 501.06-00
Y = Date 501.06-01

Z = Location

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.

Your purpose in your Articles of Incorporation states you are organized to promote and support the local
businesses in Z.

Your bylaws state that you are organized exclusively for the support of your members as a business league as an
organization under Section 501(c)(6) of the Code as well as indicate that you have the general purpose of
encouraging and supporting your member business owners or representatives to refer, recommend, and vouch
for them to your clients, families and friends.

Your specific objectives and purposes also include:

a) providing a system for sharing and disseminating information on and of interest to local business

owners and/or representative’s members;

b) to foster training, technical assistance and other learning opportunities specifically oriented toward the
needs of your members;

c) to increase the general visibility of your members;

d) to sponsor, host and/or participate in events and activities that promote you to prospective local business

owners and representatives;

2

Your membership is open to any current business owner, business operator, or employee of a business
considered capable of representing their business that supports your purpose. Interested individuals must
complete a membership application and submit a nonrefundable fee. Your membership votes to decide whether
to accept the applicant as a member. There is generally only one member for each business classification but
member businesses can overlap with prior approval by your members.

You hold weekly meetings usually either at one of your member’s locations or another suitable venue. You also
hold events where members may invite visitors in a relaxed setting. In addition, you invite businesses in your
open categories to be your guests and experience your style of business networking. During your meetings, you
have a featured speaker who is one of your members and they get ten minutes to talk about their business.
Furthermore, individual members provide self-promoting commercials lasting sixty seconds describing their
business and what type of referral they may want as well as any new business lines they may be offering.
Membership dues fund your activities and meeting expenses are your primary expenses.

Law
Section 501(c)(6) of the Internal Revenue Code of 1986 provides exemption from federal income tax for

business leagues not organized for profit, and no part of the net earnings of which inure to the benefit of any
private shareholder or individual.

Treas. Reg. Section 1.501(c)(6)-1 states that a business league is an association of persons having some
common business interests, 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. The Regulations further state that the activities of a
business league 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 members. For exemption purposes,
a line of business is a trade or occupation, entry into which is not restricted by a patent, trademark, or similar
device which would allow private parties to restrict the right to engage in the business. A "segment" of a line of
business is not considered a line of business under Section 501(c)(6) for the Code.

In Revenue Ruling 59-391, 1959-2 C.B. 151, exemption under 501(c)(6) was denied to an organization
composed of individuals, firms, associations, and corporations, each representing a different trade, business,
occupation, or profession. The organization was created for the purpose of exchanging information on business
prospects and had no common business interest other than a desire to increase sales of members. The revenue
ruling found that the organization's activities were not directed to the improvement of business conditions of
one or more lines of business, but rather to the promotion of the private interests of its members.

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 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 indicates 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.
Membership is voluntary and open generally to all business and professionals in the community.

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

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. Your purpose of encouraging and supporting your
member business owners by providing referrals and recommendations as well as vouching for them to your

clients, families and friends illustrates this.

Furthermore, your membership is restricted to noncompeting members. There is typically only one
representative from each type of business or profession. The only exception allowing additional members with
overlapping professions to join only occurs with the approval of your members. These facts show that you are

operating for members’ business interests.

You are like the organization described in Rev. Rul. 59-391, in that your activities are not directed to the
improvement of business conditions of one or more lines of business, but rather to the promotion of the private
interests of your members. Your membership consists of different businesses and like the organization in the
revenue ruling, your members are not in competition with one another. Your members do not appear to have a
common business interest other than a mutual desire to promote and grow their individual businesses. This is
illustrated by the individual members’ commercials at your meetings which are self-promoting and the fact that
speakers are usually your members who describe and promote their businesses.

Like the organization in Rev. Rul. 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. Because your membership is
not open to all businesses in your community but only to one business per category, you do not meet the
definition of a chamber of commerce within the meaning of Section 501(c)(6) as explained in this revenue

ruling.

Conclusion
Your membership constraints show that your primary purpose is to further the private interests of your

individual members and not the improvement of business conditions of one or more lines of business. You have
no common business interest other than a mutual desire to grow members’ business. 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, but rather to the promotion of the private interests of your members as illustrated by the restrictive
nature of your membership. Therefore, you not meet the requirements for exemption under Section 501(c)(6) of

the Code.

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

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

4

• 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.

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

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

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.

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.

Enclosure:
Publication 892

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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