Farmers market association denied business league exemption

Plain-English summary

An unincorporated association operated two farmers markets where members paid fees to sell their products. The association managed the venues, provided insurance, advertised individual vendors and their products, and sold one-day passes to other eligible vendors. It sought exemption as a business league under section 501(c)(6). The IRS concluded that these activities provided particular services and selling opportunities to individual members instead of improving conditions for a line of business. Because the association did not protest the proposed denial within 30 days, the IRS issued a final adverse determination.

Ruling snapshot

• Question: Does operating and promoting farmers markets for fee-paying vendors qualify as a section 501(c)(6) business league activity?
• Outcome: Denied
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 58-224; Rev. Rul. 68-264

Full text (IRS public release)

Department of the Treasury Internal Date:
Revenue Service 08/23/2023

Tax Exempt and Government Entities Employer ID number:
Cincinnati, OH 45201 Form you must file:
1120
Tax years:
Release Number: 202346030 All
Release Date: 11/17/2023 Person to contact:

UIL Code: 501.00-00,
501.06-00, 501.06-01

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(6). 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 the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 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 call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service
IRS PO Box 2508
Cincinnati, OH 45201
Date: 6/20/2023

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = Date 501.00-00
C = State 501.06-00
D = Date 501.06-04
L = Date
M = Date
N = Name
P = Numbers
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 Internal Revenue Code Section 501(c)(6)? No, for the reasons stated
below.

Facts
You are an unincorporated association formed on B in the state of C. You provided amended rules and
regulations dated D which state members are charged a fee. This fee allows your members to sell at one of the
two farmers markets you set up, from L through M. For a larger fee, members are allowed to sell their products
at both markets. Between the months of July and September you charge members additional fees for setting up
a stand. Also, vendors can purchase a one-day pass to sell products at the markets. All vendors must live within
miles to be eligible to sell at the markets. They also must grow or make what they sell. They also must
submit to you the N and a market application a week before selling at the market for the first time.

You provide advertising as well as market the farmer’s markets to improve customer turnout. You further
explained that you advertise in local journals, through online websites and on social media to improve customer
turnout. The majority of the advertisements lists your members and their products. The online website and
social media posts have pictures of the local farmer members and their produce.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

Member fees fund your operations. Your expenses consist of marketing expenses, insurance expenses and
expenses for promotional events.

You are governed by a board of directors who facilitate the efficient operation of the farmer’s markets. The
board of directors will consist of in the range of P members. You also have market managers who are primarily
responsible for the markets’ operations.

Law
IRC Section 501(c)(6) provides for the exemption from federal income tax of business leagues not organized for
profit and no part of the net earnings 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 business ordinarily carried on for profit. The activities of the 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 persons.

Revenue Ruling 58-224, 1958-1 C.B. 242 holds that an organization, which operates a trade show as its sole or
principal activity primarily for the purpose of rendering particular services to individual persons is not entitled
to exemption from federal income tax as an organization described as a business league in IRC Section
501(c)(6). If the general purpose of the organization is to promote the interest of trade and increase the facilities
of commercial transactions, particularly in connection to the sale of merchandise exemption will not be granted.
The revenue ruling concludes that those activities substantially serve the exhibitors and retailers as a
convenience and economy in the conduct of their business by providing selling opportunities for the
distributors, and therefore, the organization is providing services for individuals.

Rev. Rul. 68-264, 1968-1 C.B. 264, defined the performance of particular services for individual persons to
include an activity that serves as a convenience or economy to members in the operation of their own
businesses.

In Associated Master Barbers & Beauticians v. Commissioner, 69 T.C. 53, 63 (1977) the court noted that the
statute and regulations establish a series of requirements that an organization must meet to be described in IRC
Section 501(c)(6). Further, failure to meet one or more of the requirements will cause the organization not to
qualify for exemption under Section 501(c)(6). The state requirements are as follows:

1. It must be an association of persons having a common business interest,

2. Its purpose must be to promote that common business interest,

3. It must not be organized for profit,

4. It should not be engaged in a regular business of a kind ordinarily conducted for a profit,

5. Its activities should be directed toward the improvement of business conditions of one or more lines of
business as opposed to the performance of particular services for individual persons, and

6. Its net earnings, if any, must not inure to the benefit of any private shareholder or individual.

Application of law
You do not qualify as a business league as described in IRC Section 501(c)(6) and Treas. Reg. Section
1.501(c)(6)-1. The essential exemption requirements to meet Section 501(c)(6) were defined in the court case,

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

Associated Master Barbers, and Beauticians v. Commissioner. Further, failure to meet one or more of the
requirements will cause the organization not to qualify for exemption under Section 501(c)(6). The six
requirements are:

1. It must be an association of persons having a common business interest

2. Its purpose must be to promote that common business interest

3. It must not be organized for profit

4. It shouldn’t be engaged in a regular business of a kind ordinarily conducted for a profit

5. Its activities should be directed toward the improvement of business conditions of one or more lines of
business as opposed to the performance of particular services for individual persons and

6. Its net earnings, if any, must not inure to the benefit of any private shareholder or individual

You fail requirement 5 because you are primarily engaged in providing particular services to individuals.
Specifically, through providing a market where member vendors may sell their products, you are providing a
direct service to those members. You manage and provide the venue for member vendors as well as provide
insurance. You also advertise on behalf of members to improve customer turn out. For example, you provided
samples of advertising which list the names of individuals, and the produce those individuals intend on selling at
the farmer’s market. Rev. Rul. 68-264 explains that an activity that serves as a convenience or economy to
members in the operation of their own businesses is the performance of particular services for individual
persons. Like the organization in Rev. Rul. 58-224, your primary activity is to provide a sales location and other
services for your member vendors. This serves as a convenience and economy to your members to market and
sell their products that they otherwise would not have. Serving your members in this manner is the performance
of particular services for individual persons and does not improve the business conditions of one or more lines
of business.

Conclusion

We conclude you are not described in IRC Section 501(c)(6) because you do not meet all six requirements for
exemption. You primarily provide services to your members by providing a venue for members to sell their
products. This precludes you from 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:

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

4

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 Determination 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

PO 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,

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K