Shopping-center association denied business-league exemption

Plain-English summary

A commercial condominium association sought exemption as a business league under section 501(c)(6). Its member merchants paid fees and assessments that funded maintenance, repairs, landscaping, refuse collection, road work, and other common-area services at a shopping center. The IRS found that the association served the individual business interests of its members and performed services they otherwise would have purchased or handled themselves. Those activities did not improve conditions for a line of business as a whole and resembled services ordinarily carried on for profit. The IRS also rejected comparisons to homeowners’ associations described under section 501(c)(4), which was not the exemption requested. Because the applicant did not protest the proposed denial, the IRS made the adverse determination final.

Ruling snapshot

• Question: Did a shopping-center condominium association that maintained common property for member merchants qualify as a section 501(c)(6) business league?
• Outcome: denied
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Ruls. 59-234, 68-264, 72-102, 73-411, 74-99; Apartment Operations Ass’n; Indiana Retail Hardware Assn.

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 11/06/2023
Tax Exempt and Government Entities

IRS P.O. Box 2508
Cincinnati, OH 45201

Employer ID number:

Form you must file:

1120
Tax years:
Release Number: 202405010 All
Release Date: 2/2/2024 Person to contact:

UIL Code: 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 437

Redacted Letter 4034
Redacted Letter 4038

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

Department of the Treasury
Internal Revenue Service

Cincinnati, OH 45201

Date: 08/23/2023
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = State of Formation 501.06-01
C = Date of Formation
D = Units

E = Merchants
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 IRC Section 501(c)(6)? No, for the reasons stated below.

Facts

You are a corporation formed on C under the laws of the state of B. You operate a commercial real estate rental
condominium association. Your Articles of Incorporation indicated the purposes for which you were formed
are:

(1) To own, operate, lease, sell, trade and otherwise deal with such real and/or personal property as may be
necessary and/or convenient in the administration of said Condominium.

(2) To provide an entity for the furtherance of the interest of the owners of Units in the Condominium.

(3) To fix and to collect assessments or other charges to be levied against the Properties.

(4) To manage, control, operate, maintain, repair, and improve the Common elements and Properties, and
property subsequently acquired by the Association, or any property owned by another, for which the
Association, by rule, regulation, Declaration, or contract, has a right or duty to provide such services.

(5) To enforce covenants, conditions, or restrictions affecting any property to the extent the Association
may be authorized to do so under any Declaration or Bylaws.

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

2

(6) To engage in activities which will foster, promote, and advance the common interests of all owners of
units at the development.

Your Bylaws state the qualifications for membership as, “The members of the association shall be persons,
partnerships, firms, corporations, or entities who are owners, legal or equitable, of Units in the Community.”

You were formed to manage, operate, maintain, repair, and improve the common elements and properties of the
condominium development. There are D condominium units comprising E merchant stores. The public uses the
facilities to obtain goods and services from tenants and the area is situated as and resembles a shopping center.

You provided the following description of your activities:

• Providing preservation of the appearance, values, and amenities of the property

• Managing assessments, owning and maintaining, repairing and replacing the general common areas
of the property and repairing common areas,

• Providing, purchasing, acquiring, owning, replacing, improving, maintaining and/or repairing such
real property, structures, streetlights, landscaping, paving or other improvements accepted by you.

• Operating without profit for the sole and exclusive benefit of your members

• Any services/activities will be provided at the Center by the Association President, typically through
contractors (refuse removal, lawn maintenance, snow removal, parking lot maintenance, etc.)

Your financial information shows you are supported solely by membership fees. Your expenses include road
maintenance, outside signs and lighting, property insurance, real estate taxes, landscaping, refuse collection,
reserve for road resurfacing and resealing, and legal, accounting and management.

Law

IRC Section 501(c)(6) provides for the 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 Regulations 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.

Revenue Ruling 59-234, 1959-2 C.B. 149, held that a real-estate board whose primary purpose or activity is the
operation of a multiple-listing system is considered to be rendering particular services for its members as a
convenience and economy in the conduct of their respective businesses, rather than for the improvement of
business within the real estate business generally, and is not exempt from Federal income tax as an organization

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

3

described in IRC Section 501(c)(6). The ruling further concluded that the operation of a real estate multiple
listing service constitutes a business of a kind ordinarily carried on for profit.

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

Rev. Rul. 73-411, 1973 2 C. B. 180, held that exemption under IRC Section 501(c)(6) was denied to a shopping
center merchants’ association whose membership is restricted to, and required of, the tenant of a one owner
shopping center and their common lessor, and whose activities are directed to promoting the general business
interests of its members.

In Apartment Operations Ass'n v. Commissioner of Internal Revenue, 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 Assn., Inc. v. United States, 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 IRC Section 501(c)(6). Over 58% of the organization's total income was
derived from its performing particular services for individuals as convenience and economy in their businesses
and from its other income-producing activities.

Application of law

IRC Section 501(c)(6) provides exemption for organizations organized as business leagues, chambers of
commerce, real-estate boards, boards of trade, or professional football leagues. As demonstrated in your
Articles of Incorporation, you are not organized for any of the purposes described in IRC Section 501(c)(6).
You are not a business league as described in IRC Section 501(c)(6) because you are not organized to improve
business conditions of one or more lines of business, and you were formed to provide particular services to your
members.

You are not described in Treas. Reg. Section 1.501(c)(6)-1 because you limit your promotion to your members
specific businesses. You engage in a regular business of a kind ordinarily carried on for profit in that you
provide specific services that would otherwise be necessary for each individual member to conduct on their own
or through another entity. You provide the maintenance of common areas, parking lots and similar matters of
common concern to the tenants of the shopping center. In addition, you have no common business interest other
than a mutual desire to attract customers and to increase their individual sales.

You are similar to the organization described in Rev. Rul. 59-234, which held that the operation of a real estate
multiple listing service constitutes a business of a kind ordinarily carried on for profit. Your activities are
directed to promoting the general business interests of your members, and therefore, constitute the performance
of particular services for individual persons as distinguished from activities aimed at the improvement of
business conditions in their trade as a whole.

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

You are similar to Rev. Rul. 68-264 because you take care of the maintenance needs for the tenants of the
shopping center. This activity constitutes the performance of a particular service to your members with the
intent of providing efficiency of operations and economies of scale for members.

Like the organization in Rev. Rul. 73-411, you are a membership association comprised of all the tenants of a
shopping center. You work collectively within your membership, by using membership fees and assessments
collected to maintain and repair common areas, enforce covenants and similar matters of common concern to
the tenants. You serve the individual business interests of the tenants of the shopping center.

Like the organizations described in Apartment Operations Ass'n v. Commissioner of Internal Revenue and
Indiana Retail Hardware Assn., Inc. v. United States, your activities do not improve the business conditions of
one or more lines of business or business conditions of any community as a whole. You perform particular
services for members and serve the special interests of your individual members.

Your position

You indicated that your common business interest fit best under encouraging uniformity and cooperation by a
retail merchants association.

You referenced your similarities to the organizations in Rev. Rul. 72-102 and Rev. Rul. 74-99. You indicated
that these revenue rulings address homeowners’ association under IRC Section 501(c)(4) and you are similar to
these organizations because you are formed to preserve the appearance of a shopping center and to maintain
streets, sidewalks, and common areas for use of the tenants. You also stated the common areas you own and
maintain comprise a public road with common utilities (sewer, water, gas and electric) that you are required to
maintain along with the public road itself.

Our response to your position

You applied for exemption under IRC Section 501(c)(6). Rev. Rul. 72-102 and Rev. Rul. 74-99 analyzing IRC
Section 501(c)(4) do not apply.

You assert that you are similar to Rev. Rul. 74-99; however, Rev. Rul. 73-411 applies. You work collectively
within your membership, by using membership fees and assessments collected to maintain and repair common
areas, enforce covenants and similar matters of common concern to your tenants. You serve the individual
business interests of the tenants of the shopping center. Therefore, you are not described in IRC Section
501(c)(6).

Conclusion

Based on the facts and information submitted, you are not operated exclusively for exempt purposes under IRC
Section 501(c)(6). Your activities are not directed to the improvement of business conditions of one or more
lines of business. You are providing particular services for your individual members. Accordingly, you do not
qualify for exemption under IRC Section 501(c)(6).

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

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 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

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

6

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.

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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