Business-referral networking club denied 501(c)(6) status

Plain-English summary

A networking club applied to be recognized as a tax-exempt business league under Section 501(c)(6). Its members are business professionals who meet weekly to swap referrals ("leads"), give short commercials about their own companies, and thank each other for business generated that week. Membership is capped at one person per occupation. The IRS denied exemption. A 501(c)(6) business league must promote the common interests of an entire line of business, not perform "particular services" for individual members. Here the club's whole point is to drum up referrals and advertising for its specific members, which the IRS treats as a particular service and as running a networking/advertising business of the kind ordinarily done for profit. And because it allows only one member per type of business, its members do not even share a common industry interest. Citing rulings and case law on employment registers, shopping-center merchant associations, and the American Automobile Association, the IRS concluded the club is not a business league. This is the final adverse determination (Letter 4038), issued after no protest was filed within 30 days.

Ruling snapshot

• Question: Does a weekly business-referral networking club qualify for exemption as a business league under IRC § 501(c)(6)?
• Outcome: denied (final adverse determination)
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 61-170; Rev. Rul. 68-264; Rev. Rul. 73-411; American Automobile Association v. Commissioner, 19 T.C. 1146 (1953)

Full text (IRS public release)

        Department of the Treasury                      Date:
        Internal Revenue Service                        04/25/2024
Tax Exempt and Government Entities

                                                        Employer ID number:
                                                        Form you must file:

                                                        Tax years:
Release Number: 202429022

Release Date: 7/19/2024                                 Person to contact:
UIL Code: 501.06-00

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.

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
Date: January 22, 2024

Employer ID number:

Person to contact:

Legend:                          UIL: 501.06-00
W = State

X = Date

Y = Name

Z = Date

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 formed as a non-profit corporation in W on X under the name Y. According to your Articles of
Incorporation, your purpose is to operate as "a professional business association dedicated to business referrals
among members." On Z you filed Articles of Amendment changing your name to your current name.

Your Bylaws indicate you are "an organization of business professionals dedicated to the advancement of their
respective careers through the exchange of information and the interchange of business/professional contacts".
Your goal is to expand the business leads of the community at large. You define a "lead" as a referral between
two members which may result in a business contact.

Your Bylaws provide that your membership shall be made up of occupations determined by your Board of
Directors and that each occupation shall be represented by one member.

Your members meet once a week to network. Each member who is present provides a commercial
about themselves and their company services. You select members to speak for about
themselves, their business and current goals. Finally, a roundtable discussion takes place relating to the
activities of the members. During this time, you thank each other for the business growth opportunities you

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

experienced that week due to the contacts or referrals being shared. By doing this, members can refer their
customers to other members. You also host larger networking events for members and non-members to
times annually.

You state that these activities further the common interest of your membership, which is dedicated to the
advancement of their respective careers through the exchange of information and business contacts.

Your website lists the benefits of your membership which includes lead developments, building relationships
and alliances that are beneficial to every member. Your website has a listing of all your members, their type of
business and their contact information.

Law
IRC Section 501(c)(6) 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 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 in one or more lines of business as distinguished from
the performance of particular services for individual members. 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.

In Revenue Ruling 61-170, 1961-2 C.B., exemption under IRC Section 501(c)(6) was denied to organizations
which maintain employment register for its members. The Ruling concluded that assisting the members to
obtain employment was particular services for the individual persons as opposed to improvement of the general
business conditions of the profession.

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.

In Rev. Rul. 73-411, 1973-2 C.B. 180, 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 American Automobile Association v. Commissioner, 19 T.C. 1146 (1953), a national association of
individual auto owners and affiliated auto clubs, did not qualify as a business league because the Association's
principal activities consisted of securing benefits and performing particular services for members.

Application of law

You are not described in 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 promote your members' specific
businesses interests. You also only allow one member for each type of business. You engage in a regular business

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

of the kind ordinarily carried on for profit in that you provide network/advertising services that would otherwise be
necessary for each individual member to conduct on their own or through another entity.

You are similar to the organizations in Rev. Rul. 61-170 and Rev. Rul. 68-264 since you are dedicated to the
advancement of your members' respective careers through the exchange of information and business contacts.
By doing this, you are providing particular services to your members.

You are similar to Rev. Rul. 73-411 since you limit your membership to one member for each type of business.
You do not have a common business interest of a particular industry as a whole, which is required under IRC
Section 501(c)(6).

The court in American Automobile Association v. Commissioner held that an organization that provides
particular services to members is not exempt under IRC Section 501(c)(6). You are similar to the organization
described in this court case since your sole purpose is to provide networking/advertising services to your
members.

Conclusion

Your purpose is to provide a service to your members. Your members do not share a common business interest and
you are not promoting the common business interests of a particular industry. Therefore, we conclude you are not
exempt under IRC 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.

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

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,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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