Employee discount-card group does not qualify as a business league

Plain-English summary

An organization of local employers applied for exemption as a business league under Section 501(c)(6). It collected annual dues and provided member employees with a digital card offering discounts from participating merchants across many unrelated lines of business. The IRS found no common business interest beyond the employers' desire to offer employee discounts and no program aimed at improving conditions in a particular industry or trade. Instead, the discount service gave members a convenient employment incentive, which the IRS treated as a particular service benefiting individual members. Because providing that service was the organization's substantial activity, it did not meet the requirements for a business league. The organization did not protest within 30 days, so the adverse determination became final.

Ruling snapshot

• Question: Does an employer membership group that supplies digital discount cards to member employees qualify as a Section 501(c)(6) business league?
• Outcome: denied (final adverse determination; the group performed particular services for members rather than improving business conditions in a line of business)
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 68-264; Engineers Club of San Francisco v. United States; Bluetooth SIG Inc. v. United States; Indiana Retail Hardware Assn., Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Date:
08/26/2024

Employer ID number:

Form you must file:

Tax years:
All

Release Number: 202447016
Release Date: 11/22/2024
UIL Code: 501.06-00,
501.06-01

Person to contact:

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

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

Department of the Treasury
Internal Revenue Service

Date: 6/10/2024

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:

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

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 were incorporated on X in Y. Your purpose is to provide discounts to your members’ businesses. Your
bylaws provide that you promote the cooperation and support among local businesses and employers by
providing discounts to your members’ employees.

Your membership consists of local employers in multiple lines of business. You provide a service that brings
businesses together for the purpose of offering discounts to your members’ employees. Each year, you provide
the employees of your members with a link to an app that they can download to access the digital membership
discount card. Employees show their digital membership card to member merchants to receive the discounts.
The card entitles them to discounts in various lines of business such as automotive, clothing, footwear, health &
beauty, home improvement, hotel/motels, jewelers, mortgage/realtor and tax services, photography, recreation
and entertainment, restaurants, and vision care.

Your income is derived from annual membership dues. The income is used to pay for operating costs and
marketing.

Law

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

2

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 inure 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. 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
any 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 68-264, 1968-1 C.B. 264, defines a particular service for the purpose 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 Engineers Club of San Francisco v. United States, 791 F.2d 686 (9th Cir. 1986), the court concluded that in
order to qualify for a business league classification, each and every requirement of Treas. Reg. Section
1.501(c)(6)-1 must be met.

In Bluetooth SIG Inc. v. United States, 611 F.3d 617 (9th Cir. 2010), the court distilled Treas. Reg. Section
1.501(c)(6)-1 into a six-factor test, which requires a business league to be an association (1) of persons having a
common business interest; (2) whose purpose is to promote the common business interest; (3) not organized for
profit; (4) that does not engage in a business ordinarily conducted for profit; (5) whose activities are 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; and (6) of the same general class as a chamber of commerce or a
board of trade.

In Indiana Retail Hardware Assn., Inc. v. United States, 117 Ct. Cl. 288 (1996), 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).

Application of law
You are not described in IRC Section 501(c)(6) and Treas. Reg. Section 1.501(c)(6)-1 because the facts show
you were not formed to promote the common business interests of a particular industry or trade, but rather you
were formed to benefit your members’ business interests. The members have no common business interest other
than a desire to provide discounts on services to your members’ employees. Since you have no program
designed to improve the business conditions along one or more lines of business, you do not qualify under
Section 501(c)(6).

Your activities meet the definition of particular services as described in Rev. Rul. 68-264. Your activities serve
as an employment incentive of your members through the provision of the discount card which is made
available to their employees.

In Engineers Club of San Francisco v. United States, 791 F.2d 686 (9th Cir. 1986), the court concluded that in
order to qualify for a business league classification, each and every requirement of Treas. Reg. Section
1.501(c)(6)-1 must be met.

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

3

You are unlike the organization in Bluetooth SIG Inc. v. United States, your activities do not promote a
common business interest and your activities are not directed toward the improvement of business conditions of
one or more lines of business. Therefore, you fail to promote the common business interest requirement and
also fail to meet where your activities are 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.

You are like the organization in Indiana Retail Hardware Assn. Inc. You serve the private interests of your
members by providing employment incentives to their employees. This activity does not improve the business
conditions of one or more lines of business or business conditions.

Conclusion
You do not meet the requirements of IRC Section 501(c)(6) because your activities are not directed to the
improvement of business conditions of one or more line of business, and you provide substantial services to
your members that further their private interests. Accordingly, we conclude that you are not exempt 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:
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

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

4

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