Internal Revenue Service
Revenue Ruling
Rev. Rul. 71-395
1971-2 C.B. 228
Sec. 501
Caution: Clarified by Rev. Rul. 76-152
IRS Headnote
A cooperative art gallery formed and operated by a group of artists for the
purpose of exhibiting and selling their works does not qualify for
exemption under section 501(c)(3) of the Code.
Full Text
Rev. Rul. 71-395
A question asked the Internal Revenue Service is whether a cooperative art
gallery that exhibits and sells its members' works may be exempt from
Federal income tax under section 501(c)(3) of the Internal Revenue Code of
1954.
The gallery was formed and is operated by a group of approximately 50
artists for the purposes of exhibiting and selling their works. Additional
artists are admitted to membership by approval of the existing members.
The gallery is open to the public six days a week. No admission is charged.
Works of the member artists are exhibited and offered for sale. A panel
chosen by the members selects those works for exhibition that in its
opinion meet certain minimal artistic standards. Special showings by
individual members are also held on a rotating basis. All works may be
purchased by the public and many may be rented. The gallery retains a
commission from sales and rental sufficient to cover the cost of operating
the gallery. Any deficits that occur are covered by special assessments of
the members.
Section 501(c)(3) of the Code provides for the exemption from Federal
income tax of organizations that are organized and operated exclusively for
educational purposes. Section 1.501(c)(3)-1(d)(3)(ii) of the Income Tax
Regulations states that museums and similar organizations are examples of
exempt educational organizations.
Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides that an
organization may not be exempt if it is operated for the benefit of private
individuals.
The cooperative gallery in this case is engaged in showing and selling only
the works of its own members and is a vehicle for advancing their careers
and promoting the sale of their work. It serves the private purposes of its
members, even though the exhibition and sale of paintings may be an
educational activity in other respects.
Accordingly, it is held that the organization is not organized and operated
exclusively in furtherance of exempt purposes and is not exempt under the
provisions of section 501(c)(3) of the Code.
