Internal Revenue Service
Rev. Rul. 66-338
1966-2 C.B. 226
An organization formed to promote the interests of a particular retail
trade which advises its members in the operation of their individual
businesses and sells supplies and equipment to them is not exempt from
Federal income tax under section 501(c)(6) of the Internal Revenue Code of
Rev. Rul. 66-338
Advice has been requested whether an organization formed to promote the
interests of a particular retail trade under the circumstances described
below is entitled to exemption from Federal income tax under section
501(c)(6) of the Internal Revenue Code of 1954.
A nonprofit organization was formed to promote the interests of a
particular retail trade. Its members are actively engaged in that trade.
Field representatives of the organization call on the members to consult
with them and advise them on their individual business problems. The advice
furnished includes assistance in planning modernization and layouts of the
members' stores. As part of their calls, the field representatives also
inform the members about supplies, equipment, and additional services which
the organization can make available to the members at low prices. This
includes office and store operating supplies, store fixtures and display
accessories, store layout and merchandising services, and electronic
management services. Services of the field representatives and sales of
supplies and equipment constitute the principal activities of the
Section 501(c)(6) of the Code provides exemption from Federal income tax
for business leagues, chambers of commerce, real estate boards and boards
of trade, not organized for profit and no part of the net earnings of which
inures to the benefit of any private shareholder or individual.
Section 1.501(c)(6)-1 of the Income Tax Regulations 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 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
organization whose 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.
The activities described above provide the members of the organization with
an economy and convenience in the conduct of their individual businesses by
enabling them to secure supplies, equipment, and services more cheaply than
if they had to secure them on an individual basis. Therefore, these
activities 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. They also constitute a
business of a kind ordinarily carried on for profit even though they are
conducted on a cooperative basis and produce only sufficient income to be
self-sustaining. See Indiana Retail Hardware Association, Inc. v. United
States , U.S. Court of Claims, No. 91-60, 10-14-66.
Since the sale of supplies and equipment and the furnishing of consultation
services are the organization's principal activities, the organization does
not qualify for exemption from Federal income tax under section 501(c)(6)
of the Code.