Internal Revenue Service
Revenue Ruling
Rev. Rul. 68-264
1968-1 C.B. 264
IRS Headnote
A nonprofit organization is not exempt from Federal income tax under
section 501(c)(6) of the Internal Revenue Code of 1954 if it operates a
traffic bureau for members and nonmembers as its primary activity.
S.M. 2368, C.B. III-2, 225 (1924), superseded.
Full Text
Rev. Rul. 68-264 /1/
The purpose of this Revenue Ruling is to update and restate under the
current statute and regulations the position set forth in S.M. 2368, C.B.
III-2, 225 (1924). This ruling relates to whether an organization that
operates a traffic bureau of the type described below is exempt from
Federal income tax under section 501(c)(6) of the Internal Revenue Code of
1954.
A nonprofit organization whose members are engaged in a particular line of
business was incorporated to operate as its primary activity a traffic
bureau for members and nonmembers as a service in the shipment of their
goods and products. The services it provides to members and nonmembers
include quotations of freight rates, rules, and practices; investigations
of loss, damage, and overcharge claims, handling of rate cases for
individual members before regulatory bodies; investigation of complaints on
transportation services; and furnishing of information on transportation
laws. The organization's income consists of membership fees, an annual
payment by the local chamber of commerce, and payments by business firms
for services performed. The income approximates the cost of operations.
Section 501(c)(6) of the Code provides for the exemption from Federal
income tax of business leagues, chambers of commerce, real estate boards,
or 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.
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 a 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.
Primary activities that constitute a regular business of a kind ordinarily
carried on for profit will preclude exemption from Federal income tax under
section 501(c)(6) of the Code because they evidence a purpose to engage in
such business. Jockey Club v. United States , 137 F.Supp. 419, certiorari
denied, 352 U.S. 834 (1956). A traffic bureau, of the type described above,
is a business of a kind ordinarily carried on for profit. Since the traffic
bureau is the primary activity of this organization, it is not exempt from
Federal income tax under section 501(c)(6) of the Code.
Furthermore, activities that constitute the performance of particular
services for individual persons may preclude exemption from Federal income
tax under section 501(c)(6) of the Code. See Indiana Retail Hardware
Association, Inc. v. United States , 366 F.2d 990 (1966). An activity that
serves as a convenience or economy to members in the operation of their
businesses is a particular service of the type proscribed. See Produce
Exchange Clearing Association, Inc. v. Helvering , 71 F.2d 142 (1934). The
operation of a traffic bureau for members and nonmembers is a clear
convenience and economy to them in their businesses, resulting in savings
and simplified operations. Accordingly, this activity constitutes the
performance of particular services for individual persons. United States v.
Oklahoma City Retailer Association , 331 F.2d 328 (1964). Therefore, for
this further reason, the organization is not exempt from Federal income tax
under section 501(c)(6) of the Code.
See Rev. Rul. 68-265, below, which sets forth similar principles relative
to credit information service.
S.M. 2368 is hereby superseded since the position set forth therein is
restated under current law in this Revenue Ruling.
/1/ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.
