Internal Revenue Service
Revenue Ruling
Rev. Rul. 71-155
1971-1 C.B. 152
Section 501(c)(6) -- Exempt Business Leagues, etc.
Caution: Distinguished by Rev. Rul. 81-175
Caution:Distinguished by Rev. Rul. 81-174
IRS Headnote
A nonprofit association composed of licensed insurance companies that make
insurance available to persons who are in high-risk categories and cannot
otherwise obtain coverage qualifies for exemption under section 501(c)(6)
of the Code.
Full Text
Rev. Rul. 71-155
The Internal Revenue Service has been asked whether the organization
described below qualifies for exemption from Federal income tax under
section 501(c)(6) of the Internal Revenue Code of 1954.
The organization is a nonprofit association composed of insurance companies
that write a specified type of insurance and are licensed in a particular
State. It was formed pursuant to State and Federal programs that are
designed to make insurance available to persons who are in high-risk
categories and cannot otherwise obtain coverage. All insurance companies
writing the specified type of insurance within the State are required by
the State Insurance Commission to be members.
The purpose of the organization is to provide for the equitable
distribution of high-risk policies among all members. It has been
represented that the industry has been criticized because member companies
have been cancelling high-risk policies. Any person who has had his
insurance cancelled or who has been unable to obtain insurance through
regular channels may make application to the organization. If the risk
meets the organization's standards, the application is accepted by the
organization and referred to a member company for handling. Where the
organization declines an application, it must notify the appropriate State
insurance official stating its reason for declining.
The organization's income is from assessments against the members based on
premiums written. Disbursements are for normal operating expenses.
Section 501(c)(6) of the Code provides for the exemption from Federal
income tax of business leagues not organized for profit, 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 defines a business
league as an association of persons having some common business interest.
The activities of the association must 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.
The organization's activities promote the common business interests of the
members since the spreading of high risk policies among its members
provides insurance to persons who would normally be unable to obtain
insurance and minimizes public criticism of the industry. Thus, its
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 its individual members. Accordingly, it is held that the
organization is exempt from Federal income tax under section 501(c)(6) of
the Code.
Even though an organization considers itself within the scope of this
Revenue Ruling, it must file an application on Form 1024, Exemption
Application, in order to be recognized by the Service as exempt under
section 501(c)(6) of the Code. The application should be filed with the
District Director of Internal Revenue for the district in which is located
the principal place of business or principal office of the organization.
See section 1.501(a)-1 of the regulations.
