IRS Issues Two PLRs re Business Leagues

In January of 2012, the Internal Revenue Service released a couple of private letter rulings focused on §501(c)(6) organizations. Section 501(c)(6) of the Internal Revenue Code provides that organizations organized as business leagues and chambers of commerce, not organized for profit and no part of the net earnings of which inures to the benefit of any private individual, may be exempt from federal income tax. Reg. §1.501(c)(6)-1 further 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.

In the first of the recent private letter rulings, PLR 201203018, the IRS denied tax-exempt status to an organization that sought exemption as a business league, finding that the organization was established to promote investment opportunities for its members rather than to improve overall business conditions of its industry.

In the second of the recent private letter rulings, PLR 201203021, the IRS revoked the tax-exempt status of a §501(c)(6) organization established to improve the retail grocery industry after concluding that the organization’s fundraisers, investments, voucher exchange program, and coupon redemption program primarily benefitted its members instead of serving an exempt purpose.