Trade Associations, written by Hugh K. Webster, Esq., of Webster, Chamberlain & Bean, examines in depth the requirements that trade and professional associations must meet in order to secure and maintain tax-exempt status and discusses the application of the unrelated business income tax to such organizations.
This Portfolio analyzes first the general requirements for association exemption imposed by §501(c)(6) and the accompanying regulations, describing both the Internal Revenue Service's and the courts’ interpretations of those requirements.
Trade Associations then examines the unrelated business income tax, linked to the exemption question because the tax is levied on those association activities that, although unrelated to the purposes for which exempt status was granted, are not so significant as to cause loss or denial of exemption. Complementing these discussions is the examination of the effect of specific activities on the exempt status of associations undertaking them.
The Portfolio also analyzes the Service's and the courts’ attitudes toward advertising and promotion activities, trade shows, legislative and political activities, publication activities, certification and standard-setting activities, research, and insurance activities. It concludes with an overview of the use of for-profit and nonprofit subsidiary entities, reporting requirements, and relinquishment of exempt status.
Trade Associations allows you to benefit from:
This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which covers every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.
Detailed Analysis
I. Introduction
A. Legislative and Regulatory Background
1. The Term “Trade Association”
2. History
3. Unrelated Business Income Tax
B. Procedure for Obtaining Exemption
1. Application Process
2. Group Exemptions
a. Who May Obtain a Group Exemption Letter
b. Who May Be Included in a Group Exemption Letter
c. Information Required for a Group Exemption Letter
d. Group Returns
II. Eligibility for Exemption
A. Summary
B. Common Business Interest
1. Business
2. Commonality
a. Same Industry or Profession
b. Different Industry or Profession
c. Hobbies
C. Promotion of Common Business Interest
1. Industry Marketing
2. Trade Shows
3. Research
4. Providing Information
5. Legislative Activities
6. Miscellaneous
7. Illegal Activity
D. Line of Business Test
1. General
2. “Line of Business” Defined Broadly
3. Association Members Need Not Be in the Same Business
4. Single Supplier
a. General
b. User Groups
E. Particular Services
1. Basic Definition
a. Individually Tailored Services
b. Fee for Service
2. Common Association Activities
a. Advertising
b. Employment Services
c. Credit Reporting
d. Insurance
3. Miscellaneous
4. Broader Exempt Purpose
5. Relationship to UBIT
6. Permissible Amount of Particular Services
F. Not Organized for Profit
G. Inurement
1. Definition
2. Examples of Inurement
a. Dividends
b. Rebates
c. Financial Assistance
d. Price Differential
e. Compensation
f. Insider Transactions
3. Distribution of Assets upon Dissolution
4. No De Minimis Rule
5. Nonmember Income and Inurement
III. Sections 501(c)(6) and 501(c)(3) Compared
A. Introduction
B. Scope of “Education”
C. Professional Societies
IV. Unrelated Business Income Tax
B. Three-Part Test
1. Trade or Business
2. Regularly Carried On
3. Substantially Related
C. Specific Activities
1. Insurance
2. Advertising
a. Periodicals
b. Directories
c. Allocation of Expenses
3. Associate Member Dues
4. Fundraising Activities
D. Exceptions
1. Dividends
2. Interest
3. Royalties
4. Mailing Lists and Affinity Cards
5. Rents
6. Disposition of Property
7. Research
E. Controlled Organizations
F. Debt-Financed Property
G. How Much UBI Is Too Much?
V. Subsidiary Entities
A. Taxable Subsidiaries
1. Decision Making
2. Financial Dependence
3. Administrative Personnel
4. Shared Facilities
5. Common Directors
6. Funding the Subsidiary
7. Corporate Formalities
8. Public Perception
9. Stock Ownership
B. Tax-Exempt Subsidiaries
C. Associations as Subsidiaries
VI. Political Activities
A. General
B. Effect on Dues Payments
C. Tax on Political Acts
D. Political Action Committees
VII. Legislative Activities
Introductory Material
A. Proxy Tax
B. Nondeductible Dues Exception
C. Influencing Legislation
D. Supporting Activities
E. Volunteers
F. Local Lobbying
G. De Minimis Exception
H. Allocation and Record Keeping Rules
1. General Rule
2. General Definitions
3. Special Safe Harbor Allocation Methods
a. Ratio Method
b. Gross-Up Methods
c. Section 263A Method
VIII. Reporting Requirements
A. Form 990
B. Form 990-EZ
C. Form 990-T
D. Compensation
E. Statute of Limitations
F. Public Availability
G. Penalties
H. Other Disclosure Rules
IX. Relinquishing Exempt Status
X. Conclusion
Working Papers
Table of Worksheets
Worksheet 1 IRS Exempt Organizations Determination Manual, IRM 7.25.6 - Business Leagues
Worksheet 2 Sample Articles of Incorporation for Trade Association
Worksheet 3 Sample Bylaws for Trade Association
Worksheet 4 Sample Group Exemption Application
Worksheet 5 Sample License Agreement with Treatment of Unrelated Income as a Royalty
Worksheet 6 Sample Articles of Incorporation of Taxable Subsidiary
Worksheet 7 Sample Bylaws of Taxable Subsidiary
Worksheet 8 Sample Articles of Incorporation of Tax-Exempt Subsidiary
Worksheet 9 Sample Bylaws of Tax-Exempt Subsidiary
Worksheet 10 Sample Articles of Incorporation of 527 Political Action Committee
Worksheet 11 Sample Minutes of Organizational Meeting of Association
Worksheet 12 Sample Conflict of Interest Policy
Worksheet 13 Sample Plan of Merger Agreement
Bibliography
OFFICIAL
Statutes:
Committee Reports:
Treasury Regulations:
Treasury Rulings:
Cases:
UNOFFICIAL
Periodicals:
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