Merger preserves surviving business league’s exemption

Plain-English summary

A tax-exempt business league merged with a related social-welfare organization whose membership and advocacy work substantially overlapped with its own. The business league survived, changed its name, and amended its governing documents to promote the common business interests of health, human-service, and rehabilitation providers. It represented that it would not perform particular services for members, operate a regular for-profit business, or allow private inurement. The IRS ruled that the merger would not adversely affect the surviving organization’s exemption under IRC § 501(c)(6).

Ruling snapshot

• Question: Will merging a related § 501(c)(4) organization into a surviving § 501(c)(6) business league jeopardize the survivor’s exemption?
• Outcome: Approved, the merger will not adversely affect exempt status
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 70-641

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Contact Person:

Number: 201446026

Release Date: 11/14/2014 Identification Number:
Telephone Number:

Date: August 20, 2014 Employer Identification Number:

UIL: 501.06-00

Legend:
Organization =
Year 1 =
Entity 1 =
Entity 2 =
Year 2 =
State =
Year 3 =
Year 4 =
Year 5 =

Dear :

This is in response to your ruling request, dated November 1, 2013, requesting a ruling under
I.R.C. § 501(c)(6) regarding a merger transaction between two entities that resulted in your
formation.

FACTS

You, Organization, are a nonprofit corporation organized under state law. You were formed in
Year 1 as a result of a merger of two organizations, Entity 1 and Entity 2. Entity 1 was founded
in Year 2 by member agencies and facilities providing rehabilitation programs and services for
persons with disabilities in State. You state that Entity 1’s activities on behalf of its membership
included holding meetings and educational conferences, providing information on policy
developments in the area of rehabilitation practice, providing comment and advice to
governments and public officials, participation in public meetings, and maintaining a liaison with
other agencies and providers providing other types of health services to persons with
disabilities. Entity 1 was recognized as exempt under § 501(c)(6) in Year 3.

Entity 2 was founded in Year 4 by community mental and intellectual disability member
agencies and facilities in order to coordinate and cooperate in a common association that
promoted their common interests and sought to serve as a source of advocacy, education,
news, and networking in State. You state that Entity 2’s activities on behalf of its membership
included promoting state and local meetings of key personnel for the exchange of ideas
concerning matters of mutual interest, creating a mechanism for collecting and distributing

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statistical and other information useful to members, sending representatives to testify before
state and federal legislative bodies, conferring with officials from various levels of government
on relevant issues, and advocacy and advancement of member issues regarding regulatory
decision-making at various levels of government. Entity 2 was recognized as exempt under
§ 501(c)(4) in Year 5.

You have provided several reasons for the merger between Entity 1 and Entity 2. First, you
state that the entities have a long history of cooperation and assistance based upon each
organization’s distinct, yet overlapping membership and common purposes. Second, you state
that fundamental changes to the health care environment will impact the delivery of services by
members of both entities and have brought together their common interests. Third, you
represent that the merger of the entities creates a unified association with combined
membership and resources that serve the common mission and interests of member agencies
and facilities. This combines the strengths of the entities while reducing duplicative expenses.

You state that, with regard to the mechanics of the merger, Entity 2 was merged into Entity 1,
the surviving corporation. Entity 1 was then renamed Organization. To effectuate the merger,
you filed articles of merger and amended and restated articles of incorporation with State and
amended and restated your bylaws. Your amended and restated articles of incorporation and
bylaws provide that you will operate for the purpose of uniting in a common association of
agencies, entities, and facilities that provide health, human, and rehabilitative services in State.
The articles and bylaws also list other operational purposes, which include promoting the
common interests of your members, improving their conditions to deliver cost effective services,
to advocate on behalf of members, and to provide guidance and input to governments and
public officials regarding legislation, rules, regulations, and administrative policies. You
represent that you do not provide particular services to your individual members and that no part
of your net earnings inure to the benefit of any private shareholder or individual.

RULING REQUESTED
You have requested that we confirm your exempt status as an organization exempt under

§ 501(c)(6) following the merger of Entity 1 and Entity 2, where Entity 1 is the surviving
corporation and renamed Organization.

LAW

I.R.C. § 501(c)(6) provides for the exemption from taxation of business leagues, chambers of
commerce, real-estate boards, boards of trade, or professional football leagues (whether or not
administering a pension fund for football players), not organized for profit and no part of the net
earnings of which inures to the benefit of any private shareholder or individual.

Treas. Reg. § 1.501(c)(6)-1 provides that a business league is an association of persons having
some common business interest, the purpose of which is to promote some 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.

Rev. Rul. 70-641, 1970-2 C.B. 119, holds that a nonprofit organization of individuals from
various professions in the field of public health and welfare organized to develop greater

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efficiency in the professions and solve common problems qualifies under § 501(c)(6). The
organization’s membership is open to persons engaged in various professions concerned with
public health and welfare. These persons are united for the purpose of promoting a common
business interest and improving their business conditions by exchanging knowledge and
information in the field of public health and welfare and the improvement of professional
services and techniques. The organization’s activities consist of holding seminars, lectures,
symposia, and discussions to provide an interdisciplinary forum for the exchange of ideas. It
also disseminates information about legislative developments affecting the general areas of
common concerns.

ANALYSIS

In order to qualify for exemption as a business league under § 501(c)(6), an organization must
be comprised of persons having some common business interest, the purpose of which is to
promote this common business interest and not engage in a regular business of a kind ordinarily
carried on for profit. The § 501(c)(6) organization’s 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. See Treas. Reg. § 1.501(c)(6)-1.

You state that the merger of Entity 2, a recognized § 501(c)(4) organization, into Entity 1, a
recognized § 501(c)(6) organization, was due to overlapping membership, common purposes
and interests, and to combine the strengths of the entities while reducing duplicative expenses.
Although Entity 2 was previously recognized as exempt under § 501(c)(4), based on your
representations, it worked collaboratively with Entity 1 on issues of common concern and
therefore was in many ways operating in a manner similar to an organization exempt under

§ 501(c)(6).

In conjunction with the merger, you amended and restated your articles of incorporation and
bylaws to reflect that you will operate for the purpose of promoting the common business
interest of agencies, entities, and facilities that provide health, human, and rehabilitative
services in State. In this regard, you are similar to the organization in Rev. Rul. 70-641, which
held that a nonprofit organization of individuals from various professions in the field of public
health and welfare organized to develop greater efficiency in the professions and solve common
problems qualifies under § 501(c)(6). You have also represented that, going forward from the
date of the merger, you will operate in a manner consistent with § 501(c)(6) status.

In addition, you represent that you do not provide particular services to your individual members
and do not engage in a regular business of a kind ordinarily carried on for profit. You also
represent that no part of your net earnings inure to the benefit of any private shareholder or
individual. Thus, you do not engage in activities prohibited by § 501(c)(6) or the accompanying
regulations.

Based on the information and representations you have provided, Organization will continue to
operate in a manner consistent with § 501(c)(6) and therefore its exemption will not be
jeopardized by the merger.

RULING

The merger of Entity 2 and Entity 1, where Entity 1 is the surviving corporation and renamed
Organization, will not adversely impact your exempt status under § 501(c)(6).

This ruling will be made available for public inspection under § 6110 of the Code after certain
deletions of identifying information are made. For details, see enclosed Notice 437, Notice of
Intention to Disclose. A copy of this ruling with deletions that we intend to make available for
public inspection is attached to Notice 437. If you disagree with our proposed deletions, you
should follow the instructions in Notice 437.

This ruling is directed only to the organization that requested it. § 6110(k)(3) provides that it
may not be used or cited by others as precedent.

This ruling is based on the facts as they were presented and on the understanding that there will
be no material changes in these facts. This ruling does not address the applicability of any
section of the Code or regulations to the facts submitted other than with respect to the sections
described. Because it could help resolve questions concerning your federal income tax status,
this ruling should be kept in your permanent records.

If you have any questions about this ruling, please contact the person whose name and
telephone number are shown in the heading of this letter.

In accordance with the Power of Attorney currently on file with the Internal Revenue Service, we
are sending a copy of this letter to your authorized representative.

Sincerely,

Michael Seto
Manager, EO Technical

Enclosure
Notice 437