202034010: IRS denies 501(c)(6) business-league status to a group of bridal salons that ran a joint sales event

Plain-English summary

A nonprofit made up of independently owned bridal salons applied to be recognized as a tax-exempt business league under IRC § 501(c)(6). Its main activity was organizing an annual multi-store sales event, promoting member salons on a website, coordinating advertising campaigns, and helping members find discounted merchandise. The IRS said this is not what a business league does. A 501(c)(6) organization must work to improve business conditions across a whole line of business, not perform particular services for individual members. Because the group's advertising and event promotion directly benefited its own member salons, the IRS issued a proposed adverse determination, and when no protest was filed within 30 days, made it final. The organization does not qualify for exemption and must file income tax returns.

Ruling snapshot

• Question: Does a group of bridal salons that runs a joint sales event and advertises its members qualify as a tax-exempt business league under § 501(c)(6)?
• Outcome: Denied (final adverse determination, no protest filed)
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 56-65; Rev. Rul. 56-84; Automotive Electric Association v. Commissioner, 168 F.2d 366 (6th Cir. 1948)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201

Number: 202034010 Date: May 28, 2020
Release Date: 8/21/2020

Employer ID number:

UIL Number: 501.06-00, 501.06-01 Contact person/ID number:

Contact telephone number:
Form you must file:

Tax years:

Dear

This letter is our final determination that you don't qualify for tax-exempt status under Section 501(c)(6) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn't receive a protest within the required 30 days, the proposed
determination is now final.

You must file federal income tax returns for the tax years listed at the top of this letter using the required form
(also listed at the top of this letter) within 30 days of this letter unless you request an extension of time to file.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4034, Proposed Adverse Determination under IRC Section 501(a)

Redacted Letter 4040, Final Adverse Determination under IRC Section 501(a) Other Than 501(c)(3) - No

Protest

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
IRS Cincinnati, OH 45201
Date: APRIL 1, 2020
Employer ID number:
Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend UIL

B = State 501.06-00
C= Date 501.06-01
D= Name

E= Countries

F= Days

G= Date

j dollars= Amount
k dollars= Amount

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(6).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(6)? No, for the reasons stated below.

Facts
You were incorporated in B on C as a nonprofit corporation. Your corporate purpose indicates you are a group
of independently owned and operated bridal salons organized to create events for the betterment of their stores.

Your primary activity listed on your Form 1024 is providing advertising to bridal salons to promote awareness
and increase sales. Specifically, you organize D annually for member stores in E which you describe as an event
similar to F on G. On this day, independently owned bridal salons offer substantial sales and discounts on
wedding attire. Most salons extend the sale for the week.

You heavily promote D on your website including providing direct links to your member stores as well as by
listing their addresses, phones, and e-mails. You also contact the manufacturers of wedding dresses to locate
wedding dresses or other merchandise that they would sell for a discounted price, in order for them to unload
excessive inventory. You also order promotional garment bags for member salons to provide to brides who

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

2

purchased dresses from your members. Additionally, you prepare banners, and coordinate other promotional
events. Furthermore, about thirty days before D, you implement advertising campaigns by sending out multiple
press releases, posting constantly about D on different social media platforms, providing information to local
TV stations, and sending e-mail blasts to potential customers.

Further, the only requirement to become a member and participate in D is to own a brick and mortar
independent bridal salon, complete registration and submit the payment. The cost of the membership is either
j dollars per year, or up to k dollars for multiple years. You indicated the membership fee pays for direct
national advertising of the bridal salons on your website. In addition, each store can provide advertising for
their specific store on your website. Your founder is the owner of one of the salons participating in this event.
Besides your founder, you have two other board members.

Your sources of revenues are member assessments and fees. Your expenses consist of promotional expenses for
D.

You recruit potential member stores mainly throughout the first half of the year by contacting independent
stores and attending trade shows in different markets. Throughout the year, you maintain your website and
change the content to focus on items such as "e-books, bridal-salon-of- the- month, wedding-gown-designer-of-
the-month etc.

Law

IRC Section 501(c)(6) exempts from federal income tax business leagues, chambers of commerce, real estate
boards, boards of trade, and professional football leagues (whether or not administering a pension fund for
football players), which are not organized for profit and no part of the net earnings of which inures to the
benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(6)-1 states, in part: "A business league is an association of persons having
some common business interest, the purpose of which is to promote such common interest... . 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. 56-65,1956-1 C.B. 199 describes a local organization whose principal activity consisted of furnishing
information to and advertising the products of its members engaged in the building construction business was
performing particular services for them and was not held to be exempt as a business league.

Rev. Rul. 56-84, 1956-1 C.B. 201 describes that an organization operated primarily for the purpose of promoting,
selling, and handling the national advertising in its members' publications was engaged in the performance of
particular services for individual members and was not entitled to exemption under IRC Section 501(c)(6).

In Automotive Electric Association v. Commissioner, 168 F.2d 366 (6th Cir. 1948), the court found that an
association that published and sold catalogues to members and non-members did not qualify for exemption
under IRC Section 501(c)(6). It was determined that the association was performing particular services for
individual persons when the catalogue listed only products manufactured by the members, even though there
may have been incidental benefit to the relevant industry.

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

Application of law

You are not described in IRC Section 501(c)(6) and Treas. Reg. Section 1.501(c)(6)-1. Your primary activity is
D, which is a national sales event similar to F provided for the benefit of your members. You conduct numerous
advertising campaigns concerning D as well as operate a website which has members' contact information and a
direct link to their stores. These activities constitute the performance of particular services to members as
opposed to the improvement of business conditions as a whole and preclude you from exemption under IRC
Section 501(c)(6).

Like the organizations in Rev. Rul. 56-65 and Rev. Rul. 56-84, your activities are not primarily directed to the
improvement of business conditions of the bridal salon industry as a whole, but you are operated to provide
direct services to your member salons. For example, your expenses mainly consist of advertising expenses.
Your Articles of Incorporation state you are a group of independently owned and operated bridal salons to
create events for the betterment of their stores. You contact wedding dresses designers to help your members
find discounted items. These facts show you are providing particular services for members and consequently
you are precluded from exemption under IRC Section 501(c)(6).

You are similar to the organization described in Automotive Electric Association v. Commissioner. You coordinate
D to promote awareness of independently owned salons. You also provide advertising to your individual member
bridal salons concerning D on your website as well as coordinate advertising campaigns promoting D such as
email blasts to potential customers and numerous postings on social media. Although there may be some
incidental benefit to the bridal salon industry as a whole, the purpose of these activities is to directly benefit
your member salons.

Conclusion

Based on the information provided, we conclude that you are not operated as a business league described in IRC
Section 501(c)(6). You do not improve business conditions along one or more lines of business or of a certain
area but instead provide direct services for your individual members. Therefore, you do not qualify for
exemption under IRC 501(c)(6).

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree

You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number

• A statement of the facts, law, and arguments supporting your position

• A statement indicating whether you are requesting an Appeals Office conference

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

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• The signature of an officer, director, trustee, or other official who is authorized to sign for the
  organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven't given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first IRC Section 7428(b)(2).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-

pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

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been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K