IRS denies business-league status to a football-official placement service

Plain-English summary

A membership organization recruited, trained, evaluated, and assigned football officials to games for local school districts. It collected the districts' payments and distributed compensation to the member officials, while also handling scheduling, grievances, and related administration. The IRS found that arranging officiating jobs and payment services was the organization's primary activity. Those services resembled a regular for-profit placement business and provided convenience and employment opportunities to individual members rather than improving business conditions for a line of business. After no protest was filed, the IRS finalized its denial of exemption as a business league under IRC § 501(c)(6).

Ruling snapshot

• Question: Does the association of football officials qualify as a tax-exempt business league under § 501(c)(6)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 61-170; Rev. Rul. 68-264

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201

Number: 202103015
Release Date: 1/22/2021
Date: October 27, 2020

UIL: 501.06-00, 501.06-01

Dear :

This letter is our final determination that you don’t qualify for exemption from federal income tax
under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section
501(c)(6). 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 the federal income tax forms for the tax years shown above within 30 days from
the date of this letter unless you request an extension of time to file. For further instructions,
forms, and information, visit www.irs.gov.

We’ll make this final adverse determination letter and the proposed adverse determination letter
available for public inspection after deleting certain identifying information, as required by IRC
Section 6110. 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 call the contact person shown above. If you have
questions about your federal income tax status and responsibilities, call our customer service
number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for
businesses at 800-829-4933.

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: August 25, 2020

Employer ID number:
Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
B = Date 501.06-00

C = State 501.06-01

D = Date

E = Name

F = Name

G = Name

H = Organization
x = Number

y = Number

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 formed on B in the state of C as a nonprofit public benefit corporation. On D, you amended your purpose

to read that you are formed for charitable purposes within the meaning of IRC Section 501(c)(6) and to
promote the health of the citizens of C.

You are a membership organization composed of football officials who are registered members of the C High
School Athletic Association. Your sole purpose is to provide qualified officials to local middle school, junior
varsity, and varsity level football games for various school districts across the C, primarily from

of the year. Specifically, you ensure your member officials comply with the state of C
standards, and you assign your qualified member officials to officiate games. You also collect payments from
the school districts on behalf of your members and then distribute the payments to your member officials for

their services. Further, all members officials are paid by you as independent contractors and assume their own
liability.

Your membership categories consist of: E, F, and G. To become an E member, an individual must have reached
the age of x during the summer of the school year in question; be a high school graduate; have a proficient
knowledge of H’s playing rules; have a working knowledge of the game; and be registered with the C High
School Athletic Association. In addition, you limit the number of E members to y. Only E members may vote
and hold office. E members may be terminated only for just cause and then by 2/3 vote of the body.

To become an F member, an individual must meet the same criteria as E members as well as serve a two-year
internship. During this time, they are trained and subsequently assessed and evaluated. If they successfully
complete the two year internship, they may be nominated for advancement to E member status and be named to
the E roster in order to maintain the number of E members at y; additionally, F members will only be advanced
if 2/3 of the Roster of E members present at a called meeting vote to agree to their advancement. F members
may also remain in this status until there is an opening or if additional time in this status would help them
become a more proficient official. Additionally, F members may be terminated at any time by a simple majority
vote of the E members

G members are those individuals, who are under the age of x years or those who in the judgement of a majority
of the E members should be limited to the levels of competition in which they officiate. The period an official
may be in a restricted status shall not exceed years. After the completion of years as a G member, the
member will be automatically elevated to the F status or be dismissed. Dismissal can also occur any time
through a simple majority vote of the E members.

You are governed by a volunteer board of directors. Your officers consist of the President, Vice-President,
Executive Secretary, Treasurer, Recording Secretary, and two “at-large” board members. At the beginning of
each year, the President appoints numerous committees who report to him at the beginning of each year
including the following:

• The Membership Committee, which is responsible for recruiting new member officials, screening all
applicants, and making recommendations regarding potential members.

• The Program Training Committee, which is responsible for training, instructing, and/or directing
inexperienced and experienced officials through a well-planned program of instructions on the rules and
the mechanics of officiating.

• The Assignment Committee, which is responsible for making all assignments, and for assigning full
crews to all schools. The committee also may review and suggest any adjustments as needs arise in the
assignments.

• The Grievance Committee, which is responsible for investigating charges, disputes, and complaints
made by coaches, school officials, or your members and may conduct hearings on problems pertaining
to your officiating program.

• The Ethics Committee, which is responsible for observing the conduct of your member officials at
meetings, on the field, and when possible after games. For those officials experiencing difficulties, they
will hold individual conferences in a professional way.

You receive % of your revenue from various school districts for placing officials at football games. The
remainder of your revenue is derived from dues of your members to help cover your general and administrative
costs. Your expenses consist of compensation paid to members for officiating games.

You further indicated that you act as a convenience to the school districts to prevent the occurrence of
scheduling conflicts amongst the various school districts regarding your members. You serve as a conduit,
through which, the school districts contact you and you provide the official. Maintaining and operating a
placement service for the benefit of the school districts is a primary and substantial activity of yours.

Law
IRC Section 501(c)(6) provides, in part for the exemption from federal income tax of business leagues, 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 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. 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.

Revenue Ruling 61-170, 1961-2 C.B. 112, describes an association composed of professional private duty
nurses and practical nurses which operated a nurses' registry primarily to afford greater employment
opportunities for its members. The association was not entitled to exemption as a business league described in
IRC Section 501(c)(6) because its primary purpose was the operation of a regular business of the kind ordinarily
carried on for profit and it was engaged in rendering particular services for individual persons rather than
promoting the general business conditions of the nursing profession.

Rev. Rul. 68-264, 1968-1 C.B. 264, defined a particular service for the purpose of IRC Section 501(c)(6) as
including an activity that serves as a convenience or economy to members of the organization in the operation

of their own businesses.

In Indiana Retail Hardware Ass'n., Inc, v. United States, 177 Ct. Cl. 288 (1966), the Court held that when
conducting particular services for members is a substantial activity of an organization, the organization will be
precluded from exemption under IRC Section 501(c)(6).

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
the provision of employment services for your member officials. For example, you assign qualified member
officials to officiate games. You also collect payments from the schools on behalf of your member officials and
then distribute the payments to your member officials for their services. You operate training programs to
ensure members meet the needed criteria to officiate games with the schools you provide officials to. These
activities are similar to the operations of a for profit business as well constitute the performance of particular
services to members as opposed to the improvement of business conditions as a whole.

You are similar to the organization in Rev. Rul. 61-170 because you were formed to provide employment
opportunities for your members. You coordinate with local school districts to schedule and assign your
member officials to work at games and then collect payment on their behalf. You also may represent them
in grievances they are involved in. You also limit your roster of officials to y and all members must be
accepted by your membership. By operating in this manner, you are operating similarly to a for profit
business and are rendering particular services for individual persons rather than promoting the general business
conditions of a particular line of business.

Like the organization described in Rev. Rul. 68-264, the activities you conduct such as scheduling officials to
work games and collecting payments on their behalf to distribute to them serves as a convenience or economy
to your members.

The organization in Indiana Retail Hardware Ass'n. failed to qualify for exemption under IRC Section
501(c)(6) because conducting services for their members was a substantial activity. Because your primary
activity is arranging officiating jobs for your members, you are not exempt under IRC Section 501(c)(6).

Conclusion

Based on the information provided, we conclude that you are not operated as a business league described in IRC
Section 501(c)(6). Your operations are substantially similar to those of a for profit business and you provide
particular services to members as well provide a convenience and economy to members. Therefore, you do not
qualify for exemption under IRC Section 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

• 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
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.

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements