501(c)(6) denied to a farmers'-market group that serves its own vendors, not a whole line of business

Plain-English summary

An organization that runs a weekly summer farmers' market (plus a one-day festival) applied to be recognized as a tax-exempt business league under section 501(c)(6), and the IRS denied it. To qualify under 501(c)(6), a group must work to improve business conditions across a line of business or a whole commercial community, the way a chamber of commerce does, not perform particular services for individual members. Here the group's main activity was operating a market that gave its approved vendors a place to sell their goods. The IRS found that was a "particular service" and a convenience to those individual vendors, who shared no common business interest beyond wanting to boost their own sales. The organization pointed to community benefits and to IRS Publication 557, but the IRS explained that "local commercial market" in that publication means a whole business community, not a single physical marketplace. Because the group did not protest the earlier proposed denial within 30 days, the denial became final. The organization must file Form 1120.

Ruling snapshot

• Question: Does an organization whose main activity is running a farmers' market for approved vendors qualify as a 501(c)(6) business league?
• Outcome: Denied (final adverse determination)
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 58-224; Rev. Rul. 59-391; Rev. Rul. 68-264; Rev. Rul. 73-411; American Automobile Association v. Commissioner, 19 T.C. 1146 (1953)

Full text (IRS public release)

Department of the Treasury                       Date:
Internal Revenue Service                         02/15/2023
Tax Exempt and Government Entities
[illegible] Box 2508                             Employer ID number:
Cincinnati, OH 45201
                                                 Form you must file:
                                                 1120
                                                 Tax years:
Release Number: 202319017                        All
Release Date: 5/12/2023                          Person to contact:
UIL Code: 501.06-00

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 Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S


Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: November 17, 2022

                                                 Employer ID number:

                                                 Person to contact:
                                                 Name:
                                                 ID number:
                                                 Telephone:
                                                 Legend:                    UIL:
                                                 B = Date                   501.06-00
                                                 C = State                  501.06-01
                                                 D = Number Range
                                                 E = Number Range

Dear Applicant:

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 on B in the state of C as a non-profit corporation. Your Articles of Incorporation
state that your mission is to provide entrepreneurs in the local area with a low barrier opportunity to sell
their products, to provide people living and visiting the area with a place to purchase goods and services
from local vendors, to promote local musicians and non-profit groups, and to build a sense of community
by offering a marketplace in the downtown area where individuals and families can become aware of
local vendors and their products, contribute to non-profit causes, and enjoy local musicians. The Articles
further state that members who have paid the annual fee and signed a market contract can sell at the
market, vote for the board of directors (of which vendors should be a majority), participate in meetings, be
officers and/or directors, and examine the market’s books, membership lists, and meeting minutes.

Your main activity is a weekly market at a local park during the summer months (constitutes     % of your
time). The market consists of approximately D for-profit vendors, a musician, a food truck, and
approximately E non-profit booths. Vendors can pay you a seasonal or per-market fee. These fees go to
pay for musicians, park rental, and advertising costs. You encourage local non-profits to set up a booth
free of charge (to raise money or bring awareness to their cause). Your other activity is a festival

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

held at a local park (constitutes     % of your time). It is a one-day event with vendors, food, and
community entertainment.

Each vendor must sign a vendor agreement and pay the associated fee to sell at the market. Only one
vendor per brand of branded retailers is allowed. Only two of other general types of vendors are allowed
(ex: jewelry). Typical vendors sell produce, handmade items, jewelry, art, clothing, and baked goods.
Once you accept a vendor, they are then considered a member. Vendor fees are set taking into
consideration costs for marketing, insurance, park rental, and payment of musicians. You estimate how
many vendors you will get over the season and then set the fees so you can pay all associated bills.

Board members’ duties include establishment of membership fees and any other business needed for the
operation of the market. Your revenue thus far consists of two grants and weekly/seasonal vendor fees.
Expenses are all related to market operations.

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, 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. 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. An organization whose purpose is to engage
in a regular business of a kind ordinarily carried on for a profit, even though the business is conducted on
a cooperative basis or produces only sufficient income to be self-sustaining, is not a business league.

Revenue Ruling 58-224, 1958-1 C.B. 242, held that an organization which operated a trade show as its
sole activity was not entitled to exemption as a business league under IRC Section 501(c)(6). The
organization's sole activity consisted of staging an annual merchandise show (primarily exhibits by
manufacturers), under the sponsorship of the chamber of commerce. The ruling concluded that the
activities of the organization substantially served the exhibitors and retailers as a convenience and
economy in the conduct of their businesses by providing selling opportunities for the distributors
(primarily promoting individual interests). Thus, the trade show was considered rendering particular
services for individuals as distinguished from the improvement of business conditions generally.

Rev. Rul. 59-391, 1959-2 C.B. 151, describes an organization of individuals, firms, associations, and
corporations, each representing a different trade, business, occupation, or profession. It was created for
the purpose of exchanging information on business prospects and has no common business interest other
than a desire to increase sales of members. Held, such an organization is not entitled to exemption from
federal income tax as a business league under IRC Section 501(c)(6).

Rev. Rul. 68-264, 1968-1 C.B. 264, defined the performance of particular services for individual persons

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

to include an activity that serves as a convenience or economy to members in the operation of their own
businesses.

Rev. Rul. 73-411, 1973-2 C.B 180, discussed the exempt status of a shopping center merchants
association while describing the history of IRC Section 501(c)(6). The association’s activities promoted
the general business interests of its members and did not qualify under IRC Section 501(c)(6). The ruling
stated that in the case of a chamber of commerce or similar organization, the common business interest is
usually the general economic welfare of a community. An organization seeking exemption as a chamber
of commerce must be one whose efforts are directed at promoting the common economic interests of all
commercial enterprises in a given trade community. The ruling also stresses that membership in a Section
501(c)(6) organization is voluntary and open generally to all businesses and professional persons in the
community.

The American Automobile Association v. Commissioner of Internal Revenue, 19 T.C. 1146 (1953) held
that an organization whose principal activities consist of performing particular services, and securing
benefits, for its members, does not qualify for 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 because your
activities are not aimed at the improvement of business conditions of one or more lines of business; rather
you are performing particular services for members. By providing a market where member vendors may
sell their products, you are providing a direct service to those members. Also, operating a market for
selected vendors does not improve business conditions of any industry or line of business, but instead
serves only as a convenience to those vendors chosen to sell at the market.

Rev. Rul. 68-264 explains that an activity that serves as a convenience or economy to members in the
operation of their own businesses is the performance of particular services for individual persons. Like
Rev. Rul. 58-224, your primary purpose is to provide a sales location for your members. This activity
serves as a convenience and economy to your members to sell their products they otherwise would not
have. Serving your members in this manner is the performance of particular services for individual
persons (or their businesses) and does not improve the business conditions of one or more lines of
business.

You were formed to operate a farmers’ market and it is your primary activity. All expenses go to the
operation of this market. Your membership consists of vendors you approve and you limit vendors by
what products they sell to ensure a varied market. Like the organization in Rev. Rul. 59-391, your
member vendors have no common business interest other than a mutual desire to increase their individual
sales. Your marketplace activities are not directed at the improvement of business conditions in one or
more lines of business, but rather the promotion of private interests of the vendors at your market. You are
operating for the benefit of individual vendors, rather than common business interests of all the
commercial enterprises in a given line of business. You are simply providing a convenient place for
individuals to market their products for their benefit. As noted in Rev. Rul. 73-411, by providing such

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

service, you are not exempt under IRC Section 501(c)(6).

Like the organization in American Automobile Association, you have some activities of a civic nature.
However, your primary purpose and activity is the provision of particular services for your member
vendors via the weekly market. The bulk of your operating duties include advertising, promoting, and
managing the market operation.

Your position

You stated that the market encourages people to shop locally, build community relationships, support
local musicians, and bring awareness to non-profit groups. You also pointed to Publication 557, Tax-
Exempt Status For Your Organization. You stated that two pieces from this publication apply directly to
you and referred to Chapter 4, page 50:

* Under the General Purpose heading it states that an organization will be devoted to the
improvement of business conditions of one or more lines of business as distinguished from the
performance of particular services for individual persons.

* Under the Examples heading, number 4, it lists establishment and maintenance of the integrity of a
local commercial market.

Our response to your position

While you have described some community goals and benefit to the local economy, you otherwise bear
no resemblance to a chamber of commerce or business league. Your primary and most substantial purpose
and activity is the operation of a farmers’ market which provides particular services to your member
vendors and improves their individual businesses rather than the economic interests of an entire
community or a line of business.

The example in the publication of “common business interest” that refers to a local commercial market is
not referring to a single, physical market that sells products. Instead, the term commercial market refers to
a whole business community or industry. Your vendors have no common business interest other than a
mutual desire to increase their individual sales.

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
and your member vendors do not share a common business interest. Your market operations provide a
convenience and economy to your member vendors in the conduct of their individual businesses
(particular services).

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.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

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 Determination 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
PO 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.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K