Local farmers' market denied 501(c)(6) business-league status

Plain-English summary

An organization that runs a local farmers' market applied to be recognized as a tax-exempt business league under Section 501(c)(6). It rents space to local farmers and producers (its "vendors," who are also its only members), runs a direct-to-consumer market and a wholesale market, and does marketing and community education. The IRS denied exemption. A 501(c)(6) business league must direct its activities to improving business conditions across an entire line of business, not perform "particular services" that benefit individual members. Here the organization spends most of its time facilitating sales and cutting costs for its own vendors, which the IRS treats as particular services (like the trade-show operator in Rev. Rul. 58-224), so its advocacy and education efforts are only incidental. Because it flunks the regulation's line-of-business test, it does not qualify. This document is the final adverse determination (Letter 4038), issued after the organization did not protest the proposed denial within 30 days; the enclosed proposed determination (Letter 4034) lays out the full reasoning.

Ruling snapshot

• Question: Does an organization that operates a local farmers' market for its vendor-members qualify for exemption as a business league under IRC § 501(c)(6)?
• Outcome: denied (final adverse determination)
• Key authorities: IRC § 501(c)(6); Treas. Reg. § 1.501(c)(6)-1; Rev. Rul. 58-224; Rev. Rul. 68-264; Bluetooth SIG Inc. v. United States, 611 F.3d 617 (9th Cir. 2010)

Full text (IRS public release)

\ Department of the Treasury                             Date:
  Internal Revenue Service                               04/25/2024
Tax Exempt and Government Entities                       Employer ID number:

                                                         Person to contact:

Release Number: 202429016
Release Date: 7/19/2024
U.I.L. Code: 501.06-00,
501.06-01, 501.32-00

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.

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 437

Redacted Letter 4034
Letter 4038

Letter 4038 (Rev. 1?-2024)
Catalog Number 47932J


        Department of the Treasury
        Internal Revenue Service

Date: 02/26/2024
Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend:                          UIL:
B = Date                         501.06-00
C = State                        501.06-01
D = Year                         501.32-00

e = percentage amount
f = percentage amount
g = percentage amount
h = percentage amount
j = percentage 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 on B, in the state of C. You subsequently amended your articles in D.

Your amended articles state that you are organized for improving farming industry conditions within your
region. Your amended articles also state that you are devoted to the expansion of local farm products, locally
produced products, and other items. Both your original articles and amended articles state that you are
organized to facilitate the sale of goods to the general public. You state your mission is to develop connections
between producers and consumers.

You rent space to local farmers and producers who wish to sell their products to the general public, which you
refer to as "vendors," your only class of membership.

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

You spend your time as follows:

●  Direct-to-consumer marketing.................. e percent
●  Wholesale markets/wholesale contracting....f percent
●  Marketing efforts.................................... g percent
●  Community education efforts.................... h percent

Your direct-to-consumer marketing involves providing space for your members to display and sell products for
purchase by the general public. Wholesale markets supply local foods to a broader population, thereby reaching
a broader audience, boosting the business prospects of local food producers, and increasing demand for the
industry. Wholesale markets and wholesale contracting provide increased opportunities for sales and business
growth to your members by developing relationships with local wholesale buyers to purchase a wider variety of
products each member individually would not be able to offer. Wholesale marketing involves selling to
restaurants, grocery stores, and other institutions. You enhance business prospects of local producers by
educating consumers about local food and artisanal production and consumption. You host a diverse range of
organizations that offer educational materials, including diabetes experts, nutritionists, dietitians, veteran
service groups, and youth organizations. You provide customers with recipes, tips, and education to help them
use and enjoy the local foods.

You perform a number of services for your members which reduces the need for them to do them individually,
such as organizing marketing activities to attract customers, providing temperature-controlled food-storage,
applying for grants, developing programs, hosting events, and sharing information to and from various
community organizations. You collaborate with community organizations to expand opportunities for producers
and local food customers, such as accepting vouchers, tokens, and online sales. Further, your wholesale market
provides increased opportunities for sales and business growth to your members. Your community education
efforts encourage other non-profit organizations which align with your activities. The majority of your time, j
percent, totaling your direct-to-consumer, and wholesale markets, is spent on activities that specifically benefit
your members.

Your membership is not limited in regard to those who offer fresh, local produce. However, you do limit
vendors in other categories, such as arts, baked goods, canned goods, animal products, or food trucks. This is
done to ensure adequate demand and sales to current members.

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 activities must 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. It defines a business league as 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.

Revenue Ruling (Rev. Rul.) 58-224, 1958-1 C.B. 242, held that an organization that operates a trade show,
displaying and selling goods, as its sole or primary activity was not exempt as a business league under IRC

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

3

Section 501(c)(6). The activities of the instant organization substantially serve the exhibitors and retailers as a
convenience and economy in the conduct of their businesses. In conducting the show, it provides direct
advertising and publicity. It is the position of the Internal Revenue Service that the instant organization is
rendering particular services for individual persons as distinguished from the improvement of business
conditions generally.

Rev. Rul. 64-315, 1964-2 C.B. 147, held that an association of merchants whose activities were the particular
service of providing advertising for members was not exempt under IRC Section 501(c)(6).

Rev. Rul. 68-264, 1968-1 C.B. 264, defines a particular service as any activity that serves as a convenience or
economy to members in the operation of their business.

Rev. Rul. 83-164, 1983-2 C.B. 95, held that a "line of business" means an entire industry and that serving a
"segment of a line" fails the business test.

Southern Hardwood Traffic Association v. United States, 283 F. Supp. 1013 (W.D. Tenn. 1968), stated that a
particular service for individual member includes any particular activity or service performed by an
organization which would otherwise have to be done by the member in order to properly perform their business.

Engineers Club of San Francisco v. United States, 791 F.2d 686 (9th Cir. 1986), stated that in order to qualify as
a business league each and every requirement of 1.501(c)(6) must be met.

Bluetooth SIG Inc. v. United States, 611 F.3d 617 (9th Cir. 2010), held that Treas. Reg. 1.501(c)(6) requires a
business league to be an association (1) of persons having a common business interest; (2) whose purpose is to
promote the common business interest; (3) not organized for profit; (4) that does not engage in a business
ordinarily conducted for profit; (5) whose activities are 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; (6) of the same general class as a chamber of commerce or a board of trade.

Application of law

Based on the information submitted, you have failed to establish that you are operated for exempt purposes
within the meaning of IRC Section 501(c)(6) and the related income tax regulations. As such, we are unable to
determine you are primarily engaged in the promotion of common business interests.

Treas. Reg. Section 1.501(c)(6)-1 states activities must be directed to the improvement of business conditions
for one or more lines of business rather than the performance of services toward members. As seen in
Bluetooth SIG Inc v. United States, this can be determined using various factors as to whether or not an
organization qualifies under IRC Section 501(c)(6). As explained in Engineers Club of San Francisco v. United
States, exemption under Section 501(c)(6) requires all six parts of the regulation to be satisfied.

The majority of your time is spent operating the market(s) or marketing for your members. You operate a
direct-to-consumer market, and wholesale market, including contracting with larger commercial wholesalers.
You refer to your members as "vendors." This is similar to the "trade show" in Rev. Rul. 58-224, which was not
exempt as a business league under IRC Section 501(c)(6) because its purpose was rendering particular services
to individuals. Therefore, the performance of particular services is your primary purpose.

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

4

In your correspondence, you attest that you are performing services for members that they would otherwise
need to do themselves. Specifically, you facilitate the sale of goods and reduce the costs of your vendors. This
also makes them particular services, as defined in Southern Hardwood Traffic Association v. United States and
serve as a convenience and economy for your members, as discussed in Rev. Rul. 68-264.

You are performing particular services for individual persons as compared to the improvement of business lines
in general, as demonstrated above. Therefore, you are not exempt per Treas. Reg. Section 1.501(c)(6)-1.

Similar to the organizations in Rev. Rul. 58-224, Rev. Rul. 64-315, Rev. Rul. 68-264, Southern Hardwood
Traffic Association v. United States, you perform particular services for your members. Thus, you do not
qualify under IRC Section 501(c)(6).

Your position

In your response you clarify your advocacy for local food producers and educational/enhancement efforts,
asserting these activities benefit all local food producers in the western half of your state. You state you
champion food security and nutritional well-being. You cite Publication 557, that "establishment and
maintenance of the integrity of a local commercial market" is a common business interest.

Our response to your position

Your advocacy and educational efforts are examples of activities that "benefit an entire industry." However, the
majority (j percent) of your time and resources are spent facilitating the sales, and reducing the costs, of your
members, which are activities primarily directed to providing particular services for those members. This makes
your advocacy and educational efforts incidental to your primary purpose of performing particular services for
your members, and not directed to the improvement of business conditions of one or more lines of business.
Your goal of championing local food security and nutritional well-being is incidental when compared to your
other activities.

You cite Publication 557, example 4. A local commercial market refers to either an entire industry, or all
businesses in a local area. Similar to a trade association or chamber of commerce, which follows along a line of
business concept discussed in Treas. Reg. 1.501(c)(6)-1, Rev. Rul. 83-164, and Bluetooth SIG Inc. v. United
States. Furthermore, possession of a common business interest does not affect all six factors listed in Bluetooth
SIG Inc. v. United States. You are precluded from exemption under IRC Section 501(c)(6) because your
primary activities are directed to performing particular services to your members, and are not directed to the
improvement of business conditions of one or more lines of business.

Conclusion
You provide services to members as your primary activity and do not improve conditions for one or more lines
of business. Therefore, you are not exempt 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

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

5

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. 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.

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

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