501(c)(6)- Business Leagues, Etc. If your association wishes to obtain recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, board of trade, or professional football league (whether or not administering a pension fund for football players), it should file an application for recognition of exemption on Form 1024. For a discussion of the procedure to be followed, see Chapter 1. Your organization must indicate in its application form and attached statements that no part of its net earnings will inure to the benefit of any private shareholder or individual and that it is not organized for profit or organized to engage in an activity ordinarily carried on for profit (even if the business is operated on a cooperative basis or produces only sufficient income to be self-sustaining). In addition, your organization must be primarily engaged in activities or functions constituting the basis for its exemption. It must be primarily supported by membership dues and other income from activities substantially related to its exempt purpose. A business league, in general, 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. Trade associations and professional associations are considered to be business leagues. A chamber of commerce usually is composed of the merchants and traders of a city. Board of trade. A board of trade often consists of persons engaged in similar lines of business. For example, a nonprofit organization formed to regulate the sale of a specified agricultural commodity to assure equal treatment of producers, warehouse workers, and buyers would be a board of trade. Chambers of commerce and boards of trade usually direct their efforts at promoting the common economic interests of all the commercial enterprises in a given trade community. Real estate board. A real estate board consists of members interested in improving the business conditions in the real estate field. It is not organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual. General purpose. You must indicate in the material submitted with your application that your 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. It must be shown that the conditions of a particular trade or the interests of the community will be advanced. Merely indicating the name of the organization or the object of the local statute under which it is created is insufficient to demonstrate the required general purpose. Line of Business. This term generally refers either to an entire industry or to all components of an industry within a geographic area. It does not include a group composed of businesses that market a particular brand within an industry. A common business interest of all members of the organization must be established by the application documents. Examples of activities that would tend to illustrate a common business interest are: 1) Promotion of higher business standards and better business methods and encouragement of uniformity and cooperation by a retail merchants association; 2) Promotion of the interest of the business community by educating the public in the use of credit; 3) Establishment of uniform casualty rates and compilation of statistical information by an insurance rating bureau operated by casualty insurance companies; 4) Establishment and maintenance of the integrity of a local commercial market; S) Operation of a trade publication primarily intended to benefit an entire industry; and 6) Encouragement of the use of goods and services of an entire industry (such as a lawyer referral service whose main purpose is to introduce individuals to the use of the legal profession in the hope that they will enter into a lawyer-client relationships on a paying basis as a result of the experience). Improvement of business conditions generally must be shown to be the purpose of the organization. This is not established by evidence of particular services that provide a convenience or economy to individual members in their businesses, such as advertising that carries the name of members, interest free loans, assigning exclusive franchise areas, operation of a real estate multiple listing system, or operation of a credit reporting agency. Stock or Commodity Exchange. A stock or commodity exchange is not a business league. chamber of commerce, real estate board, or board of trade and is not exempt under section 501(c)(6). Contributions to organizations described in this section are not deductible as charitable contributions on the donor's federal income tax return. They may be deductible as trade or business expenses if ordinary and necessary in the conduct of the taxpayer's business. Legislative Activity. An organization that is exempt under section 501(c)(6) may permissibly engage in any amount of legislative activity germane to the common business interests of the organization's members. Dues and Assessments used for Political and Certain Legislative Activities. No deduction is allowed a business taxpayer for expenditures for participation or intervention in a political campaign on behalf of any candidate for public office or in connection with any attempt to influence the general public or segments thereof with respect to legislative matters (otherwise known as grassroots lobbying), elections, or referendums. Also, deductions are not allowable for expenses in connection with direct attempts to influence legislation that is not of a direct business interest to the taxpayer. Therefore, if a substantial part of the activities of a trade association, labor union, or similar organization consists of one or more of these activities, a deduction is allowable only for that portion of a member's dues to the organization that the taxpayer can clearly establish is attributable to other activities. Special assessments or similar payments (including an increase in dues) made to such organization for any of these political or legislative activities are never deductible by a taxpayer. Members may deduct dues (or assessments) to an organization that are attributable to expenses for: 1) Appearances before, submission of statements to, or sending communications to members of legislative bodies with respect to legislation (or proposed legislation) of direct interest to the member; and 2) Communications of information between the member and the organization with respect to their proposing, supporting, or opposing legislation of direct interest to either the organization or a member. Caution: A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grassroots lobbying if it contacts prospective members or calls upon its own members to contact their employees and customers for the purpose of urging such persons to communicate with their elected State or Congressional representatives to support the promotion, defeat, or repeal of legislation that is of direct interest to the organization. Any dues or assessments directly related to such activities are not deductible by the taxpayer, since the individuals being contacted, who are not members of the organization, constitute a segment of the general public. Appeal procedures. If the Service determines that dues or other payments made by contributors to a labor union, trade association, or similar organization are not deductible because of the lobbying or political activity of the organization, the appeal procedures discussed in Chapter 1 will apply to the organization.