skip navigation
Search Help
Navigation Help

Tax Map Index

Tax Topic Index

Affordable Care Act
Tax Topic Index

Exempt Organization
Tax Topic Index

Tax Topics

About Tax Map Website
Publication 557

501(c)(6) - Business Leagues, etc.(p48)

If your association wants to apply for recognition of exemption from federal income tax as a nonprofit business league, chamber of commerce, real estate board, or board of trade, it should file Form 1024. For a discussion of the procedure to follow, 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 isn't 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 that are 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 that 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 business leagues.

Chamber of commerce.(p48)

A chamber of commerce usually is composed of the merchants and traders of a city.

Board of trade.(p48)

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 is a board of trade.
Chambers of commerce and boards of trade usually promote the common economic interests of all the commercial enterprises in a given trade community.

Real estate board.(p48)

A real estate board consists of members interested in improving the business conditions in the real estate field. It isn't organized for profit and no part of the net earnings inures to the benefit of any private shareholder or individual.

Professional football leagues.(p49)

The Internal Revenue Code specifically defines professional football leagues as exempt organizations under section 501(c)(6). They are exempt whether or not they administer a pension fund for football players.

General purpose.(p49)

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 isn't enough to demonstrate the required general purpose.
Line of business.(p49)
This term generally refers either to an entire industry or to all components of an industry within a geographic area. It doesn't include a group composed of businesses that market a particular brand within an industry.

Common business interest.(p49)

A common business interest of all members of the organization must be established by the application documents.
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. Education of 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,
  5. 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 lawyer-client relationships on a paying basis as a result).
Improvement of business conditions.(p49)
Generally, this must be shown to be the purpose of the organization. This isn't 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.(p49)

A stock or commodity exchange isn't a business league, chamber of commerce, real estate board, or board of trade and isn't exempt under section 501(c)(6).

Legislative activity.(p49)

An organization that is exempt under section 501(c)(6) can work for the enactment of laws to advance the common business interests of the organization's members.

Deduction not allowed for dues used for political or legislative activities.(p49)

A taxpayer can't deduct the part of dues or other payments to a business league, trade association, labor union, or similar organization that is reported to the taxpayer by the organization as having been used for any of the following activities.
  1. Influencing legislation.
  2. Participating or intervening in a political campaign for, or against, any candidate for public office.
  3. Trying to influence the general public, or part of the general public, with respect to elections, legislative matters, or referendums (also known as grass roots lobbying).
  4. Communicating directly with certain executive branch officials to try to influence their official actions or positions.
See Dues Used for Lobbying or Political Activities under Required Disclosures in chapter 2 for more information.
Exception for local legislation.(p49)
Members can deduct dues (or assessments) to an organization that are for expenses of:
  1. Appearing before, submitting statements to, or sending communications to members of a local council or similar governing body with respect to legislation or proposed legislation of direct interest to the member, or
  2. Communicating information between the member and the organization with respect to local legislation or proposed legislation of direct interest to the organization or the member.
Legislation or proposed legislation is of direct interest to a taxpayer if it will, or can reasonably be expected to, affect the taxpayer's trade or business.
De minimis exception.(p49)
In-house expenditures of $2,000 or less for the year for activities (1) – (4) listed earlier won't prevent a deduction for dues if the dues meet all other tests to be deductible as a business expense.
Grass roots lobbying.(p49)
A tax-exempt trade association, labor union, or similar organization is considered to be engaging in grass roots 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 aren't deductible by the taxpayer, since the individuals being contacted, who aren't members of the organization, are a segment of the general public.

Tax treatment of donations.(p49)

Contributions to organizations described in this section aren't 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.
For more information on business leagues, see Life Cycle of a Business League (Trade Association) on