Is Your Trade Associations prepared for IRS audit? IRS Issues Technical Guidance for 501(c)(6) Organizations
On September 16, 2022, the IRS published its Exempt Organizations Technical Guide TG 6 IRC 501(c)(6) Business League (“TG6”). TG6 discusses tax exemption of business leagues, chambers of commerce, real estate boards, and boards of trade described under Internal Revenue Code section 501(c)(6). The 42-page TG6 provides guidance and information on exemption requirements of IRC 501(c)(6) and related Treasury Regulations. See Treas. Reg. § 1.501(c)(6)-1. TG6 addresses core concepts such as associations defined, bona fide membership, authorized business lines, and application of inurement principles to trade associations and business leagues. The IRS dedicates several pages on the subject of business lines that may be engaged by trade associations, chambers of commerce, and business leagues. TG6 also provides a brief comparison of 501(c)(6) organizations to organizations described in, for example, 501(c)(3) and 501(c)(5). At page 33 of TG6, the IRS provides guidance on unrelated business income tax relevant to trade associations, including for revenue generated from trade shows and publications. See also Freeman Law’s Tax Exemption and Unrelated Business Income Rules (an in-depth three-part series dedicated to UBIT tax concepts; authored by Freeman Law attorney Cory Halliburton).
TG6 concludes with audit examination techniques that field agents are expected to take when examining 501(c)(6) organizations. The techniques include: A. Membership Examination Techniques; B. Inurement Examination Techniques; C. Unrelated Business Income Examination Techniques; D. Compensation Examination Techniques; E. Legislative Activities Examination Techniques; and F. Political Activities Examination Techniques. Each category contains a list of organizational and operational focus areas that the IRS will investigate with respect to the particular subject.
Insights: For over 15 years I have represented and served as outside general counsel to many trade associations. Most have thousands of members, complex governance, creative and international business relationships, and unique and industry-specific business lines. TG6 is an excellent resource for this industry and provides an inside look at the IRS’s prerogatives and organizational and operational focus points to consider if or when an examination ever befalls upon a trade association, business league, or chamber of commerce.
Freeman Law International Tax Symposium
Readers may be interested in the Freeman Law International Tax Symposium scheduled to take place virtually on October 20 and 21, 2022. Attendees will qualify for CLE, CPE, and CE and the slate of presenters includes well-recognized speakers and panelists, such as the IRS Commissioner, a prior Chief Counsel of the IRS, a former Acting Assistant Attorney General of the U.S. Department of Justice Tax Division, and many others in government and private practice.
To Register for the Freeman Law International Tax Symposium, please visit www.its2022.freemanlaw.com.