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, board of trade, or professional football
league (whether or not administering a pension fund for football
players), 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 benefit 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 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.
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 is a board of
Chambers of commerce and boards of trade usually promote the common
economic interests of all the commercial enterprises in a given trade
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 benefits any private
shareholder or individual.
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 not enough 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.
Common business interest.
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
- Promotion of higher business standards and better business
methods and encouragement of uniformity and cooperation by a retail
- Education of the public in the use of credit,
- Establishment of uniform casualty rates and compilation of
statistical information by an insurance rating bureau operated by
casualty insurance companies,
- Establishment and maintenance of the integrity of a local
- Operation of a trade publication primarily intended to
benefit an entire industry, and
- 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
Generally, this 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
An organization that is exempt under section 501(c)(6) may work for
the enactment of laws to advance the common business interests of the
Deduction not allowed for dues used for political or
A taxpayer cannot deduct the part of dues or other payments to a
business league, trade association, labor union, or similar
organization that is for any of the following activities.
- Influencing legislation.
- Participating or intervening in a political campaign for, or
against, any candidate for public office.
- Trying to influence the general public, or part of the
general public, with respect to elections, legislative matters, or
referendums (also known as grassroots lobbying).
- Communicating directly with certain executive branch
officials to try to influence their official actions or
See Dues Used for Lobbying or Political Activities
under Required Disclosures in chapter 2 for more
Exception for local legislation.
Members may deduct dues (or assessments) to an organization that
are for expenses of:
- 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
- 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 may reasonably be expected to, affect the
taxpayer's trade or business.
De minimis exception.
In-house expenditures of $2,000 or less for the year for activities
(1) - (4) listed earlier will not prevent a deduction for dues,
if the dues meet all other tests to be deductible as a business
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, are a segment of the general public.
Tax treatment of donations.
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.