New IRS Technical Guide Creates a Resource for 501(c)(6) Trade Associations

The Internal Revenue Service (IRS) recently published a new Technical Guide for tax-exempt 501(c)(6) trade associations, business leagues, chambers of commerce, real estate boards, and other organizations exempt from federal taxation under IRC 501(c)(6). The new guide is part of an ongoing effort by the IRS and the Government Accountability Office (GAO) to consolidate techniques, methods, and technical information used to guide IRS personnel in their review of tax-exempt organizations’ compliance with IRS requirements.

While there is little new or surprising in the new guide, it helpfully consolidates decades of IRS guidance and creates a resource to instruct and refresh 501(c)(6) organizations’ leadership on the rules governing their tax exemption.

Summary of the New Technical Guide

The IRS already published updated Technical Guides related to Private Operating Foundations, Religious and Apostolic Associations, and Foreign Organizations, among others. Like those, the new 501(c)(6) Technical Guide replaces the previous IRS Audit Technique Guides and Technical Resource Guides. The new guide is significantly more detailed than its predecessors and was intended by the IRS to provide uniformity and consistency across the IRS’s published guidance.

The Technical Guide begins with an overview of the background of IRC 501(c)(6), including the history of exempting business leagues from taxation, along with short descriptions of relevant sections of the Internal Revenue Code and the Treasury regulations.

The Technical Guide then discusses in some depth the specific requirements for tax exemption under IRC 501(c)(6) and describes common considerations and issues that arise, such as the difference between 501(c)(6) and 501(c)(3) organizations, the non-deductibility of contributions to 501(c)(6) organizations, and the imposition of unrelated business taxable income.

One of the major differences from the prior guides is its focus on technical information and references to primary source guidance. The new Technical Guide reads like a treatise on the subject, instead of an auditor’s checklist, making it more explanatory and instructional.

Key Uses of the New Technical Guide

Whether forming a new trade association or joining an established one for the first time, many 501(c)(6) organization officers and board members may not be familiar with the requirements and nuances of federal tax-exemption. The new Technical Guide is a useful tool to provide association leadership with a thorough, plain-English description of what a 501(c)(6) organization must do (and not do) to maintain tax exemption, complete with background information and descriptions of common issues that arise.

The new guidance may be most helpful in a few use cases:

As an introductory guide for groups seeking to establish a 501(c)(6) organization or determining the best tax-exempt status for a new organization.
As a resource for new officers and board members to help them understand the requirements as they oversee the governance of the organization.
As an informal checklist to evaluate new activities and programs for compliance with Internal Revenue Code and Treasury Regulations.

ArentFox Schiff’s Nonprofits & Associations practice and Tax practice regularly advise 501(c)(6) organizations on managing governance, operations, and compliance, as well as advising on critical operational and advocacy initiatives to address business needs.