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Tax – Income tax – tax-exempt business leagues

By: Rick Benedict//July 21, 2014//

Tax – Income tax – tax-exempt business leagues

By: Rick Benedict//July 21, 2014//

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U.S. Court of Appeals
For the Seventh Circuit

Civil

Tax – Income tax – tax-exempt business leagues

Although organized as a non-profit corporation, a business is not tax-exempt where its primary purpose is providing retirement plans.

“The tax court recognized that an organization ‘whose principal purpose and activity is such as to qualify for “business league” exemption does not lose its exempt status by engaging in incidental activities which standing alone would be subject to taxation.’ It therefore proceeded to ‘examine the extent of petitioner’s insurance activities to see if they constitute[d] only incidental, as opposed to substantial, activities.’ Id. at 67. It found that the association’s insurance activities were directed towards providing benefits to individuals within the industry and those activities were substantial.

This was enough, it held, to require a finding that the association did not qualify for business league status. Here, we know that ABA Retirement’s involvement with the Program was in no way ‘incidental’—it was the fiduciary, and its own prospectus states that it was incorporated ‘for the purpose of promoting and facilitating the operation of the Plan and this is the only activity in which it is expected that ABA Retirement will engage.’ ABA Retirement’s day-to-day goal was to promote its own plan first and general retirement savings in the legal profession second; it therefore cannot receive tax-exempt status under § 501(c)(6).”

Affirmed.

13-2332 ABA Retirement Funds v. U.S.

Appeal from the United States District Court for the Northern District of Illinois, Tharp, J., Wood, J.

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