Organization's significant unrelated activity does not cause loss of tax-exempt status.

• Author: Carter, David M.
• Position: Technical Advice Memorandum 9636001 - Brief Article

IRS Letter Ruling (TAM) 9636001 explores the "commerciality doctrine" and whether an activity deemed "substantially unrelated" should cause an exempt organization to forfeit its exempt status. TAM 9636001 deals with an educational institution that operates schools offering Christian training. As the schools grew, the need for school materials and textbooks arose. As a result, the organization began publishing textbooks and other materials for use in its schools.

The organization's curriculum became so popular that it began offering curriculum assistance and teaching materials to other similar schools. The demand was so great that the organization set up a separate publishing division. Eventually, the revenue from this publishing division accounted for more than 50% of the organization's total gross receipts.

The publishing division customarily earned margins of up to 75% of its gross receipts. The division operated like a commercial publisher by:

* Paying royalties to nonschool employees who wrote textbooks.

* Marketing its textbooks throughout the world.

* Producing textbooks at the rate of 15,000 every eight hours.

* Running its presses 16 hours per day

* Paying salespersons commissions based on volume...