Taxation of investment income of section 501(c) (6) organizations.

• Position: Tax exempt professional associations

February 25, 1999

On February 25, 1999, Tax Executives Institute filed the following comments with the congressional tax-writing committees, opposing the Clinton Administration's proposal to tax the investment income of organization qualifying for exemption under section 501(c)(6) of the Internal Revenue Code. The Institute's comments, which took the form of a letter from TEI President Lester D. Ezrati to the Honorable William V. Roth, Jr., Chairman of the Senate Committee on Finance, and the Honorable Bill Archer, Chairman of the House Committee on Ways and Means. Note: The Administration's proposal would directly affect TEI's own liability under the income tax laws.

On behalf of Tax Executives Institute, I am writing in opposition to the Clinton Administration's proposal to tax the investment income of organizations that are otherwise exempt from income tax pursuant to section 501(c)(6) of the Internal Revenue Code. The proposal proceeds from a false premise -- that the exemption from tax derives somehow from the level of the tax benefits enjoyed by members of the organization -- as well as a misapprehension about the purposes underlying current exceptions to the exemption (the unrelated business income tax provisions of the Code). TEI strongly recommends that it be rejected.

Tax Executives Institute is the preeminent association of corporate tax professionals in North America. TEI has 5,000 individual members who represent more than 2,800 of the leading corporations in the United States and Canada. As a professional association, TEI is dedicated to the development and implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of both government and taxpayers. The companies represented by TEI members belong (either directly or through their employees) to numerous associations that would be subject to the Administration's proposal, including the Institute itself.

Background

Section 501(c)(6) of the Internal Revenue Code provides an exemption from income tax for nonprofit business leagues, chambers of commerce, and professional and trade associations. Such organizations are not taxed on the revenues derived from membership dues and exempt purpose activities. Income derived from unrelated business activities, however, is taxed under section 511 at the regular corporate rate, but an exclusion is provided for...