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contractmotionnonprofitregulation
statutewillcorporationnonprofitregulation

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Suffolk County Patrolmen’s Benevolent Association, Inc. v. Commissioner of Internal Revenue, 77 T.C. 1314

Facts

The petitioner, a nonprofit organization exempt from federal income tax, conducted annual fundraising activities through professional vaudeville shows from 1974 to 1976. These shows were organized under contracts with a theatrical producer, who provided the cast and promotional services, while the petitioner received a percentage of the revenues. The shows were held in a local high school auditorium, and the organization also published program guides containing both editorial content and paid advertisements. The fundraising activities were the only outside source of income for the petitioner, aside from membership dues.

Petitioner is a nonprofit corporation organized under the laws of the State of New York. Its membership consists of policemen and law enforcement officers of the Suffolk County police district. The purposes of the PBA include promoting a fraternal spirit among its members, advancing the welfare and efficiency of the Suffolk County Police Department (hereinafter SCPD), and acting as the sole collective bargaining agent for all police officers in that police department.

Issue

Whether the petitioner's fundraising activities during the taxable years 1974, 1975, and 1976 constituted an unrelated trade or business which was regularly carried on, making the income taxable as unrelated business taxable income.

The sole issue for decision is whether petitioner's fundraising activities during the taxable years 1974, 1975, and 1976, which consisted of the presentation and sponsoring of professional entertainment shows and the sale of advertising in a program guide, constituted an unrelated trade or business which was regularly carried on, the income from which is taxable as unrelated business taxable income pursuant to sections 511 through 513.

Rule

For an organization to be subject to tax on unrelated business taxable income, the income-generating activity must constitute a 'trade or business' that is 'not substantially related' to the organization's exempt purposes and is 'regularly carried on.'

Sections 511 through 513 provide for the imposition of a tax on the income of an otherwise tax-exempt organization derived from regularly conducted trades or businesses which are not substantially related to the organization's exempt purposes.

Analysis

The court analyzed the frequency and continuity of the petitioner's fundraising activities, determining that the annual vaudeville shows were conducted only once a year for a limited duration, which did not equate to being 'regularly carried on.' The court noted that the activities were organized under contract by an independent producer and that the solicitation of advertising was conducted intermittently, aligning with the definition of 'intermittent activities' as outlined in the regulations.

On the basis of the statute, its legislative history, and the regulations promulgated thereunder, we are convinced that the fundraising activities of petitioner during the years in issue were not conducted with sufficient frequency and continuity or, in such manner, to be regarded as having been 'regularly carried on.'

Conclusion

The court concluded that the annual vaudeville shows and accompanying program guides did not constitute an unrelated trade or business that was regularly carried on, and therefore, the income derived from these activities was not subject to tax as unrelated business taxable income.

Consequently, based on the foregoing, we hold that the annual vaudeville shows, and accompanying program guides, presented by petitioner during 1974, 1975, and 1976, did not constitute an unrelated trade or business which was regularly carried on.

Who won?

The petitioner prevailed in the case because the court found that its fundraising activities were not conducted with sufficient frequency and continuity to be considered regularly carried on, thus exempting the income from unrelated business taxable income.

Decisions will be entered for the petitioner.

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