## Facts

- American Plywood Association, a nonprofit Washington trade association of softwood plywood manufacturers, had been treated as exempt under 26 U.S.C. § 501(c)(6) from 1936 through 1960.
- The association’s stated purpose was to promote the common business interests of the plywood industry and inform the public about the industry’s scope and character.
- In 1961, members produced the vast majority of U.S. plywood output.
- The association operated a grade-trademark program; only members could use the mark.
- In April 1961, the association amended its bylaws to increase dues, earmarking funds primarily for television promotion of grade-trademarked plywood; advertisements did not identify individual member companies.
- The association also conducted industry standard-setting, inspection, and testing activities that supported governmental approval and public acceptance of plywood as a building material.
- After the bylaw change was disclosed, the IRS reexamined the organization and revoked its exemption on January 27, 1965, retroactive to the tax year ending December 31, 1961.
- The association paid the assessed 1961 income tax (about $292,391.71) and sued for a refund under 28 U.S.C. § 1346.

## Issues

1. Whether the association’s industry promotion of trademarked plywood and its standards/inspection/testing activities disqualified it from exemption as a “business league” under 26 U.S.C. § 501(c)(6) for the 1961 tax year.
2. Whether the IRS’s retroactive revocation of the association’s § 501(c)(6) exemption for 1961 was justified.

## Decision

- The court ruled for the association and held it qualified as a § 501(c)(6) business league for 1961.
- The court concluded the association’s primary purpose and activities promoted the common business interests of the plywood industry as a whole, rather than providing particular services to individual members or operating a regular for-profit business.
- The court rejected the IRS characterization of the television campaign as impermissible member advertising, emphasizing that the promotion was not directed to individual firms.
- The court determined the retroactive revocation and resulting 1961 tax assessment were improper and granted refund relief.

## Legal Principles

- A § 501(c)(6) “business league” is an association of persons with a common business interest, organized to promote that common interest, and not organized to engage in a regular business ordinarily carried on for profit.
- An organization does not lose § 501(c)(6) status merely because its activities incidentally benefit members economically; the key inquiry is whether its primary purpose is industry-wide improvement rather than furnishing particular services to individual members.
- Generic promotion of an industry or product category, even when connected to a collective trademark used by members, may be consistent with § 501(c)(6) where the promotion is not tailored to specific member businesses.
- Industry standards, quality-control, inspection, and testing programs can qualify as trade-association functions serving the industry and the public, rather than disqualifying commercial services, when conducted to advance common business interests rather than to generate profit.

## Conclusion

The court held that the American Plywood Association’s trademark-related promotion and its quality-control and standards activities were consistent with a § 501(c)(6) business league whose primary objective was to advance the plywood industry generally, and it therefore rejected the IRS’s retroactive revocation of exemption and allowed a refund for the 1961 tax year.


Am. Plywood Ass'n v. United States, 267 F. Supp. 830 (W.D. Wash. 1967)