## Facts

- Better Business Bureau of Washington, D.C., Inc. (BBB) was a nonprofit membership corporation formed to improve business methods and ethics among those dealing with the public.
- BBB had no stock, officers were unpaid, and it was stipulated that no part of its net earnings inured to any private shareholder or individual; it paid a managing director and staff.
- Membership was open to persons and entities interested in “better business ethics,” who were elected and paid dues or voluntary subscriptions.
- BBB’s charter stated both public-facing and member-protective aims: securing fair treatment for the public while also protecting business interests to enable members to conduct business “successfully and profitably.”
- BBB’s activities included warning the public and members about fraud, publicizing fraudulent practices, cooperating with law enforcement, improving business ethics and practices, and providing information services about specific concerns.
- BBB paid Social Security taxes for 1937–1941, sought refunds claiming exemption as a corporation “organized and operated exclusively for scientific or educational purposes,” and was denied; the district court entered summary judgment for the United States, affirmed on appeal.

## Issues

1. Whether BBB was “organized and operated exclusively for scientific or educational purposes” under § 811(b)(8) of the Social Security Act, so as to be exempt from Social Security taxes.

## Decision

- The Supreme Court affirmed judgment for the United States.
- BBB did not qualify for the exemption because it was not organized and operated exclusively for scientific or educational purposes.
- Even though BBB engaged in activities with educational aspects and satisfied the non-inurement condition, its substantial purpose of promoting member business interests defeated exemption.

## Legal Principles

- “Organized and operated exclusively” requires that exempt purposes be exclusive in a substantive sense; the presence of a substantial non-exempt purpose disqualifies the organization, even if it is nonprofit and performs some educational work.
- A substantial objective to advance the business interests of members, including promoting a “profitable business community,” is not an educational or scientific purpose within the exemption.
- The statutory “no inurement” requirement is necessary but not sufficient; an organization must also meet the separate “exclusively” purpose-and-operation requirement.
- Exemptions are not expanded by liberal construction where the statute contains express limitations; “exclusively” cannot be diluted to include organizations with substantial commercial or business-promotion aims.

## Conclusion

Because BBB’s charter and operations included a substantial business-promotion purpose directed toward helping members conduct business successfully and profitably, it was not operated exclusively for scientific or educational purposes and was not exempt from Social Security taxes under § 811(b)(8).


Better Bus. Bureau of Wash., D.C., Inc. v. United States, 326 U.S. 279 (1945)