## Facts

- The Engineers Club of San Francisco was a nonprofit corporation formed in 1912, with membership primarily composed of professional engineers.
- Its stated purpose was to allow engineers to meet and cooperate to foster the engineering profession in California and, incidentally, to acquire and operate suitable meeting quarters.
- The Club leased space in a downtown San Francisco office building containing a kitchen, meeting and dining rooms, a bar, a game-grill room, and a library-reading room, along with administrative and storage areas.
- The Club was open daily and served lunch to members and their guests.
- The Club provided meeting space and support services (including mailing, telephone, and record storage) for professional societies connected to members; societies generally were not charged for space, but paid for food, liquor, and tobacco provided.
- Since 1935, the IRS had treated the Club as a social club exempt under I.R.C. § 501(c)(7); unrelated business income remained taxable.
- In 1981, the Club sought reclassification as a business league under I.R.C. § 501(c)(6) and claimed refunds for taxes paid on unrelated business income for tax years 1978–1981.
- After the IRS denied reclassification and refunds, the Club filed a refund action; the district court ruled for the Club, and the United States appealed.

## Issues

1. Whether the Engineers Club qualified as a “business league” under I.R.C. § 501(c)(6) and Treas. Reg. § 1.501(c)(6), rather than operating as an organization providing particular services to individual members.

## Decision

- The Ninth Circuit reversed the district court’s judgment.
- The court held the Engineers Club did not qualify for exemption as a § 501(c)(6) business league.
- Because the Club was not a § 501(c)(6) organization, it was not entitled to the claimed refunds for 1978–1981.

## Legal Principles

- To qualify under § 501(c)(6), an organization must satisfy the requirements stated in Treas. Reg. § 1.501(c)(6), including that it promote a common business interest and direct activities toward improving business conditions of a line of business, not perform particular services for individual persons.
- A purpose-centered “functional” approach cannot override regulatory requirements; failure to meet any required element defeats § 501(c)(6) status.
- An entity whose principal operations consist of providing member-oriented amenities and services (such as dining, bar service, facilities use, and related individualized support) is performing “particular services” and does not qualify as a business league, even if its membership shares a common profession.
- Whether an organization qualifies under § 501(c)(6) turns on actual operations rather than aspirational statements in governing documents.

## Conclusion

The Ninth Circuit concluded that the Engineers Club’s predominant activities were member-service operations centered on meals, facilities, and related conveniences, rather than activities aimed at improving business conditions for the engineering profession, so it failed Treas. Reg. § 1.501(c)(6) and could not be treated as a § 501(c)(6) business league or obtain the requested tax refunds.


Engineers Club of San Francisco v. United States, 791 F.2d 686 (9th Cir. 1986)