## Facts

- A corporation was formed in Portland, Oregon, to construct and operate a “labor temple” building serving as a central headquarters and meeting place for local labor unions.
- All stock was owned by local unions and/or their members; there were no outside investors.
- The building provided union offices and meeting halls rented to unions, plus social/auxiliary facilities (including a bar, pool room, and restaurant).
- The premises were used almost exclusively by union members and union-related bodies; any nonmember patronage was incidental.
- Charges and rentals were set to cover costs rather than to generate profits.
- Any surplus was retained for maintenance and operation of the building; profits were not distributed to shareholders.

## Issues

1. Whether the corporation qualified as a “labor organization” exempt from federal income tax under the statutory predecessor to current I.R.C. § 501(c)(5).
2. Whether the corporation satisfied the exemption condition that no net earnings inure to the benefit of any member, given its building rentals and social-facility operations.

## Decision

- The Board of Tax Appeals held the corporation was a “labor organization” within the meaning of the exemption statute.
- The Board ruled the corporation was exempt from federal income tax.
- The Board found the organization’s activities furthered union purposes and that no net earnings inured to members.

## Legal Principles

- An entity formed and controlled by labor unions may qualify for exemption as a labor organization when it engages in activities appropriate to labor-union purposes.
- Operating a union headquarters/meeting facility (including incidental social and auxiliary facilities tied to union life) can be an activity appropriate to exempt labor organizations.
- Exemption requires that no net earnings inure to the benefit of members; cost-based pricing and retention of any surplus for organizational purposes supports a finding of no inurement.
- Collective, incidental benefits from access to union facilities do not constitute prohibited inurement where there is no profit distribution to members.

## Conclusion

The Board treated the union-owned labor-temple corporation as an exempt labor organization because it functioned as an auxiliary to local unions by providing union facilities and related incidental services on a break-even basis, without distributing net earnings to members.


Portland Co-Operative Labor Temple Ass’n v. Comm’r, 39 B.T.A. 450 (1939)