## Facts

- Organizations exempt under I.R.C. § 501(a) as labor, agricultural, or horticultural organizations under § 501(c)(5) may still be subject to unrelated business income tax (UBIT) under § 511.
- Such organizations commonly receive dues from regular members with full voting privileges and from “associate members” with reduced or no voting privileges.
- The IRS identified that some organizations used “associate member” categories to market goods or services to persons with little connection to the organization’s exempt activities, while labeling payments as “dues.”
- The revenue procedure establishes the IRS’s administrative position on when associate member dues will be treated as gross income from an unrelated trade or business under § 512.
- The guidance is effective for all open years.

## Issues

1. Under what circumstances will the IRS treat associate member dues paid to a § 501(c)(5) organization as gross income from an unrelated trade or business under I.R.C. § 512, subject to UBIT?

## Decision

- The IRS will not treat associate member dues as gross income from an unrelated trade or business unless the associate member category was formed or availed of for the principal purpose of producing unrelated business income.
- In applying the standard, the IRS will examine the purposes and activities of the organization rather than the purposes or motives of its members.
- Except where statutes or regulations specifically require allocation of a portion of dues to UBTI, the IRS will treat associate member dues as not including unrelated business income if the principal purpose of the associate member category is to further the organization’s exempt purposes.

## Legal Principles

- UBTI generally arises from a trade or business, regularly carried on, that is not substantially related to an organization’s exempt purposes (other than through producing income).  
- For this guidance, “unrelated business income” includes income from selling goods or providing access to goods or services produced by an unrelated trade or business that is regularly carried on.
- Associate member dues are presumptively not UBTI; they become UBTI when the associate member category is principally designed or used to generate unrelated business income.
- The “principal purpose” determination is a facts-and-circumstances inquiry focused on the organization’s purposes and activities.
- Existing statutory or regulatory allocation rules that specifically apportion dues to UBTI remain controlling where applicable.

## Conclusion

Revenue Procedure 95-21 sets an IRS administrative standard for § 501(c)(5) organizations: associate member dues generally are not treated as UBTI, but may be included in UBTI when the associate member category is principally used to generate income from unrelated commercial activities, with other specific allocation rules continuing to apply.


Rev. Proc. 95-21, 1995-1 C.B. 686 (1995)