## Facts

- The San Antonio Bar Association (the association) was a Texas nonprofit corporation recognized as exempt from federal income tax as a business league under I.R.C. § 501(c)(6).
- The association’s exempt purposes included advancing the interests of licensed attorneys, advancing justice and the science of jurisprudence, and improving relations among the bench, the bar, and the public.
- During the 1950s, the association worked with the State Bar of Texas (state bar), an agency of the State of Texas, to develop standardized real-estate forms and a practice manual to assist general-practice lawyers in handling real-estate transactions.
- The standardized forms and manual were well received and remained in high demand.
- In 1970, to ensure continuity and broaden availability across Texas, the association transferred publication rights in the preprinted forms and manuals to the state bar, with the objective that local bar associations could distribute the materials statewide.
- After the transfer, the association purchased the forms and manuals from the state bar, kept an inventory, and sold the materials to attorneys at prices that included a substantial markup over the association’s purchase cost.
- The association continued to monitor the materials and updates to reduce the risk that outdated forms would be distributed.
- The IRS determined that the association’s receipts from these sales were unrelated business taxable income (UBTI) under I.R.C. §§ 511–513.
- The association paid the asserted tax and filed a refund action against the United States.

## Issues

1. Whether the association’s recurring sales of standardized real-estate forms and a related practice manual constituted a regularly carried on trade or business that was not substantially related to its § 501(c)(6) exempt purposes, such that the receipts were taxable as UBTI under I.R.C. §§ 511–513.

## Decision

- The court held that the association’s sale and distribution of the standardized forms and manual were substantially related to its § 501(c)(6) purposes.
- The court determined that the challenged receipts were not taxable as UBTI.
- Judgment was entered for the association on its refund claim.

## Legal Principles

- Under I.R.C. §§ 511–513, an exempt organization is subject to tax on income from a trade or business that is regularly carried on and not substantially related to its exempt purposes (apart from raising funds).
- An activity is “substantially related” when the conduct of the activity contributes importantly to accomplishing the organization’s exempt objectives; the analysis looks to the relationship between what the organization does and why it is exempt.
- For a § 501(c)(6) business league, activities directed to improving professional practice and raising the quality and uniformity of work within the profession can qualify as related to exempt purposes, even if the activity generates revenue.
- The presence of pricing above cost (including a substantial markup) does not, by itself, control the UBTI outcome; the controlling question is whether the activity’s content and function materially further the exempt aims.
- Ongoing review and updating of professional materials can support a finding that the activity is tied to exempt objectives (such as improving the quality of legal services and reducing error), rather than operating as ordinary commercial merchandising.

## Conclusion

San Antonio Bar Association v. United States treated the association’s development, maintenance, and distribution of standardized real-estate forms and a practice manual—created to aid general-practice lawyers and improve the quality and uniformity of real-estate transactions—as sufficiently connected to its § 501(c)(6) mission that the resulting sales receipts were not unrelated business taxable income, entitling the association to a tax refund.


San Antonio Bar Association v. United States, 1980 U.S. Dist. LEXIS 12856 (1980)