Opinion ID: 411167
Heading Depth: 2
Heading Rank: 2

Heading: LCUL's Activities

Text: 62 The League argues that each of the three activities at issue here--promotions of insurance, debt collection, and data processing--is intrinsically important to the furtherance of the credit union movement and therefore is substantially related to its exempt function. We will discuss each separately.
63 LCUL asserts that its endorsement of CUNA/CUMIS insurance coverage contributes importantly to the initiation, growth, and stability of credit unions in Louisiana and therefore is substantially related to its exempt function. Basically, the League's argument is that by encouraging the use and purchase of insurance by credit unions, it strengthens the credit union movement by reducing the likelihood of credit union failure from unforseen events. The district court found that the connection between the furtherance of the credit league movement and the selling of insurance is at best tangential. Louisiana Credit Union League v. United States, 501 F.Supp. 934, 941 (E.D.La.1981). We agree. Insurance endorsement and administration is not the sort of unique activity that satisfies the substantial relationship test, nor are its benefits inherently group-related. Rather than merely advising its members of the availability and desirability of insurance coverage to credit unions generally, LCUL promoted the purchase of policies from a particular carrier, CUNA/CUMIS. The district court observed that LCUL's insurance activities did little more than generate revenue for the League and provide CUNA/CUMIS with convenient services in the marketing and administration of its programs. Because the League's insurance endorsement is basically a fundraising activity, it is by definition unrelated business activity under section 513(a). We therefore affirm the holding below that LCUL's trade or business of insurance endorsement and promotion was not substantially related to its exempt function. Accord, Professional Insurance Agents v. Commissioner, 78 T.C. 246 (1982); Long Island Gasoline Retailers Association v. Commissioner, 43 T.C.M. (CCH) 815 (1982); Rev.Rul. 60-228, 1960-1 C.B. 200. 22
64 LCUL argues that its involvement in debt collection protects the integrity of member credit unions and therefore is substantially related to its exempt purpose. 23 The district court found that the primary purpose of the debt collection service was to earn money for the League. The court further observed that because only certain members utilized the League's debt collection services, the benefits produced were not inherently group benefits. We believe these findings to be correct. We have no doubt that the individual credit unions that assign their claims to LCUL for collection benefit greatly from the League's services. Nevertheless, LCUL's tax exemption is based on the notion that a business league promotes a common business interest of all its members and does not perform particular services for individual persons. Treas.Reg. Sec. 1.501(c)(6)-1. Because the benefits of LCUL's debt collection activities accrue only to certain credit unions, these activities constitute the performance of services of a commercial nature for individual members rather than the promotion of a common business interest with inherently group benefits. See also Rev.Rul. 73-386, 1973-2 C.B. 191 (exempt business league that provided job injury histories to prospective employers is engaged in unrelated trade or business); Rev.Rul. 68-267, 1968-1 C.B. 284 (exempt business league that operated a coupon redemption service for members is engaged in unrelated trade or business). Accordingly, we affirm the district court's holding that the League's debt collection activities are not substantially related to its exempt purpose.
65 Finally, the League asserts that by providing credit unions with data processing services it fosters the growth of the credit union movement and thereby contributes importantly to its exempt function. The district court held that the League's data processing services were not substantially related to its exempt function because the benefits flowing from those services were restricted to the participating credit unions. This holding must be affirmed. It appears from the record that some but not all LCUL members utilize the League's data processing services. New and small credit unions have no need for electronic accounting systems and generally use hand-posting methods. Credit unions large enough to support an in-house processing system generally do so. Thus, as with debt collection, only certain members of the League derive the benefits of the data processing services, and these benefits accrue to them as individual participants rather than as League members. We note further that the League charges the credit unions according to the amount of use they make of the program. When each member contributes in proportion to what he receives, it is a strong indication that the benefits received are not ... 'inherently group benefits.'  Evanston-North Shore Board of Realtors v. United States, 320 F.2d 375, 379 (Ct.Cl.1963). Because the data processing program operates for the primary benefit of participating credit unions, we affirm the district court's holding that it is not substantially related to LCUL's exempt function for purposes of section 513(a). See also Rev.Rul. 81-75, 1981-1 C.B. 356 (income received by tax-exempt business league from language translation service is unrelated business taxable income); Rev.Rul. 56-466, 1957-2 C.B. 311 (income received by tax-exempt organization from sale of supplies and equipment to members is unrelated business taxable income).