Opinion ID: 611056
Heading Depth: 3
Heading Rank: 2

Heading: Application to IIAH

Text: 19 The tax court found no evidence of regular independent oversight by AAARC of the servicing of public accounts, nor any attempt by AAARC to obtain feedback on the handling of an account by preparing summaries of the information obtained, as provided in IIAH's bylaws. The tax court also did not find any evidence that the best insurance was provided to the public authorities at the lowest cost, that political influence in the public insurance procurement process was eliminated, that difficult to insure risks were provided, or that coverage was coordinated to reduce policy gaps and conflicts. In short, the tax court found that IIAH's public insurance activities were not substantially related to the accomplishment of its exempt purposes. 9 20 In our review to determine whether income is substantially related to the tax-exempt purposes, we look to the conduct of the trade or business and direct our focus to the manner in which the tax-exempt organization operates its business. American College of Physicians, 475 U.S. at 834, 106 S.Ct. at 1591, 89 L.Ed.2d at 841 (1986). 21 IIAH's conduct does not evince an intention to use its public insurance activities to contribute importantly to the improvement of conditions in the insurance business or to further its exempt purposes. Instead, its conduct indicates that raising revenue was its primary concern. For their efforts, IIAH members received a sizable commission. IIAH's method of operation ensured a steady stream of public insurance business for its select group. See Louisiana Credit Union League v. United States, 693 F.2d 525, 536 (5th Cir.1982) (business activities generating income by a tax-exempt entity must produce inherently group benefits that accrue to its members qua members, rather than individual benefits to its members). 22 For fifteen years, IIAH has sheltered income under the auspices of its tax-exempt status. It has paid for legislative meetings, conventions, dues, continuing education seminars, advertising and travel expenses for its members with tax-free dollars. Although IIAH has not actually distributed its profits to members as dividends or interest, these profits made possible the performance of nonprofit-making member services that would not otherwise have been offered. This could be perceived as an indirect distribution of retained earnings to members. See Fort Worth Grain & Cotton Exchange v. Commissioner, 27 B.T.A. 983 (1933); Northwestern Jobbers Credit Bureau v. Commissioner, 14 B.T.A. 362 (1928), aff'd, 37 F.2d 880 (8th Cir.1930). The brokering of business by IIAH creates unfair competition in the marketplace and is of decided disadvantage to non-members. United States v. American Bar Endowment, 477 U.S. 105, 106 S.Ct. 2426, 91 L.Ed.2d 89 (1986). 23 We agree with the tax court that the retained commissions earned by IIAH constitute UBTI subject to tax under § 511(a).