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services was substantially related to its tax-exempt purpose as
an agricultural organization under section 501(c)(5).
For a substantial relationship to exist, the activity that
produces the income “must contribute importantly to the
accomplishment of * * * [the organization’s exempt] purposes.”
Sec. 1.513-1(d)(2), Income Tax Regs. The regulations describe
the type of relationship that qualifies as substantial:
Trade or business is “related” to exempt purposes, in
the relevant sense, only where the conduct of the
business activities has causal relationship to the
achievement of exempt purposes (other than through the
production of income); and it is “substantially
related,” for purposes of section 513, only if the
causal relationship is a substantial one. * * * [Sec.
1.513-1(d)(2), Income Tax Regs.]
The substantial relationship requirement focuses upon the manner
in which the tax-exempt organization conducts its activities.
United States v. American College of Physicians, 475 U.S. 834,
848-849 (1986).
In cases involving business leagues, courts have identified
two factual elements that are important to the substantial
relationship determination: (1) Whether the activities in
question are “unique” to the organization’s tax-exempt function,
and (2) whether the activities benefit the common business
interest of an organization’s membership or the industry as a
whole and not just members in their individual capacities.
Professional Ins. Agents of Mich. v. Commissioner, 726 F.2d 1097,
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