A US District Court has granted the federal government’s motion for summary judgment that Bluetooth Association is not a tax exempt (section 501(c)(6)) business league (cite: Bluetooth SIG, Inc. v. United States, No. C05-1778).
Bluetooth Association was founded in 1998 and was actually incorporated in 2000 as a Delaware non-profit corporation.
In early 2002, Bluetooth Association filed paperwork with the IRS claiming an exemption from federal income tax as a “business league” under Code Section 501(c)(6). In 2004, the IRS issued a ruling stating that Bluetooth Association did not qualify for the exemption. As a result, Bluetooth Association paid nearly $1 million in federal corporate income tax for prior years and filed an action in court seeking full relief from the income tax or a refund of penalties, additions to tax and interest.
Under section 501(c)(6), the IRS Code offers exemptions for:
Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
The court found that Bluetooth Association performs “particular services for individual persons” and did not, then, demonstrate it is a “business league.” The court went on to say that “even assuming that Bluetooth Association’s activities do not place a thumb on the scale in favor of a particular brand or manufacturer within an industry, they most certainly inhere to the exclusive benefit of its members.” In other words, no exemption.
Despite the tax crunch, my gut is that the association will be okay. According to their web site, they recently added their 10,000th member. Membership classes range in size and fees with associate members being the only class that pays an annual fee, ranging from $7,500 to $35,000. Yowza.
