Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 62-23

1962-1 C.B. 200

Caution: Superseded by Rev. Rul. 79-167

IRS Headnote

As a part of its over-all program of varied activities, a boys' club offers to its members, on an optional basis, numerous courses which are not related as parts of any planned continuity of study. Held , the club does not come within the scope of the term `nonprofit educational organization' for purposes of the exemptions from retailers excise taxes, the manufacturers excise taxes, and the communications and transportation taxes, provided by sections 4057(a), 4221(a)(5), and 4294(a), respectively, of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 62-23

Advice has been requested whether the boys' club described below comes within the scope of the term `nonprofit educational organization' for purposes of the exemptions from the retailers excise taxes, the manufacturers excise taxes, and the communications and transportation taxes, provided by sections 4057(a), 4221(a)(5), and 4294(a), respectively, of the Internal Revenue Code of 1954.

A boys' club was organized in a certain city for the purpose of elevating and advancing the moral, intellectual, and social conditions of boys and training and educating them for the duties of citizenship. Membership in the club is open to boys between the ages of seven and one-half to 20 years.

The club provides an extensive physical education program and also conducts regular classes in such subjects as model building, art. woodwork, metalwork, printing, handicraft, radio, photography, toy repair, auto mechanics, music, and industrial arts. All classes meet daily during club hours on Monday through Saturday and are under the guidance of specially trained instructors. The courses are made available to the members of the club as part of the club's over-all program, and the boys are encouraged to study as many subjects as they can. No prescribed number of courses is required, and the courses are not related to each other as part of any planned continuity of study.

The club also promotes a variety of other activities and events, such as hobby groups, day camping, resident camping, awards night, parents' night, sports night, honor night, and a special night devoted to the presentation of a variety show. The club is open to the boys in the late afternoons and evenings on school days and all day on Saturdays.

The club has been granted exemption from Federal income tax under section 501(a) of the Code as an organization described in section 501(c)(3) of the Code.

Sections 4057(a) and 4221(a)(5) of the Code provide that, under regulations prescribed by the Secretary of the Treasury or his delegate, no retailers excise taxes or manufacturers excise taxes shall be imposed with respect to the sale of any article to a nonprofit educational organization for its exclusive use.

Section 4294(a) of the Code provides that, under regulations prescribed by the Secretary or his delegate, no tax shall be imposed under section 4251 or 4261 on any amount paid by a nonprofit educational organization for services or facilities furnished to such organization.

Under the provisions of sections 4057(b), 4221(d)(5), and 4294(b) of the Code, the term `nonprofit educational organization' means an educational organization which is exempt from income tax under section 501(a) of the Code and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. The term also includes a school operated as an activity of an organization described in section 501(c)(3) of the Code which is exempt from income tax under section 501(a), if such school normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

Section 148.1-4(b) of the temporary rules relating to registration requirements and exemption for nonprofit educational organizations, Treasury Decision 6344, C.B. 1959-1, 776, provides, in part, that the term `nonprofit educational organization' means an organization exempt from income tax under section 501(a) of the Code whose primary function is the presentation of formal instruction and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on.

The fact that an organization may have been granted exemption from Federal income tax as an organization described in section 501(c)(3) of the Code does not, alone, determine the applicability of the exemptions from the retailers excise taxes, the manufacturers excise taxes, and the communications and transportation taxes. In order for those exemptions to apply, an organization (or a school operated as an activity of such organization) must meet the requirements of a `nonprofit educational organization' as defined in sections 4057(b), 4221(d)(5), and 4294(b) of the Code and in section 148.1-4(b) of the temporary rules.

Although the boys' club here considered offers classes of instruction in various subjects to members of the club on an optional basis, the courses do not represent a `curriculum' within the meaning of the Code. This heterogeneous collection of courses is not `formal instruction' within the meaning of section 148.1-4(b) of the temporary rules. The classes primarily serve to implement the other activities of the club rather than to represent an activity which would be a `school' of the type referred to in the statute.

Accordingly, it is held that this boys' club does not come within the scope of the term `nonprofit educational organization' as defined in sections 4057(b), 4221(d)(5), and 4294(b) of the Code and in section 148.1-4(b) of the temporary rules. Therefore, the exemptions from the retailers excise taxes and the manufacturers excise taxes, provided by sections 4057(a) and 4221(a)(5) of the Code, do not apply to sales of taxable articles to the club. Furthermore, the exemption from the communications and transportation taxes, provided by section 4294(a) of the Code, does not apply to any amount paid by the club for services or facilities furnished to the club.