CUNA Comment Letter

Announcement 2000-84 - Use of the Internet by Exempt Organizations

February 13, 2001

Judith E. Kindell
T:EO
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Re: Announcement 2000-84 - Use of the Internet by Exempt Organizations

Dear Ms. Kindell:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the possible need for guidance to clarify the application of the Internal Revenue Code (Code) to the use of the Internet by exempt organizations. CUNA represents more than 90 percent of our nation's 10,800 state and federal credit unions.

In general, CUNA urges the Internal Revenue Service (IRS) to not proceed further with at least some of the issues outlined in Announcement 2000-84 regarding the use of the Internet by exempt organizations. CUNA also encourages the IRS to adopt an overall flexible approach so that this innovative and expansive medium may continue to provide access to information to a wide audience at minimal cost.

The following are CUNA's comments on two significant issues that were raised in Announcement 2000-84:

Income from "virtual trade shows" should not be subject to the unrelated business income tax

Under §513(d) of the Code, a determination of whether a trade show is considered a tax-exempt activity requires an examination of two issues: 1) the content or kind of activity conducted; and 2) whether the activity is being conducted by a qualified organization. Under this analysis, it is irrelevant where the trade show activity takes place, as long as the activity is of a certain kind. The IRS has often stated that the use of the Internet to accomplish a particular task does not change the way the tax laws apply to that task. Consistent with this position, the analysis of trade show activity does not depend on whether the activity takes place in a physical or an online location.

Neither §513(d) nor the corresponding regulations specifically describe or limit the time or place of the qualified trade show activity. There is also no explicit or implicit prohibition against qualified trade show activity being organized on the Internet, as long as the online activity otherwise meets the requirement under §513(d).

The first issue to be examined under §513(d) is the content or kind of activity that is being conducted by the trade show. Under §513(d)(3)(A), "trade show activity" is defined as activity "of a kind traditionally conducted at conventions, annual meetings, or trade shows. . ." Section 513(d)(3)(B) states that qualified convention and trade show activity is any activity one of the purposes of which is the "stimulation of interest in, and demand for, the products and services of that industry in general or to educate persons in attendance regarding new developments or products and services. . ."

These provisions of §513(d) require an analysis as to whether the activities conducted at an online trade show sufficiently resemble activities that are traditionally conducted at trade shows. This statutory language does not require that the venue or location be traditional as compared to other trade shows.

A typical association trade show, whether physical or online, includes the display of a number of companies' products and services, the ability to obtain educational information with respect to the entire industry, and marketing opportunities and contacts. These activities are precisely the types that are traditionally conducted at trade shows, as required under §513(d)(3)(A). Also, it is clear that these kinds of activities, whether conducted online or in a convention hall, are designed and operate to stimulate "interest in, and demand for, the products and services of that industry in general or to educate persons in attendance regarding new developments or products and services," as required under 513(d)(3)(B). Typical trade show activities meet the requirements of 513(d), regardless of whether they are conducted on the Internet, and the online trade show income should not be considered unrelated business income any more than income from a physical trade show is currently considered such income.

Also, the purpose of a trade show is to bring businesses together in one venue for the collective benefit of an industry or profession. The uniting of purchasers and sellers in one location is probably the most important aspect of a trade show, and the Internet has emerged as the most cost-effective means of disseminating the latest industry ideas around the world in real or near real time. These benefits should not be diminished through the imposition of the unrelated business income tax merely because organizations choose the most cost-effective means to achieve these goals.

A hyperlink on a charitable organization's website to an organization that conducts political and lobbying activities should not restricted

A mere hyperlink to an organization that conducts political and lobbying activities should not by itself be construed as attributing political and lobbying activities to the charitable organization. Such a link by itself carries no implication that the charity endorses the political views or activities of the host organization, or vice versa.

A key issue is how clear it is to the website user that he or she is leaving the website of the charitable organization when clicking on the hyperlink. As the Internet has grown in recent years, users have become more sophisticated as they visit various websites through hyperlinks, and this level of sophistication will only grow in the future as the Internet evolves. Most users now realize that they are leaving the website of the charitable organization at the time they click on the hyperlink. In these situations, it would be needlessly burdensome and inappropriate to attribute the political and lobbying activities of another website to the charitable organization.

Thank you for the opportunity to comment on the possible need for guidance to clarify the application of the Code to the use of the Internet by exempt organizations. If you or other IRS staff have questions about our comments, please give Associate General Counsel Mary Dunn or me a call at (202) 682-4200.

Sincerely

Jeffrey Bloch
Assistant General Counsel