Rev. Rul. 54-394

Advice is requested whether an organization incorporated for charitable, religious, educational, and civic purposes and for the purpose of engaging in activities relative to the distribution, servicing, maintenance, and repair of television, but whose sole activity is to provide television reception in an area not adaptable to ordinary reception, for which service it charges installation and service fees, is entitled to exemption from Federal income tax as a civic league under section 101(8) of the Internal Revenue Code of 1939.

The organization furnishes television reception for its members on a cooperative basis. The requirements for membership are to contract for services and to pay installation fees. The nature of the programs available for reception is determined by the television stations and networks from which the programs originate and is not controlled by the organization.

Section 101(8) of the Code provides, in part, for the exemption of:

(8) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare * * *.

A civic league or organization entitled to exemption under this section is one operated exclusively for purposes beneficial to the community as a whole, and, in general, is an organization engaged in promoting the welfare of mankind. (See Regulations 118, section 39.101(8)-1.)

Determination of an organization's eligibility for exemption under section 101(8) of the Code is based not only on its stated purposes but also on its method of operation in carrying out such purposes. When an organization's only activity is to provide television reception on a cooperative basis to its members, who contract and pay for such services, such organization is held to operate for the benefit of its members rather than for the promotion of the welfare of mankind. The function of such an organization is distinguishable from that of one which is in the business of broadcasting and which controls the nature of its programs and the extent to which such programs promote social welfare.

Accordingly, it is held that an organization incorporated for charitable, religious, educational and civic purposes and for the purpose of engaging in activities in connection with the distribution, servicing, maintenance and repair of television, but whose sole activity is to provide television reception in an area not adaptable to ordinary reception, for which service it charges installation and service fees, is not entitled to exemption from Federal income tax under section 101(8) of the Code as a civic league operating exclusively for the promotion of social welfare.