SEC. 5. DEFINITIONS AND

PROCEDURES

.01 Annual Dues (or Similar Amounts). For purposes of this revenue procedure, the term “annual dues” means the amount an organization requires a person, family, or entity to pay to be recognized by the organization as a member for an annual period. For purposes of this revenue procedure, “similar amounts” includes, but is not limited to, voluntary payments made by persons, families, or entities, assessments made by the organization to cover basic operating costs, and special assessments imposed by the organization to conduct lobbying activities.

.02 Member. For purposes of this revenue procedure, “member” is used in its broadest sense and is not limited to persons with voting rights in the organization.

.03 Treatment of Affiliated Organiza- tions. For purposes of this revenue procedure, if more than one organization described in §§ 501(c)(4), 501(c)(5), or 501(c)(6) share a name, charter, historic affiliation or similar characteristics and coordinate their activities, all such organizations shall be treated as parts of a single organization. Only dues (or similar amounts) paid by persons other than the organizations treated as being parts of the single organization shall be considered for purposes of applying this revenue procedure. All annual dues payments made by each person outside the organizational structure to any organization within the single organization are considered for purposes of applying this revenue procedure to be paid to the single organization for a single membership. If, under this revenue procedure, the single organiza

tion is considered to meet the requirements of § 6033(e)(3), then all the organizations that are treated as parts of the single organization are considered to meet the requirements of § 6033(e)(3). For purposes of this revenue procedure, if organizations within the affiliated structure are on different taxable years, the organizations may base their calculations of annual dues on any single reasonable taxable year.

.04 Example of An Affiliated Organiza- tion. A group of social welfare organizations, each of which is recognized by the Service as being described in § 501(c)(4), share a common name and work jointly to promote a single purpose. Each organization operates at either the national, state, or local level. Individuals and families that are interested in the purpose promoted by the organizations pay annual dues of $75 to one of the local organizations. The total amount of dues collected from individuals and families is $950x. Also, a number of corporations are members of the national organization and pay annual dues of $500 directly to it. The total amount of dues received from corporations is $50x. The organizations are linked by a structure that makes the local organizations members of the appropriate state organizations and of the national organization. Accordingly, each local organization transfers a portion of the dues it collects to the appropriate state organization and another portion to the national organization as dues. These transfer amounts are significantly greater than $75. Because the organizations share a name and coordinate their activities, they are treated as parts of a single organization for purposes of determining whether they satisfy the requirements of § 6033(e)(3). Therefore, only the dues (or similar amounts) paid by persons other than the organizations treated as being parts of the single organization are considered for purposes of applying this revenue procedure. The total amount of annual dues paid by individuals and families at the $75 level is more than 90 percent of all annual dues paid to both the local affiliated organizations by individuals and families, and to the national organization by corporations. Therefore, the single organization satisfies the requirements of § 6033(e)(3), which means that all the affiliated local and state organizations, and the

national organization, are each considered to have satisfied the requirements of § 6033(e)(3). .05 Seventy-five Dollar Amount to be Indexed for Inflation. The $75 amount for annual dues in section 4.02 will be increased for taxable years beginning after December 31, 1998, by a cost-of-living adjustment under § 1(f)(3) of the Code, rounded to the next highest dollar.

.06 Establishing that an Organization is Described in § 6033(e)(3). Any exempt organization that is not treated as satisfying the requirements of § 6033(e)(3) under section 4 of this revenue procedure may still establish that it satisfies the requirements of § 6033(e)(3) by: (i) maintaining records establishing that 90 percent or more of the annual dues (or similar amounts) paid to the organization are not deductible without regard to § 162(e), and (ii) notifying the Service that it is described in § 6033(e)(3) on any Form 990 (Return of Organization Exempt From Income Tax) that it is required to file. Unless an organization complies with both of the above requirements, it will not have established to the satisfaction of the Service that it meets the requirements of § 6033(e)(3). Additionally, an organization may request a private letter ruling that substantially all the annual dues (or similar amounts) paid to the organization are not deductible, either directly or indirectly, without regard to § 162(e). To receive a favorable private letter ruling, the organization must provide the Service with evidence establishing that 90 percent or more of all annual dues (or similar amounts) are not deductible, either directly or indirectly, without regard to § 162(e). If an organization receives a favorable private letter ruling, the Service will not contest the organization’s entitlement to exemption under § 6033(e)(3) for a subsequent year so long as the character of the organization’s membership is substantially similar to its membership at the time of the ruling. Ruling requests should be submitted to the Assistant Commissioner (Employee Plans and Exempt Organizations), Attention: CP:E:EO, Internal Revenue Service, P.O. Box 120, Ben Franklin Station, Washington, DC 20044, in accordance with Rev. Proc. 98–4, 1998–1 I.R.B. 113 (January 5, 1998) (or as revised).

1998–7 I.R.B 31 February 17, 1998

or exchange of a residence from the § 6045(e) information reporting requirements if the seller provides the real estate reporting person with a certification setting forth certain written assurances, including an assurance that the residence is the seller’s principal residence (within the meaning of § 121) and an assurance that the full amount of the gain on the sale or exchange of the principal residence is excludable from gross income under § 121.

.03 Section 312 of the Act also amended § 121 to provide new rules for the exclusion of gain on certain sales or exchanges of a principal residence. Section 121, as amended, provides that a taxpayer may exclude from gross income up to $250,000 of gain on the sale or exchange of a principal residence if certain conditions are met. In certain circumstances, a married individual filing a joint return for the taxable year of the sale or exchange may exclude from gross income up to $500,000 of gain. This exclusion also applies to the sale or exchange of stock held by a tenant-stockholder in a cooperative housing corporation (as defined in § 216) and may apply to the sale or exchange of a remainder interest in a principal residence if the taxpayer so elects.