The Tax Reform Act of 1976 amended IRC 501(c)(3) to exempt from federal income taxation organizations organized and operated exclusively to foster national or international amateur sports competition, provided they do not furnish athletic facilities or equipment. The statute was amended in 1982 by adding IRC 501(j).

IRC 501(j)(1) provides generally that a "qualified amateur sports organization" that otherwise satisfies the requirements of IRC 501(c)(3) will qualify as exempt regardless of whether it provides athletic facilities or equipment and regardless of whether its membership is local or regional in nature. A "qualified amateur sports organization is" defined in IRC 501(j)(2) as an organization organized and operated exclusively to foster national or international amateur sports competition if it is also organized and operated primarily to conduct or to support and develop amateur athletes for national or international competition in sports.

Conforming changes were made to the charitable contribution provisions of IRC 170, 2055, and 2522. IRC 501(j) is effective retroactively to October 5, 1976, the date of the original amateur sports legislation under IRC 501(c)(3).

Sports activity is not in and of itself an exempt activity under IRC 501(c). However, amateur sports organizations may qualify for IRC 501(c)(3) exemption under any of three different rationales.

Similar organizations that cannot or choose not to meet the requirements of IRC 501(c)(3) may qualify for exemption under IRC 501(c)(4). See IRM 7.25.4.

The intention of IRC 501(j) is to relieve certain organizations from the prohibition in IRC 501(c)(3) against the provision of facilities or equipment. To meet the requirements of IRC 501(j) the organization must not only meet the general requirements of an IRC 501(c)(3) organization that "fosters national or international sports competition," but must also be a "qualified amateur sports organization" under IRC 501(j)(2). IRC 501(j) requires the organization to "conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports."

Frequently, the distinction between the IRC 501(c)(3) and the IRC 501(j) provisions is blurred. Organizations that "foster national or international sports competition" generally do so by conducting national or international competition or by supporting or developing amateur athletes for such competition. Typically, the amateur sports organization will promulgate official rules and standards of play; charter and supervise teams; provide coaching, equipment, and facilities; organize inter-team competition; and promote and advertise a sport. These activities are typical of "qualified amateur sports organizations." Thus, the IRC 501(c)(3) prohibition on the provision of athletic facilities and equipment is effectively negated for the typical amateur sports organization.

IRC 501(c)(3) and IRC 501(j)(2) both define organizations that "foster national or international amateur sports competition" . The legislative history of IRC 501(c)(3) indicates that Congress did not intend to grant exemption to "social clubs or organizations of casual athletes" or to organizations "whose primary purposes are the recreation of their members" [Senator Culver, 122 Cong. Rec. 25, 961 (1976)].

The primary purpose of an organization rather than its membership determines the exemption issue. The fact that an organization’s membership consists largely of persons who are not serious athletes will not necessarily disqualify it under IRC 501(j). The test is one of facts and circumstances.

The following factors are indicators that an organization is not primarily social and/or recreational but rather promotes serious competition in the manner contemplated by the two statutes:

The foregoing seven factors are not of equal weight and are not the only ones used in determine whether an organization promotes national or international competition. The existence of all of these factors, however, would strongly indicate that the organization qualifies under IRC 501(j).

While the distinction between national or international competition on the one hand and local competition on the other is crucial, recognizing the distinction is sometimes difficult and requires a facts-and-circumstances approach. An organization will not qualify under IRC 501(j) where its activities are clearly local in scope and far removed from any relationship to national or international competition.

If an organization, composed of local amateur athletes who primarily play other local teams, occasionally schedules games with teams or organizations in another state, the organization will not qualify for exemption unless it demonstrates that those games are part of some national competition. Similarly, even if it provides a regional tournament, the organization will fail the requirements of IRC 501(j) unless it shows some link to national or international competition. The organization’s membership in a national sports association could provide that link. An organization’s assertion that it is a training ground for collegiate, professional, and/or Olympic players, absent some evidence of a reasonable probability that the members will participate in national or international competition, would not suffice to cause the organization to meet the requirements for exemption. However, prior participation in national or international competitions would constitute some evidence for favorable consideration if the organization could also show a likelihood that it was in a position to continue to participate.

What is meant by "athletic facilities or equipment?" A relevant definition of "athletic" in Webster’s Third New International Dictionary (1971) is "designed or suitable for use...by athletes." On that basis, the Service lost International E22 Class Association v. Commissioner of Internal Revenue, 78 T.C. 93 (1982) . The Service contended that measurement templates and a master plug used for assuring that a class of yachts met strict specifications constituted the provision of athletic facilities or equipment. The Court held that it did not involve direct use by athletes but related only to the manufacture of the yacht. However, the Court said that the organization’s contention that it did not supply athletic equipment or facilities to its members was not a settled issue although it did not need to decide it in this case. The Court’s definition of "athletic facilities" included physical structures, such as clubhouses, swimming pools, or gymnasiums. It stated that "athletic equipment" applied to property used directly in athletic endeavors. The Court held that neither term applied to property which can only be used in some manufacturing process or in the officiating of an event. The Service has acquiesced in the principal holding in this decision.

Some organizations provide financial support for athletes who are in the organization’s athletic training programs. The forms of support may include stipends, payment of living expenses, housing, and scholarships. Aside from the question of inurement or private benefit under IRC 501(c)(3), whenever the national governing body of the sport involved does not consider the type of support paid to the athletes as destroying the athletes’ eligibility to participate in competitions as amateurs, the Service will also recognize such athletes as amateurs in the application of IRC 501(j). Such an organization fits the definition of an "amateur sports organization" within the ambit of the Amateur Sports Act of 1978, which establishes the United States Olympic Committee and regulates the United States’ participation in the Olympic Games. The Congressional intent underlying both that Act and IRC 501(j) is similar. Under circumstances where such payments do destroy the amateur status of an athlete under the rules of the relevant sanctioning body, the organization cannot qualify the exemption under IRC 501(j).

Semi-professional baseball club—The nonprofit organization distributed approximately 95 percent of the net gate receipts among the players as players’ splits or shares pursuant to individual contracts entered into between the corporation and the players. The operation of a semi-professional baseball club is ordinarily a commercial activity and not exempt from federal income taxation under IRC 501(c)(4) . Rev. Rul. 55–516, 1955–2 C.B. 260, distinguished by Rev. Rul. 69–384, 1969–2 C.B. 122.

Interscholastic athletic association—An organization that directs and controls interscholastic high school athletic competition; prescribes eligibility rules for contestants and penalties for the violation of such rules and for violation of the rules of play in various sports; conducts sectional, district, and sate meets or tournaments; arranges schedules for contests; trains and assigns game officials; and makes suitable awards in the state meets is exempt from federal income taxation under IRC 501(c)(3) as organized and operated primarily for educational purposes. Rev. Rul. 55–587, 1955–2 C.B. 261.

Operation of recreational facilities for children and other residents of a community—A non-profit corporation organized for the purpose of establishing, maintaining, and operating a public swimming pool, playground, and other recreation facilities for the children and other residents of a community is exempt from federal income taxation under IRC 501(a) as charitable within the meaning of IRC 501(c)(3) but acquiescence in the holding in Isabel Peters v. Commissioner, 21 T. C. 55, which action replaces a previous nonacquiescence, 1955–1 C.B. 8, does not constitute agreement with all the reasons given for such holding. Rev. Rul. 59–310, 1959–2 C.B. 146.

Training for Olympic and Pan American Games—An organization created essentially to provide advanced training to suitable candidates in the techniques of racing small sailboats in national and international competition to improve the caliber of candidates representing the United States in the Olympic and Pan American Games and other international racing events qualifies for exemption from federal income taxation under IRC 501(c)(3) as educational organizations. Rev. Rul. 64–275, 1964–2 C.B. 142.

Teaching a particular sport to children—An organization teaching a particular sport to children by holding clinics conducted by qualified instructors in schools, playgrounds, and parks; by encouraging student participation in tournaments; by arranging for attendance by players and instructors at state tournaments; and by providing free instruction, equipment, and facilities is exempt from federal income taxation under IRC 501(c)(3) as educational. Rev. Rul. 65–2, 1965–1 C.B. 227; amplified by Rev. Rul. 77–365, 1977–2 C.B. 192.

Stimulating sports activity by youths—A nonprofit organization that stimulates the interest of youth in the community in organized sports may qualify for exemption from federal income taxation under IRC 501(c)(4). The organization furnishes free admission to youths at sporting events. It does not conduct sports activities itself but does sponsor various essay contests, awarding prizes to the winners. The prizes usually consist of trips to sporting events in other cities and the chance to participate in the broadcast of sports programs by local radio and television stations. Rev. Rul. 68–118, 1968–1 C.B. 261.

Amateur baseball association—An organization created to maintain an amateur baseball association made up of baseball teams with amateur players of college age is exempt from federal income taxation under IRC 501(c)(4). Rev. Rul. 55–516, 1955–2 C.B. 260, distinguished. Rev. Rul. 69–384, 1969–2 C.B. 122.

Promoting and regulating a sport for amateurs—An organization engaged in promoting and regulating a sport for amateurs is not exempt from federal income taxation under IRC 501(c)(3) but is exempt under IRC 501(c)(4). The organization had no regular teaching program. Rev. Rul. 70–4, 1970–1 C.B. 126. Distinguished by Rev. Rul. 80–215, 1980–2 C.B. 174.

Community sports activity—An otherwise qualifying non-profit organization conducting clinics, workshops, lessons, and seminars at municipal parks and recreational areas to instruct and educate individuals in a particular sport is operated exclusively for educational purposes and qualifies for exemption under IRC 501(c)(3). Rev. Rul. 77–365, 1977–2 C.B. 192, amplifying Rev. Rul. 65–2, 1965–1 C.B. 227.

Promoting sports for children—An otherwise qualifying organization formed to develop, promote, and regulate a sport for individuals under 18 years of age by organizing local and statewide competitions, promulgating rules, organizing officials, presenting seminars, distributing a newsletter, and otherwise encouraging growth of the sport qualifies for exemption under IRC 501(c)(3). This organization limits its activities to individuals under the age of 18 years. Rev. Rul. 80–215, 1980–2 C.B. 174, distinguishing Rev. Rul. 70–4, 1970–1 C.B. 126.

The sale of exclusive broadcasting rights to athletic events by an organization created as a national governing body for amateur athletics does not constitute an unrelated trade or business where the organization sponsors, supervises, and regulates programs in a number of different sports and arranges for and coordinates open competition for amateur athletes at the local, state, regional, and national levels. The revenue ruling does not directly discuss the qualification of organizations sponsoring athletic competition but suggest that such organizations can qualify under IRC 501(c)(3) without indicating whether the organization discussed qualifies by virtue of the "foster[ing] national or international amateur sports competition" language in that section. Rev. Rul. 80–295, 1980–2 C.B. 194.