The last factor under the four-part test set out in Revenue Ruling 67-4 is perhaps the most controversial, and reflects the IRS's attempt to draw a line between (a) non-profit publishing and (b) for-profit publishing that simply fails to make any money.

In 1982, the IRS General Counsel's Office issued a memorandum summarizing the kinds of activity that the IRS would characterize as indistinguishable from commercial operations:

Practices which have been considered to reflect a purpose to engage in publishing operations for ordinary commercial gain are: (1) conducting as its sole activity publishing activities using standard commercial techniques which generate ongoing profits; (2) pricing its materials ‘competitively‘ with other commercial publications or to return a profit; (3) conducting an enterprise in a manner in which all participants expect to receive a monetary return; (4) publishing its materials almost exclusively for sale, with only a de minimis amount of material donated to charity; (5) existing or accumulating large profits; and accumulating profits from sales activities which are greatly in excess of the amounts expended for educational programs. [FN1]

Notwithstanding this attempt at clarification, a review of IRS and court rulings on this issue demonstrate that the agency's analysis generally reduces to two issues: (a) whether the organization is using traditionally commercial models for generating revenue (such as advertising and subscriptions); and (b) the profitability of the organization.

RETURN TO THE CHART

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¹ I.R.S. Gen. Couns. Mem. 38,845 (May 4, 1982).