San Antonio Bar Association v. United States

The San Antonio Bar Association (the association) (plaintiff), a Texas nonprofit corporation, was exempt from federal income tax as a business league pursuant to Internal Revenue Code § 501(c)(6). The association’s exempt purposes included advancing the interests of individuals who were licensed to practice law, promoting justice and the science of jurisprudence, and improving relations between the bench, bar, and public. During the 1950s, the association and the State Bar of Texas (state bar), an agency of the State of Texas, worked together to develop a set of standardized forms and a practice manual to assist general-practice attorneys in completing real estate transactions. The project was well received, and the forms were in high demand. In 1970, to ensure the success of the program and expand its availability, the association transferred the right to publish the preprinted forms and manuals to the state bar with the goal of enabling local bar associations to distribute the materials to attorneys throughout the state. Thereafter, the association purchased the forms and manuals from the state bar, maintained an inventory, and sold the materials to attorneys at a substantial markup over the price the association paid. The association also continually monitored the content of the materials to avoid the possibility of distributing outdated forms. The Internal Revenue Service (IRS) (defendant) determined that the income derived from these sales was unrelated business taxable income (UBTI). The association paid taxes the IRS claimed were owed and sued for a refund.