[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.513-3]

[Page 172-174]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.513-3  Qualified convention and trade show activity.

    (a) Introduction--(1) In general. Section 513(d) and Sec. 1.513-
3(b) provide that convention and trade show activities carried on by a 
qualifying organization in connection with a qualified convention or 
trade show will not be treated as unrelated trade or business. 
Consequently, income from qualified convention and trade show 
activities, derived by a qualifying organization that sponsors the 
qualified convention or trade show, will not be subject to the tax 
imposed by section 511. Section 1.513-3(c) defines qualifying 
organizations and qualified conventions or trade shows. Section 1.513-
3(d) concerns the treatment of income derived from certain activities, 
including rental of

[[Page 173]]

exhibition space at a qualified convention or trade show where sales 
activity is permitted, and the treatment of supplier exhibits at 
qualified conventions and trade shows.
    (2) Effective date. This section is effective for taxable years 
beginning after October 4, 1976.
    (b) Qualified activities not unrelated. A convention or trade show 
activity, as defined in section 513(d)(3)(A) and Sec. 1.513-3(c)(4), 
will not be considered unrelated trade or business if it is conducted by 
a qualifying organization described in section 513(d)(3)(C) and Sec. 
1.513-3(c)(1), in conjunction with a qualified convention or trade show, 
as defined in section 513(d)(3)(B) and Sec. 1.513-3(c)(2), sponsored by 
the qualifying organization. Such an activity is a qualified convention 
or trade show activity. A convention or trade show activity which is 
conducted by an organization described in section 501(c) (5) or (6), but 
which otherwise is not so qualified under this section, will be 
considered unrelated trade or business.
    (c) Definitions--(1) Qualifying organization. Under section 
513(d)(3)(C), a qualifying organization is one which:
    (i) Is described in either section 501(c) (5) or (6), and
    (ii) Regularly conducts as one of its substantial exempt purposes a 
qualified convention or trade show.
    (2) Qualified convention or trade show. For purposes of this 
section, the term qualified convention or trade show means a show that 
meets the following requirements:
    (i) It is conducted by a qualifying organization described in 
section 513(d)(3)(C);
    (ii) At least one purpose of the sponsoring organization in 
conducting the show is the education of its members, or the promotion 
and stimulation of interest in, and demand for, the products or services 
of the industry (or segment thereof) of the members of the qualifying 
organization; and
    (iii) The show is designed to achieve that purpose through the 
character of a significant portion of the exhibits or the character of 
conferences and seminars held at a convention or meeting.
    (3) Show. For purposes of this section, the term show includes an 
international, national, state, regional, or local convention, annual 
meeting or show.
    (4) Convention and trade show activity. For purposes of this 
section, convention and trade show activity means any activity of a kind 
traditionally carried on at shows. It includes, but is not limited to--
    (i) Activities designed to attract to the show members of the 
sponsoring organization, members of an industry in general, and members 
of the public, to view industry products or services and to stimulate 
interest in, and demand for such products or services;
    (ii) Activities designed to educate persons in the industry about 
new products or services or about new rules and regulations affecting 
the industry; and
    (iii) Incidental activities, such as furnishing refreshments, of a 
kind traditionally carried on at such shows.
    (d) Certain activities--(1) Rental of exhibition space. The rental 
of display space to exhibitors (including exhibitors who are suppliers) 
at a qualified trade show or at a qualified convention and trade show 
will not be considered unrelated trade or business even though the 
exhibitors who rent the space are permitted to sell or solicit orders.
    (2) Suppliers defined. For purposes of subparagraph (1), a 
supplier's exhibit is one in which the exhibitor displays goods or 
services that are supplied to, rather than by, the members of the 
qualifying organization in the conduct of such members' own trades or 
businesses.
    (e) Example. The provisions of this section may be illustrated by 
the following examples:

    Example 1. X, an organization described in section 501(c)(6), was 
formed to promote the construction industry. Its membership is made up 
of manufacturers of heavy construction machinery many of whom own, rent, 
or lease one or more digital computers produced by various computer 
manufacturers. X is a qualifying organization under section 513(d)(3)(C) 
that regularly holds an annual meeting. At this meeting a national 
industry sales campaign and methods of consumer financing for heavy 
construction machinery are discussed. In addition, new construction 
machinery developed for use in the industry is on display with 
representatives of the various manufacturers present to promote their 
machinery. Both members and nonmembers

[[Page 174]]

attend this portion of the conference. In addition, manufacturers of 
computers are present to educate X's members. While this aspect of the 
conference is a supplier exhibit (as defined in paragraph (d) of this 
section), income earned from such activity by X will not constitute 
unrelated business taxable income to X because the activity is conducted 
as part of a qualified trade show described in Sec. 1.513-3(c).
    Example 2. Assume the same facts as in Example 1, but the only goods 
or services displayed are those of suppliers, the computer 
manufacturers. Selling and order taking are permitted. No member 
exhibits are maintained. Standing alone, this supplier exhibit (as 
defined in paragraph (d)(2) of this section) would constitute a supplier 
show and not a qualified convention or trade show. In this situation, 
however, the rental of exhibition space to suppliers is not unrelated 
trade or business. It is conducted by a qualifying organization in 
conjunction with a qualified convention or trade show. The show (the 
annual meeting) is a qualified convention or trade show because one of 
its purposes is the promotion and stimulation of interest in, and demand 
for, the products or services of the industry through the character of 
the annual meeting.
    Example 3. Y is an organization described in section 501(c)(6). The 
organization conducts an annual show at which its members exhibit their 
products and services in order to promote public interest in the line of 
business. Potential customers are invited to the show, and sales and 
order taking are permitted. The organization secures the exhibition 
facility, undertakes the planning and direction of the show, and 
maintains exhibits designed to promote the line of business in general. 
The show is a qualified convention or trade show described in paragraph 
(c)(2) of this section. The provision of exhibition space to individual 
members is a qualified trade show activity, and is not unrelated trade 
or business.
    Example 4. Z is an organization described in section 501(c)(6) that 
sponsors an annual show. As the sole activity at the show, suppliers to 
the members of Z exhibit their products and services for the purpose of 
stimulating the sale of their products. Selling and order taking are 
permitted. The show is a supplier show and does not meet the definition 
of a qualified convention show as it does not satisfy any of the three 
alternative bases for qualification. First, the show does not stimulate 
interest in the members' products through the character of product 
exhibits as the only products exhibited are those of suppliers rather 
than members. Second, the show does not stimulate interest in members' 
products through conferences or seminars as no such conferences are held 
at the show. Third, the show does not meet the definition of a qualified 
show on the basis of educational activities as the exhibition of 
suppliers' products is designed primarily to stimulate interest in, and 
sale of, suppliers' products. Thus, the organization's provision of 
exhibition space is not a qualified convention or trade show activity. 
Income derived from rentals of exhibition space to suppliers will be 
unrelated business taxable income under section 512.

[T.D. 7896, 48 FR 23817, May 27, 1983]