Justice Marshall
delivered the opinion of the Court.
The first issue in this case is whether income that a tax-exempt charitable organization derives from offering group insurance to its members constitutes “unrelated business income” subject to tax under §§511 through 513 of the Internal Revenue Code (Code), 26 U. S. C. §§511-513. The second issue is whether the organization’s members may claim a charitable deduction for the portion of their premium payments that exceeds the actual cost to the organization of providing insurance.
I
Respondent American Bar Endowment (ABE) is a corporation exempt from taxation under § 501(c)(3) of the Code, which, with certain exceptions not relevant here, exempts organizations “organized and operated exclusively for . . . charitable ... or educational purposes.” ABE’s primary purposes are to advance legal research and to promote the administration of justice, and it furthers these goals primarily through the distribution of grants to other charitable and educational groups. All members of the American Bar Association (ABA) are automatically members of ABE. The ABA is exempt from taxation as a “business league” under § 501(c)(6).
ABE raises money for its charitable work by providing group insurance policies, underwritten by major insurance companies, to its members. Approximately 20% of ABE’s members participate in the group insurance program, which offers life, health, accident, and disability policies. ABE negotiates premium rates with insurers and chooses which insurers shall provide the policies. It also compiles a list of its own members and solicits them, collects the premiums paid by its members, transmits those premiums to the insurer, maintains files on each policyholder, answers members’ questions concerning insurance policies, and screens claims for benefits.
There are two important benefits of purchasing insurance as a group rather than individually. The first is that ABE’s size gives it bargaining power that individuals lack. The second is that the group policy is experience rated. This means that the cost of insurance to the group is based on that group’s claims experience, rather than general actuarial tables. Because ABA members have favorable mortality and morbidity rates, experience rating results in a substantially lower insurance cost. When ABE purchases a group policy for its members, it pays a negotiated premium to the insurance company. If, as is uniformly true, the insurance company’s actual cost of providing insurance to the group is lower than the premium paid in a given year, the insurance company pays a refund of the excess, called a “dividend,” to ABE. Critical to ABE’s fundraising efforts is the fact that ABE requires its members to agree, as a condition of participating in the group insurance program, that they will permit ABE to keep all of the dividends rather than distributing them pro rata to the insured members.
It would be possible for ABE to negotiate lower premium rates for its members than the rates it has charged throughout the relevant period, and thus receive a lower dividend. However, ABE prices its policies competitively with other insurance policies offered to the public and to ABE members. 761 F. 2d 1573, 1575 (CAFC 1985). In this way ABE is able to generate large dividends to be used for its charitable purposes. In recent years the total amount of dividends has exceeded 40% of the members’ premium payments. Ibid. ABE advises its insured members that each member’s share of the dividends, less ABE’s administrative costs, constitutes a tax-deductible contribution from the member to ABE. Thus the after-tax cost of ABE’s insurance to its members is less than the cost of a commercial policy with identical coverage and premium rates.
In 1980 the Internal Revenue Service (IRS) advised ABE that it considered ABE’s insurance plan an “unrelated trade or business” and that the profits thereon were subject to tax under §§ 511-513. Subsequently IRS audited ABE’s tax returns for 1979 and 1980 and assessed a tax deficiency on ABE’s net revenues from the insurance program. ABE paid those taxes, as well as taxes on the 1981 revenues. After exhausting administrative remedies, it brought an action for a refund in the Claims Court, arguing that its revenues from the insurance program were not subject to tax. At approximately the same time, the individual respondents, who were participants in the ABE insurance program but who had not originally deducted any part of the insurance premiums as charitable contributions, brought suit for refunds in the Claims Court as well. The individual respondents argued that they were entitled to charitable deductions for a portion of those premium payments. The two suits were consolidated for trial in the Claims Court.
The Claims Court entered judgment for ABE in its suit, finding that ABE’s provision of insurance to its members did not constitute a “trade or business” subject to tax. 4 Cl. Ct. 404 (1984). It found for the Government, however, on the individual respondents’ claims. The court concluded that a taxpayer may claim a charitable contribution for a portion of a payment for goods or services only when he can show that “he bought goods or services for more than their economic value, with the intention that the excess be used to benefit a charitable enterprise,” id., at 415 (citation omitted), and that the individual respondents had not established these facts. The Court of Appeals for the Federal Circuit affirmed as to ABE’s taxes. 761 F. 2d, at 1577. As to the individual respondents, however the court reversed and remanded for further factfinding. We granted the Government’s petition for certiorari on both issues, 474 U. S. 1004 (1985), and we now reverse.
II
We recently discussed the history and structure of the unrelated business income provisions of the Code in United States v. American College of Physicians, 475 U. S. 834 (1986). The Code imposes a tax, at ordinary corporate rates, on the income that a tax-exempt organization obtains from an “unrelated trade or business . . . regularly carried on by it.” §§ 512(a)(1), 511(a)(1). An “unrelated trade or business” is “any trade or business the conduct of which is not substantially related ... to the exercise or performance by such organization of its charitable, educational, or other purpose,” § 513(a). The Code thus sets up a three-part test. ABE’s insurance program is taxable if it (1) constitutes a trade or business; (2) is regularly carried on; and (3) is not substantially related to ABE’s tax-exempt purposes. Treas. Reg. § 1.513 — 1(a), 26 CFR § 1.513-l(a) (1985); American College of Physicians, supra, at 838-839. ABE concedes that the latter two portions of this test are satisfied. 761 F. 2d, at 1576. Its defense is based solely on the proposition that its insurance program does not constitute a trade or business.
A
In the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 487, Congress defined a “trade or business” as “any activity which is carried on for the production of income from the sale of goods or the performance of services,” § 513(c). The Secretary of the Treasury has provided further clarification of that definition in Treas. Reg. § 1.513-1 (b) (1985), which provides: “in general, any activity of [an exempt] organization which is carried on for the production of income and which otherwise possesses the characteristics required to constitute ‘trade or business’ within the meaning of section 162” is a trade or business for purposes of 26 U. S. C. §§ 511-513.
ABE’s insurance program falls within the literal language of these definitions. ABE’s activity is both “the sale of goods” and “the performance of services,” and possesses the general characteristics of a trade or business. Certainly the assembling of a group of better-than-average insurance risks, negotiating on their behalf with insurance companies, and administering a group policy are activities that can be — and are — provided by private commercial entities in order to make a profit. ABE itself earns considerable income from its program. Nevertheless, the Claims Court and Court of Appeals concluded that ABE does not carry out its insurance program in order to make a profit. The Claims Court relied on the former Court of Claims holding, in Disabled American Veterans v. United States, 650 F. 2d 1178, 1187 (1981), that an activity is a trade or business only if “operated in a competitive, commercial manner.” See 4 Cl. Ct., at 409. Because ABE does not operate its insurance program in a competitive, commercial manner, the Claims Court decided, that program is not a trade or business. The Court of Appeals adopted this reasoning. 761 F. 2d, at 1577.
The Claims Court rested its conclusion on four factors. First, it found that “the program was devised as a means for fundraising and has been so presented and perceived from its inception.” 4 Cl. Ct., at 409. Second, the court found that the program’s phenomenal success in generating dividends for ABE was evidence of noncommercial behavior. The court noted that ABE’s insurance program has provided $81.9 million in dividends in its 28 years of operation, and concluded that such large profits could not be the result of commercial success, but must proceed from the generosity of ABE’s members. Third, and most important, in the court’s view, was the fact that ABE’s members collectively had the power to change ABE’s conduct of the insurance program so as to drastically reduce premiums. That the members had not done so was strong evidence that they sought to further ABE’s charitable purposes by paying higher insurance rates than necessary. Fourth, because ABE did not underwrite insurance or act as a broker, it was not competing with other commercial entities.
It appears, then, that the Claims Court viewed ABE as engaging in two separate activities — the provision of insurance and the acceptance of contributions in the form of dividends. If so, the unspoken premise of the Claims Court’s decision is that ABE’s income is not a result of the first activity, but of the second. There is some sense to this reasoning; should ABE sell a product to its members for more than that product’s fair market value, it could argue to the IRS that the members intended to pay excessive prices as a form of contribution, and that some formula should be adopted to separate the income received into taxable profits and nontaxable contributions. Even if we viewed it as appropriate for the federal courts to engage in such a quasi-legislative activity, however, there is no factual basis for the Claims Court’s attempt to do so in this case.
B
We cannot agree with the Claims Court that the enormous dividends generated by ABE’s insurance program demonstrate that those dividends cannot constitute “profits.” Were ABE’s insurance markedly more expensive than other insurance products available to its members, but ABE nevertheless kept the patronage of those members, we might plausibly conclude that generosity was the reason for the program’s success. The Claims Court did not find, however, that this was the case. ABE prices its insurance to remain competitive with the rest of the market. Id., at 406. Thus ABE’s members never squarely face the decision whether to support ABE or to reduce their own insurance costs.
The Claims Court concluded that “such profit margins [as ABE’s] cannot be maintained year after year in a competitive market.” Id., at 410. The court apparently reasoned that ABE’s staggering success would inevitably induce other firms to offer similar programs to ABA members unless that success is the result of charitable intentions rather than price-sensitive purchasing decisions. It is possible, of course, that ABE’s members genuinely intend to support ABE by paying higher premiums than necessary, and would pay those high premiums even if a competing group insurance plan offered very low premiums. But that is by no means the only possible explanation for the market’s failure to provide competition for ABE. Lacking a factual basis for concluding that generosity is at the core of ABE’s success, we can easily view this case as a standard example of monopoly pricing. ABE has a unique asset — its access to the ABA’s members and their highly favorable mortality and morbidity rates — and it has chosen to appropriate for itself all of the profit possible from that asset, rather than sharing any with its members.
The argument that ABE’s members could change the insurance program and receive the bulk of the dividends themselves if they so desired is unconvincing. Were ABE to give each member a choice between retaining his pro rata share of dividends or assigning thenrto ABE, the organization would have a strong argument that those dividends constituted a voluntary donation. That, however, is not the case here. ABE requires its members to assign it all dividends as a condition for participating in the insurance program. It is simply incorrect to characterize the assignment of dividends by each member as “voluntary” simply because the members theoretically could band together and attempt to change the policy.
Again, the Claims Court put too much weight on an unsupported assumption. It found that the program was “operated with the approval and consent of the ABA membership,” ibid., observing that the program had met with “surprisingly little dissent,” id., at 411, even though there were “ample” opportunities for members to change policies with which they disagreed, ibid. We believe that those facts cannot carry the weight that the Claims Court put on them. Perhaps each member that purchases insurance would, given the option, pay excessive premiums in order to support ABE’s charitable purposes; however, that is not the only possible explanation for the members’ failure to change the program. Any given member might feel that the potential savings in insurance costs are not sufficient to justify the effort required to mount a challenge to ABE’s leadership. Many might not want to “make waves” and upset a program that generates tax-free income for ABE and charitable deductions for their fellow members. The members’ theoretical ability to change the program, therefore, is at best inconclusive.
The Claims Court also erred in concluding that ABE’s insurance program did not present the potential for unfair competition. The undisputed purpose of the unrelated business income tax was to prevent tax-exempt organizations from competing unfairly with businesses whose earnings were taxed. H. R. Rep. No. 2319, 81st Cong., 2d Sess., 36 (1950); see United States v. American College of Physicians, 475 U. S., at 838. This case presents an example of precisely the sort of unfair competition that Congress intended to prevent. If ABE’s members may deduct part of their premium payments as a charitable contribution, the effective cost of ABE’s insurance will be lower than the cost of competing policies that do not offer tax benefits. Similarly, if ABE may escape taxes on its earnings, it need not be as profitable as its commercial counterparts in order to receive the same return on its investment. Should a commercial company attempt to displace ABE as the group policyholder, therefore, it would be at a decided disadvantage.
The Claims Court failed to find any taxable entities that compete with ABE, and therefore found no danger of unfair competition. It is likely, however, that many of ABE’s members belong to other organizations that offer group insurance policies. Employers, trade associations, and financial services companies frequently offer group insurance policies. Presumably those entities are taxed on their profits, and their policyholders may not deduct any part of the premiums paid. Such entities may therefore find it difficult to compete for the business of any ABE members who are otherwise eligible to participate in these group insurance programs.
The only valid argument in ABE’s favor, therefore, is that the insurance program is billed as a fundraising effort. That fact, standing alone, cannot be determinative, or any exempt organization could engage in a tax-free business by “giving away” its product in return for a “contribution” equal to the market value of the product. ABE further contends that it must prevail because the Claims Court found that ABE’s profits represent contributions rather than business income; ABE argues that we may not upset that finding unless it is clearly erroneous. Cf. Carter v. Commissioner, 645 F. 2d 784, 786 (CA9 1981) (question of profit motive for purposes of § 162 is one of fact). The undisputed facts, however, simply will not support the inference that the dividends ABE receives are charitable contributions from its members rather than profits from its insurance program. Moreover, the Claims Court failed to articulate a legal rule that would permit it to split ABE’s activities into the gratuitous provision of a service and the acceptance of voluntary contributions, and we find no such rule in the Code or regulations. Even if we assumed, however, that the court’s failure to attach the label “trade or business” to ABE’s insurance program constitutes a finding of fact, we would be constrained to hold that finding clearly erroneous.
Ill
Section 170 of the Code provides that a taxpayer may deduct from taxable income any “charitable contribution,” defined as “a contribution or gift to or for the use of” qualifying entities, § 170(c). The individual respondents contend that the excess of their premium payments over the cost to ABE of providing insurance constitutes a contribution or gift to ABE.
Many of the considerations supporting our holding that ABE’s earnings from the insurance program are taxable also bear on the question whether ABE’s members may deduct part of their premium payments. The evidence demonstrates, and the Claims Court found, that ABE’s insurance is no more costly to its members than other policies — group or individual — available to them. Thus, as we have recognized, ABE’s members are never faced with the hard choice of supporting a worthwhile charitable endeavor or reducing their own insurance costs.
A payment of money generally cannot constitute a charitable contribution if the contributor expects a substantial benefit in return. S. Rep. No. 1622, 83d Cong., 2d Sess., 196 (1954); Singer Co. v. United States, 196 Ct. Cl. 90, 449 F. 2d 413 (1971). However, as the Claims Court recognized, a taxpayer may sometimes receive only a nominal benefit in return for his contribution. Where the size of the payment is clearly out of proportion to the benefit received, it would not serve the purposes of § 170 to deny a deduction altogether. A taxpayer may therefore claim a deduction for the difference between a payment to a charitable organization and the market value of the benefit received in return, on the theory that the payment has the “dual character” of a purchase and a contribution. See, e. g., Rev. Rul. 67-246, 1967-2 Cum. Bull. 104 (price of ticket to charity ball deductible to extent it exceeds market value of admission); Rev. Rul. 68-432, 1968-2 Cum. Bull. 104, 105 (noting possibility that payment to charitable organization may have “dual character”).
In Rev. Rul. 67-246, supra, the IRS set up a two-part test for determining when part of a “dual payment” is deductible. First, the payment is deductible only if and to the extent it exceeds the market value of the benefit received. Second, the excess payment must be “made with the intention of making a gift.” 1967-2 Cum. Bull., at 105. The Tax Court has adopted this test, see Murphy v. Commissioner, 54 T. C. 249, 254 (1970); Arceneaux v. Commissioner, 36 TCM 1461, 1464 (1977); but see Oppewal v. Commissioner, 468 F. 2d 1000, 1002 (CA1 1972) (expressing “dissatisfaction with such subjective tests as the taxpayer’s motives in making a purported charitable contribution” and relying solely on differential between amount of payment and value of benefit).
The Claims Court applied that test in this case, and held that respondents Broadfoot, Boynton, and Turner had not established that they could have purchased comparable insurance for less money. Therefore, the court held, they had failed to establish that the value of ABE’s insurance to them was less than the premiums paid. 4 Cl. Ct., at 415-417. Respondent Sherwood demonstrated that there did exist a group insurance program for which he was eligible and which offered lower premiums than ABE’s insurance. However, Sherwood failed to establish that he was aware of that competing program during the years at issue. Sherwood therefore had failed to demonstrate that he met the second part of the above test — that he had intentionally paid more than the market value for ABE’s insurance because he wished to make a gift.
The Court of Appeals, in reversing, held that the Claims Court had focused excessively on the taxpayers’ motivation. In the Court of Appeals’ view, the necessary inquiry was whether “the transaction was ... of a business and not a charitable nature,” considering all of the circumstances. 761 F. 2d, at 1582. The Court of Appeals therefore remanded for redetermination under that standard.
We hold that the Claims Court applied the proper standard. The sine qua non of a charitable contribution is a transfer of money or property without adequate consideration. The taxpayer, therefore, must at a minimum demonstrate that he purposely contributed money or property in excess of the value of any benefit he received in return. The most logical test of the value of the insurance respondents received is the cost of similar policies. Three of the four individual respondents failed to demonstrate that they could have purchased similar policies for a lower cost, and we must therefore assume that the value of ABE’s insurance to those taxpayers at least equals their premium payments. Had respondent Sherwood known that he could purchase comparable insurance for less money, ABE’s insurance would necessarily have declined in value to him. Because Sherwood did not have that knowledge, however, we again must assume that he valued ABE’s insurance equivalently to those competing policies of which he was aware. Because those policies cost as much as or more than ABE’s, Sherwood has failed to demonstrate that he intentionally gave away more than he received.
> l — l
We hold that ABE’s insurance program is a “trade or business” for purposes of the unrelated business income tax. We further hold that the individual taxpayers have not established that any portion of their premium payments to ABE constitutes a charitable contribution. Accordingly, we reverse the judgment of the Court of Appeals and remand to that court with instructions to reverse the judgment of the Claims Court with respect to ABE and to affirm the judgment of the Claims Court with respect to the individual taxpayers.
It is so ordered.
Justice Powell and Justice O’Connor took no part in the consideration or decision of this case.
Section 162 permits a taxpayer to deduct “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Undoubtedly due to the desirability of tax deductions, § 162 has spawned a rich and voluminous jurisprudence. The standard test for the existence of a trade or business for purposes of § 162 is whether the activity “was entered into with the dominant hope and intent of realizing a profit.” Brannen v. Commissioner, 722 F. 2d 695, 704 (CA11 1984) (citation omitted). Thus several Courts of Appeals have adopted the “profit motive” test to determine whether an activity constitutes a trade or business for purposes of the unrelated business income tax. See Professional Insurance Agents of Michigan v. Commissioner, 726 F. 2d 1097 (CA6 1984); Carolinas Farm & Power Equipment Dealers v. United States, 699 F. 2d 167 (CA4 1983); Louisiana Credit Union League v. United States, 693 F. 2d 525 (CA5 1982).
One obvious consideration is that ABE’s tax-exempt status would make it difficult for private firms to compete, see infra, at 114-115. In addition, as the Claims Court recognized, 4 Cl. Ct. 404, 414 (1984), the provision of group insurance coverage to a particular group may have the characteristics of a natural monopoly. The potential savings in insurance costs might decrease rapidly as the group splits into competing components. Finally, if the cost of assembling information about a particular group and maintaining an accurate list of members is high, the provision of group insurance might be economically feasible only if that cost can be shared among a variety of services performed by the group policyholder. In that ease preexisting groups like the ABA or a trade association would obviously have a considerable advantage over new entrants. The record here is barren of facts concerning these hypotheses, and we express no opinion as to their accuracy. We present them, however, to demonstrate that it is incorrect to assume, as did the courts below, that ABE’s profitability must result from the generosity of its members.
The unrelated business income cases cited in n. 1, supra, all concerned group insurance programs offered by trade associations to their members. In each case the Court of Appeals held that those programs constituted a taxable trade or business. The Claims Court distinguished those cases on the grounds that they involved organizations exempt as business leagues under § 501(c)(6) rather than as charities under § 501(c)(3). That distinction, however, is insubstantial. Business leagues engage in fundraising for exempt purposes just as charities do. The taxpayers in those cases could have claimed that the excess dividends constituted tax-exempt membership fees, just as ABE claims that they constitute tax-exempt charitable contributions. Both claims fail for the same reasons.