Organizational and Operational Tests

Department of the Treasury
Internal Revenue Service
IRS
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201
Dear
Release Number: 202237019
Release Date: 9/16/2022
UIL Code: 501.00-00,
501.03-00, 501.03-05,
501.03-30
Date:
06/23/2022
Employer ID number:
Form you must file:
1120
Tax years:
All
Person to contact:
This letter is our final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3 ). Recently, we sent you a proposed adverse determination in response to your application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we didn't receive a protest within the required 30 days, the proposed determination is now final.
Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't deduct contributions to you under IRC Section 170.
We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by sending them a copy of this final letter along with the proposed determination letter.
You must file the federal income tax forms for the tax years shown above within 30 days from the date of this letter unless you request an extension of time to file. For further instructions, forms, and information, visit www. Irs.gov.
We'll make this final adverse determination letter and the proposed adverse determination letter available for public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the enclosed Letter 437, Notice oflntention to Disclose - Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any further action.
If you have questions about this letter, you can call the contact person shown above. If you have questions about your federal income tax status and responsibilities, call our customer service number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.
Letter 4038 (Rev. 11-2021)
Catalog Number 47632S
Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Letter 4038 (Rev. 11-2021)
Catalog Number 47632S
@I
IRS
Legend:
Department of the Treasury
Internal Revenue Service
PO Box2508
Cincinnati, OH 45201
W = Adjective
X = State
Y = Date (SIC)
Z = Date
Dear
Date: 04/18/2022
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:
UIL:
501.03-09
501.35-00
We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

# Issues

Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

# Facts

You submitted Form 1023-EZ Streamline Application for Recognition of Exemption Under Section 501 (c)(3) of the Internal Revenue Code.
You attested on Form 1023-EZ that you are organized and operated exclusively to further charitable purposes.
You also attested that you have not conducted and will not conduct prohibited activities under IRC Section 501 (c)(3).
During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
You were formed as an unincorporated association operating in the State of X. Your organizing document indicates it was adopted on Y. Your application, Form 1023-EZ, indicates you were formed on Z. The document is silent on the purposes for which you are organized and there are no provisions for the disposition of assets upon dissolution.
You are formed as a lodge for fraternal activities in the enlightenment ofW values. Membership is open to anyone wishing to be accepted and raised to the meaning of W membership. You hold regular meetings where the history and symbols of the W rituals are discussed. Members pay dues assessed annually. All your time is
Letter 4034 (Rev. 01-2021)
Catalog Number 47628K
2 spent on W activities. This includes an outreach program in the form of food drives and volunteering at the local food kitchen.
All your revenue is from membership dues. Your expenses are mostly for overhead related to your lodge and some other miscellaneous costs including lodge dues to your parent lodge, and printing expenses

# Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net earnings may inure to the benefit of any private shareholder or individual.
Treasury Regulation (Treas. Reg.) Section l.501(c)(3)-l(a)(l) states that, in order to be exempt as an organization described in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.
Treas. Reg. Section 1.501(c)(3)-l(b)(l)(i) states that an organization is organized exclusively for one or more exempt purposes only if its organizational document:

(a) Limits the purposes of such organization to one or more exempt purposes; and

(b) Does not expressly empower the organization to engage, otherwise than as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.
Treas. Reg. Section l.501(c)(3)-l(b)(4) holds that an organization is not organized exclusively for one or more exempt purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's articles or operation oflaw, be distributed for one or more exempt purposes.
Treas. Reg. Section l.501(c)(3)-l(c)(l) provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.
Treas. Reg. Section l.501(c)(3)-l(d)(2) defines the term charitable as including the relief of the poor and distressed or of the underprivileged, and the promotion of social welfare.
Revenue Procedure 2022-5, 2022-11.R.B. 250, Section 3 states that a determination letter or ruling on exempt status is issued based solely upon the facts and representations contained in the administrative record. The applicant is responsible for the accuracy of any factual representations or attestations contained in the application. Section 6 (and its predecessors) provides that a favorable determination letter or ruling will be issued to an organization only if its application and supporting documents establish that it meets the particular requirements of the section under which exemption from federal income tax is claimed.
In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 {1945). the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for exemption under IRC Section 501(c)(3) regardless of the number or importance of truly exempt purposes.
Letter 4034 (Rev. 01-2021)
Catalog Number 47628K
3
Application of law
A ruling on exempt status is based solely on facts and representations in the administrative file. You did not provide sufficient facts in your application and the additional information you provided did not establish that you are entitled to exempt status. Therefore, there is not sufficient documentation to establish that you meet the requirements oflRC Section 50l{c)(3) as required by Revenue Procedure 2022-5.
IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501 ( c )(3 )-1 (a)( 1 ), an organization must be both organized and operated exclusively for purposes described in IRC Section 501(c)(3).
Because your organizing document does not have a purpose clause that limits your purposes to those described in Treas. Reg. Section l.50l(c)(3)-l(b)(l)(i), you fail the organizational test under IRC Section 50l(c)(3).
You also have no provision in your organizing document that permanently dedicates your assets upon dissolution to purposes described in IRC Section 50l(c)(3) as required by Treas. Reg. Section l.50l(c)(3)- l (b )( 4) which also causes you to fail the organizational test.
You do not meet the operational test under IRC Section 50l(c)(3) because you are not operating exclusively for charitable purposes as required under Treas. Reg. Section l.50l(c)(3)-l(c)(l). You indicate that you have outreach programs but failed to provide details on how you operate exclusively for charitable purposes. There is no evidence of your outreach programs being substantial in nature. Thus, as provided in Treas. Reg. Section l .50l{c)(3)-l(d)(2), you have not established that your operations accomplish exclusively charitable purposes.
You describe yourself as a lodge that focuses on W activities. You have not demonstrated how W activities further an exempt purpose. Although you indicate that some ofW activities include charitable endeavors, there is no evidence that your primary purpose is charitable. Thus, the substantial purpose of providing W activities precludes your claim of exemption.

# Conclusion

Based on the facts and law specified above, you do not meet the organizational or operational test required for exemption under IRC Section 50l{c)(3). Further, you have not demonstrated how your operations are in furtherance of any exempt purpose. Thus, you are not organized and operated exclusively for exempt purpose and cannot be recognized for exemption under Section 501(c)(3). Donations to you are not deductible to the donor.
If you agree
If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements.
If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include:
• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
Letter 4034 (Rev. 01-2021)
Catalog Number 47628K
4
• A statement indicating whether you are requesting an Appeals Office conference
• The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative
• The following declaration:
For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete.
Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney.
We' 11 review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.
If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).
Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:
U.S. mail:
Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201
Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202
You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it.
You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/formspubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter.
Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
Letter 4034 (Rev. 01-2021)
Catalog Number 47628K
5 been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Letter 4034 (Rev. 01-2021)
Catalog Number 47628K