Private v. Public Interest Served

Department of the Treasury
Internal Revenue Service
IRS
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201
Number: 202332016
Release Date: 8/11/2023
UIL: 501.03-00, 501.33-00
Dear
Date:
05/15/2023
Employer ID number:
Form you must file:
Tax years:
Person to contact:
This letter is our final dete1mination that you don't qualify for exemption i:om federal income tax under Intemal Revenue Code (IRC) Section 50l(a) as an organization described in IRC Section 50l(c)(3). Recently, we sent you a proposed adverse detemiination in response to your application. The proposed adverse dete1mination 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 dete1mination is now final.
Because you don't qualify as a tax-exempt organization under IRC Section 50l(c)(3), donors generally can't deduct contributions to you under IRC Section 170.
We may notify the appropriate state officials of our detennination, as required by IRC Section 6104(c), by sending them a copy of this fmal letter along with the proposed dete1mination letter.
You must file the federal income tax fonns for the tax years shown above within 30 days from the date of this letter tmless you request an extension of time to file. For further instmctions, fonns, and info1mation, visit www.irs.gov.
We'll make this final adverse determination letter and the proposed adverse detennination letter available for public inspection after deleting ce1tain identifying infonnation, as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instmctions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any :forther 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 se1vice munber 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 403 8
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Letter 4038 (Rev. 11-2021)
Catalog Number 476325
'11
IRS
Legend:
Department of the Treasury
Internal Revenue Service
POBox2508
Cincinnati, OH 45201
B = Date of Incorporation
C = State oflllco1poration
Dear
Date: 03/22/2023
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:
UIL:
501.03-00
501.33-00
We considered your application for recognition of exemption from federal income tax under futemal Revenue Code (!RC) Section 50l(a). We determined that you don't qualify for exemption under !RC Section 50l(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

# Issues

Do you qualify for exemption under !RC Section 50l(c)(3)? No, for the reasons stated below.

# Facts

You submitted Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 50l(c)(3) of the Internal Revenue Code.
You attest that you were incorporated on B, in the state of C. You attest that you have the necessary organizing document, that your organizing docmnent limits your pmposes to one or more exempt purposes within the meaning of !RC Section 501 ( c )(3), that your organizing document does not expressly empower you to engage in activities, other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and that your organizing document contains the dissolution provision required under !RC Section 50l(c)(3).
You attest that you are organized and operated exclusively to further charitable purposes. You attest that you have not conducted and will not conduct prohibited activities under !RC Section 50l(c)(3). Specifically, you attest you will:
• Refrain from supporting or opposing candidates in political campaigns in any way
• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or individuals
• Not further non-exempt purposes (such as purposes that benefit private interests) more than insubstantially Letter 4034 (Rev. 01-2021) catalog Number 47628K
• Not be organized or operated for the primary purpose of conducting a trade or business that is not related to your exempt purpose(s)
• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you made a Section 501 (h) election, not normally make expenditures in excess of expenditure limitations outlined in Section 501 (h)
• Not provide commercial-type insurance as a substantial part of your activities
During review of your Form 1023-EZ, detailed information was requested supplemental to the above attestations.
You state your sole purpose is to raise funds for the payment of medical bills for a minor who suffers from a . You indicate these funds will be collected from other tax-exempt entities who will have fundraising events specifically for this minor. The minor is the child of your board of directors. At no point will money be spent outside of paying for the minor's medical bills.

# Law

IRC Section 50l(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 Section 1.501(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 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)(l)(ii) states that an organization is not organized or operated exclusively for one or more of the purposes specified in subdivision (i) of this subparagraph unless it serves a public rather than private interest, Thus to meet the requirement of this subdivision, it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests.
Revenue Ruling 67-367, 1967-2 C.B. 188, held that an organization whose sole activity is the operation of a 'scholarship' plan to award scholarships to pre-selected, specifically named individuals doesn't qualify for exemption under IRC Section 501(c)(3).
In Wendy L. Parker Rehabilitation Foundation, Inc., Petitioner v. Commissioner, T.C. Memo. 1986-348, the tax court upheld the Service's position that a foundation formed to aid coma victims, including a family member of the founders, wasn't entitled to recognition of exemption. Approximately 30% of the organization's net income was expected to be distributed to aid the family coma victim. The court found that the family coma victim was a substantial beneficiary of the foundation's activities. This activity constituted inurement which is prohibited under IRC Section 501(c)(3).
Application of law
IRC Section 501(c)(3) and Treas. Reg. 1.501(c)(3)-l(a)(l) sets forth two main tests for qualification for exempt status. An organization must be both organized and operated exclusively for purposes described in IRC Section 50l(c)(3). You have not provided sufficient supporting documentation to establish you meet the requirements of this section as further explained below.
As you have indicated, your sole activity is to raise and receive funds for the minor child of your board who suffers from . While you are looking to provide some relief to this family, this activity serves the substantial private interest of this family and is not serving a public interest. Since more than an insubstantial part of your activities is not in furtherance of an exempt purpose, you do not meet the operational requirement for IRC Section 501 ( c )(3 ). See Treas. Regs. Section 1.501 ( c)(3 )-1 ( c )(1) and 1.501 ( c )(3)-1 ( d)(l )(ii).
You are also similar to the organization described in Revenue Ruling 67-367. You have pre-selected one individual that will be receiving all disbursements of the organization to facilitate payment of treatment of this individual's medical treatment. You confirmed that no other funds received by you will be used for any other purpose. Therefore, you do not meet the operational test for exemption under IRC Section 501(c)(3).
In Wendy L. Parker Rehabilitation Foundation Inc, even though the foundation was providing services to others recovering from comas, the court found that the family coma victim was a substantial beneficiary of the foundation's activities. It also found that the board members related to the family coma victim were 'private individuals' within the meaning of the regulations and the distribution of funds or services to them from the organization relieved the family of the economic burden of providing care. The court ultimately ruled this to be inurement. Your activity is similar to the one outlined in this case as you are providing money to one beneficiary who is the minor child of your board of directors. As was stated this activity constitutes inurement which is not acceptable under IRC Section 501(c)(3).

# Conclusion

Based on the information you provided, we have determined you do not meet the requirements for tax exemption under IRC Section 501 ( c )(3 ). Your operation to provide a financial benefit to a pre-selected individual serve the substantial private interests of the board of director's minor child and their family as a whole. This activity does not serve a public interest and constitutes inurement. Therefore, you do not qualify for exemption under IRC Section 501(c)(3). Donations to you are not deductible.
If you agree
If you agree with our proposed adverse determination, you don't need to do anything. Ifwe 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
• 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 ofmy 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'll 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
POBox2508
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 (T AS) 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 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