Religious, Charitable, etc., Institutions and Community Chest

U
Department of the Treasury
Internal Revenue Service
RS
Tax Exempt and Government Entities
J
P.O. Box 2508
Cincinnati, OH 45201
Dear
Release Number: 202333004
Release Date: 8/18/2023
UIL Code:501.00-00,
501.03-00
Date:
05/22/2023
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 50l(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 50l(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.
Letter4038 (Rev.11-2021)
Catalog Number 47632S
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Enclosures:
Letter 437
Redacted Letter 4034
Letter4038 (Rev.11-2021)
Catalog Number 47632S fit
IRS
Legend:
B = State
C =Date
Dear
Department of the Treasury
Internal Revenue Service
PO Box2508
Cincinnati, OH 45201
Date: 03/28/2023
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:
UIL:
501-00-00
501-03-00
We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 50l(a). We determined that you don't qualify for exemption under IRC 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 IRC Section 50l(c)(3)? No, for the reasons stated below.

# Facts

You were formed as a non-profit corporation in B on C. Your Articles of Incorporation state in part that your purpose is to raise money from car shows, donations from outside sources and collect dues, all of which have the sole purpose to financially support your activities.
You are a car club with social, educational, and training activities. You organize activities related to car collecting and driving. You plan activities such as road rallies, car shows, repair demonstration, and educational demonstrations to include activities with other car club groups. You typically gather or meet at a local restaurant then caravan to your events. You generally hold two events per month. Your board meets monthly to plan activities such as creating directions, instructions, and maps for your road trips and to post pictures of your activities and cars on your website.
You do not collect dues or fees according to your response to our request for additional information. Donations are your only source of income. Your income is used for your website maintenance, banner, tax-exempt reinstatement and materials for demonstrations. In the future you may charge entrance fees for a large event to cover expenses such as room rental, entertainment, and food.
You submitted Form I 023-EZ, Streamline Application for Recognition of Exemption Under Section 50 I ( c )(3) of the Internal Revenue Code. You attested that you were formed as a corporation on B, in the state of C. You
Letter4034 (Rev. 01-2021)
2 attested that you are organized and operated exclusively to further charitable purposes and that you have not conducted and will not conduct prohibited activities under 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 IRC Section 501(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
• 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 50l(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

# Law

Internal Revenue Code (JRC) Section 50l(c)(3) describes a corporation organized and operated exclusively for religious, charitable, educational, and other purposes, provided that no part of its net earnings inures to the benefit of any private shareholder or individual and which does not participate in, or intervene in, any political campaign on behalf of ( or in opposition to) any candidate for public office.
Treasury Regulation Section 1.501 ( c )(3)-1 (a)( 1) states that to be 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 I .50l(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 Section 50l(c)(3) of the Code. An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt Revenue Ruling 77-366, 1977-2 C.B. 192 provides that a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities further religious and educational purposes are provided in addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for exemption under section 501 (c)(3). The organization accomplished both charitable and noncharitable purposes through its cruises.
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 regardless of the number or importance of truly exempt purposes. Thus, the operational test standard prohibiting a substantial non-exempt purpose is broad enough to include inurement, private benefit, and operations that further nonprofit goals outside of the scope of Section 501 ( c )(3 ).
3
In St. Louis Sci. Fiction Ltd. v. C.l.R., 49 T.C.M. 1126 (1985), the court held, that although an organization's activities may have provided some educational benefit to the individuals involved, the organization did not operate exclusively for educational purposes because of the predominance of social and recreational, and therefore did not qualify for federal income tax exemption described under IRC Section 501(c)(3).
Application of law
IRC Section 501(c)(3) and Treas. Reg. Section 1.50l(c)(3)-1(a)(l) set forth two main tests for an organization to be recognized as exempt. An organization must be both organized and operated exclusively for purposes described in Section 50l(c)(3). You fail to meet both the organizational and operational tests. In your Articles of Incorporation, you are operated substantially for social and recreational purposes and not exclusively for charitable and educational purposes.
You do not satisfy Treas. Reg Section 1.50 I ( c )(3 )-1 ( c )(1) because you do not engage exclusively in activities which accomplish exempt purposes described in IRC Section 50l(c)(3).
You are similar to the organization described in Rev. Rul. 77-366. You also have extensive social and recreational activities that are not consistent with the purposes described under section 50l(c)(3) of the Code.
For example, you are a car club with social, educational and training activities. You organize activities related to car collecting and driving. Therefore, you are operating substantially for noncharitable purposes.
You are like the organization described in Better Business. Your car shows and road rallies are not activities that would support exemption. Your substantial non-exempt social and recreational purposes destroy your claim for exemption under IRC Section 501(c)(3), regardless of the number or importance of truly exempt purposes.
You are similar to the organization describe in St Louis Science Fiction Ltd. You are not operated exclusively for educational purposes. Many of your activities further substantial social and recreational purposes. You are not entitled to tax-exempt status

# Conclusion

Based on the above facts and analysis, you do not qualify for exemption under IRC Section 50l(c)(3). You fail the operational test. You engage in more than an insubstantial number of nonexempt activities. Accordingly, you are precluded from exemption under Section 50l(c)(3).
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 Catalog Number47628K 4 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 94 7, 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
PO Box2508
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 been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, T AS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
5
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements