Section 501(c)(3) Organizations

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities
Release Number: 2024430.'.! I
Rdease Date: l 0/25/202,1
UIL Code: 501.03-00.
501.33-00, 501.36-0l
Dear
Date:
08/01/2024
Employer ID m.1rnber:
Person to contact:
This letter is our final detenuination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501 (a) as an organization described in IR C Section 501 ( c )( 3). Recently. we sem you a propost>d mlverse detenniuation in response 10 your application. The proposed adve1·se detenuiuation explained the fads, law, and basi:. for our coudusiou, and it p;ave yon 30 days to file a protest. Because 1ve didn't receive a prnh,•st ,vithin the required 30 days, !he proposed determination is no'N final.
Because you dc,11'1 qualify as a tax-exempt organizatiou 1mder m.c Section 50l(c)(3), do1wrs generally can't deduct coutiibution::; in you under IRC Section l 70.
We may notify the appropriate state officials of om determination, as required by IRC Section 61 OH_c), by sending: them a copy of this final letter along with the proposed detennination letter.
You must file the federal income tax fonns for the tax years shown above within JO days from the date of this letter unless you request an extension of time to file. For farther instructions, fo1ms, and infonnation, visit WWW.Ifs.gov.
We'll make this final adverse detennination letter and the proposed adverse detennination letter available for public inspection after deleting certain identifying information, ns required by IRC Section 6110. Read the eucloi:ied Letter 437, Notice ofintention ro Disclose - Rulings. and review the nvo attached letters that show our proposed deletion~. lf you disagree with om proposed deletions, fr,llow the instmctions iu the Letter 43 7 ou how to notilY us. If you agree with our deletions. you don't need to lake any further action.
If you have questious abonf this leuer. you can call tbe cnntacl person shown above. If you have questions ab,::rut your federal im::o.me fax. s!atus aad responsibilities, call our customer sePiice munber at 800-829- I 040 (TTY 800-829-:+933 for deaf or hard of hearing) or c:nstomer service fbr businesses nt 800-829-~933.
Letter 4038 {Rev. 11-2021)
Catak,r1 N1mtlJ,ff 475::l?S
Enclosures:
Letter 437
Redacted Letter 4034
Letter 4038
Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Letter 4038 (Rev. 11-2021)
Catalog Number 47632S
Legend:
X = Date
Y = State
Department of the Treasury
Internal Revenue Service w percent = Percentage Range z percent = Percentage
Dear
Date: 05/13/2024
Employer ID rmmber:
Person to contact
Name:
ID number:
Telephone:
Fax:
U!l:
501.03-00
501.33-00
501.36-01
We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We detennined that you don't qualify for exemption under JRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

# Issues

Do you quality for exemption under [RC Section 501 (c)(3)? No, for the reasons stated below.

# Facts

You submitted Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501 ( c )(3) of the Internal Revenue Code.
You attest that you were incorporated on X, in the state of Y. You attest that you have the necessary organizing document, that your organizing document limits your purposes to one or more exempt purposes within the meaning of IRC Section 50l(c)(3), that your organizing document does not expressly empower you to engage in activities, other than an insubstantial pmi, that are not in furtherance of one or more exempt puqJoses, and that your organizing document contains the dissolution provision required under IRC 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 1RC Section 501(c)(3). Specifically, you attest you will:
• Refrain from suppmiing or opposing candidates in political campaigns in any way
• Ensure that your net earnings do not inure in whoie or in part to the benefit of private shareholders or individuals Letter4034 (Rev. 01-2021)
• 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 50 I (h) election, not normally make expenditures in excess of expenditure limitations outlined in Section 50l(h)
• Not provide commercial-type insurance as a substantial part of your activities
During review of your Form l 023-EZ, detailed information was requested supplemental to the above attestations.
Your purpose includes uplifting rural communities through tourism while celebrating and supporting rural ways of life. You address the issue of income from tourism activities not reaching the local people vvith your program. You support local people that have skills in hospitality and tourism by offering grants and market support to smal1 local business owners. Your activities wiH focus on economic empowerment through local business training and support, health, and education via financial aids for education and others, cultural and local way oflifo preservation, and real human interaction by connecting with local community. Your programs are created to build economic gain and empower rural people to better their lives. You anticipate dedicating w percent of your time to educational activities and around z percent of your time to promoting sustainable tourism, which is your sole activity this year.
You plan to change your name to avoid confusion with a similarly named for-profit travel agency, which has an unwritten, at-will donation agreement with you. This for-profit travel agency has performed similar activities to yours for several years. It currently does not share board members with you, although you stated that its employees may be on your board in the future.
Your revenues consisted of donations. Your expenses mostly include grants to small business owners, with a significant portion going to advertising, marketing, website development/hosting, travel, and program materials and supplies. You do not limit your financial aid eligibility to a blighted area or to a charitable class.

# 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 Section 1.50 l ( c )(3)-1 (a)(1) states that, in order to be exempt as an organization described in IRC Section 50 I ( c )(3), an organization must be both organized and operated exclusively fix 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 1.50 l ( c )(3)-1 ( c)(I) 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 1.501 ( c )(3 )-1 ( 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 by organizations designed to lessen neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The term "charitable" also includes lessening of the burdens of government.
Revenue Ruling 74-587, l 974-2 C.B. 162, held that an organization which had economic development activities was exempt under IRC Section 501 ( c )(3). The declared objectives were relief of poverty and combating community deterioration in economically depressed areas through financial assistance, among others. The assistance included technical support and counseling, and making loans to low-income businesses unable to obtain funds from conventional sources. The financial aid was limited to a blighted area and to a charitable class.
Rev. Ru!. 77-1 I I, 1977-1 C.B. 144, held that two organizations formed to promote economic development in deteriorated areas did not qualify for exemption under IRC Section 501(c)(3). In situation 1, the organization was formed to increase local business patronage in a deteriorated area mainly inhabited by minority groups. In situation 2, the organization's purpose was to revive retail sales in an area suffering from economic decline. The Service held that although the organizations' activities may achieve purposes described in Section 50l(c)(3), neither qualify for exemption under Section 50l(c)(3), because their programs did not limit the financial aid to a blighted area and to a charitable class.
In Better Business Bureau of Washington D.C., fnc. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67, 1945 C.B. 375 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes.
Application of law
Section 501 (c )(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1 .50 l (c )(3)-1 (a)(l ), an organization must be both organized and operated exclusively for purposes described in Section 50l(c)(3). You do not meet the operational test under 1RC Section 50l(c)(3).
Because you do not limit your financial aid both to a blighted area and to a charitable class, you are like the organizations in Rev. Ru!. 77-111, which did not qualify for exemption, and you are unlike the organization in the favorable Rev. Rul. 74-587, which had those limits, was considered charitable under Treas. Reg. Section 1.50 l (c)(3 )-1 (d)(2), and qualified for exemption.
You do not meet the operational test under IRC Section 50l(c)(3) because you are not operating exclusively for educational purposes as required under Treas. Reg. Sections l.50 I( c)(3)-1 ( c )(1 ). Since you spend z percent of your time on the promotion of tourism, your educational activities are an incidental purpose as w·ell as generally aimed at promoting tourism.
Because your activities further substantial non-exempt purposes, you are similar to the organization in Better Business Bureau of Washington, D.C .. 1nc., which did not qualify for exemption under Section 50l(c)(3).

# Conclusion

Because you conduct substantial activities of promoting the tourism business that further non-exempt purposes, you are not exclusively furthering exempt purposes and do not meet the operational test. Therefore, you do not qualify for exemption under IRC Section 50 l (c)(3).
If you agree ff you agree with our proposed adverse determination, you don't need to do anything. lf we don't hear from you ,vithin 30 days, we' 11 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 (EfN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating ,vhether 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 foHowing declaration:
For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties ofpei:jury, 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. 1f so, we'll continue to process your case considering the information you provided. ff 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 (lRC Section 7428(b)(2)).
Where to send your protest
Send your protest, Form 2848, if applicable, and any suppmting 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. !Jyou 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
'[he 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 T AS assistance, which is always free, T AS 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 m2021)
Catalog Number47628K