Private v. Public Interest Served

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
Letter 4034 (Rev. 01-2021)
Department of the Treasury
Internal Revenue Service
Date:
06/09/2025
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Legend: UIL:
S = Date 501.03-00
T = State 501.03-30
U = Number
501.33-00 v dollars = Dollars
Dear :
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 attest that you were incorporated on S in T.
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 the IRC 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 Section 501(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
Letter 4034 (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 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
You state on Form 1023-EZ that you are organized exclusively for charitable and educational purposes under the IRC Section 502(c)(3). During our review of your Form 1023-EZ we requested detailed information to supplement the above attestations.
You are a mutual aid society and primarily engage in activities aimed at supporting your members financially during difficult situations, including the loss of a relative or a family member. You have U members who pay dues of v dollars monthly. The funds raised from these membership dues are used to help members who experience loss with funeral and other related expenses. At present, you have made no distributions to any of your members.

# 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 1.501(c)(3)-1(a)(1) states that, 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 Section 501(c)(3). If an organization fails to meet either the organizational test or operational test, it is not exempt.
Treas. Reg. Section 1.501(c)(3)-1(c)(1) 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)(1)(ii) provides that an applicant must show that it serves a public rather than a private interest and specifically the organization must 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 69-175, 1969-1 C.B. 149, describes a nonprofit organization, formed by parents of pupils attending a private school, that provided school bus transportation for its members’ children. It was held this served a private rather than a public interest and did not qualify for exemption.
In Better Business Bureau of Washington, D.C., Inc, v. United States, 326 U.S. 279 (1945), the Supreme Court held that the presence of a single nonexempt purpose, if substantial in nature, will preclude exemption under IRC Section 501(c)(3), regardless of the number or importance of statutorily exempt purposes.
Letter 4034 (Rev. 01-2021)
In Korean-American Senior Mutual Association, Inc, v. Commissioner of Internal Revenue, 120 T.C.M.

(CCH) 191 (Tax 2020), the court held that providing burial benefits for deceased members does not further charitable purposes since:
• The benefits are not directed towards meeting the needs of a charitable class,
• The program is operated in a commercial manner by collecting membership dues, and additional fees when members die, and paying out burial benefits to families of deceased members based on their contributions to the fund, and
• The program serves the private interests of its members rather than those of the public.
Application of law
IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests to qualify for exempt status. An organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). You have failed to meet both requirements, as explained below.
You are not described in Treas. Reg. Section 1.501(c)(3)-1(c)(1) because more than an insubstantial part of your activities are devoted to the non-exempt private purpose of providing funds to your members to cover funeral and other expenses. Members join, pay dues, and receive a substantial private benefit should they experience the loss of a family member or relative. This program is not open to the general public, and members must pay dues to receive a benefit. This causes your program to further a substantial non-exempt private purpose.
You are not operated exclusively for exempt purposes under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because, like the organization described in Revenue Ruling 69-175, substantially all your activities further the private interests of your members, and any benefit to the general public is incidental.
Like the organization described in Korean American Senior Mutual Association Inc, you operate a benefit program that is:
• Not directed towards meeting the needs of a charitable class,
• Operated in a commercial manner by collecting membership dues and paying for funeral and related expenses to members when they experience the loss of a family member or relative, and
• Serving the private interests of your dues paying members rather than those of the public.
The Supreme Court held in Better Business Bureau that a single nonexempt purpose, if substantial in nature, would preclude an organization from qualifying under IRC Section 501(c)(3) no matter the number or importance of truly exempt purposes. You primarily operate to benefit your members when they experience the loss of a family member or relative. By providing these benefits you serve a substantial non-exempt purpose which precludes you from exemption under Section 501(c)(3).

# Conclusion

Based on the information you have submitted; you are not operated exclusively for one or more purposes as described in IRC Section 501(c)(3). You are operated for the benefit of your members by providing them with funeral and other expense assistance which is a substantial nonexempt purpose. Therefore, you do not qualify for exemption under Section 501(c)(3).
If you agree
If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from Letter 4034 (Rev. 01-2021) 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 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’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: Street address for delivery service:
Internal Revenue Service Internal Revenue Service
EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403
PO Box 2508 Cincinnati, OH 45202
Cincinnati, OH 45201
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.
Letter 4034 (Rev. 01-2021)
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, 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