Civic Leagues and Social Welfare Groups (See Also 0501.03-25)

fill
Department of the Treasury
Internal Revenue Service
Tax ExemDt and Government Entitles
IRS
Release Number. 202247012
Release lllte: 11/25/2022
UIL Code: 501.04-00
CERTIF1ED MAIL- RETURN RECEIPT REQUESTED
Why we are sending you this letter
Dale:
April 21, ~~'.
T•JCP¥r 10 number:
Form:
Tax perlocls enchld:
P..an to CC•IU<:t:
Name:
ID number:
T elephcnt:t:
Fax:
This is a final detennination explaining why your organization doesn't qualify as an organization described in Internal Revenue Code (IRC) Section 501(c)(4) for the tax periods above.
In the future, if you believe your organization qualifies for tax-exeq,t status and wouJld like a detennination letter from lhe Internal Revenue Service, you can request a detennination by filing Foi:m 1024, Application for Recognition of Exemption Under Section 50l(a), or Fonn 1024-A, Application for Re~nition of Exemption Under Section 50l(c)(4) of the Internal Revenue Code, (as applicable) and paying the required user fee.
Our adverse detennination as to your exempt status was made for the following reasous: You have demonstrated that you are not operating exclusively for the promotion of social welfare. lhe promotion of social welfare does not include direct or indirect participation in political campaigns on bc!half of or in opposition to any candidate for public office per Treasury Reg. l.50l(c)(4)-l(a)(2)(iit).
Organizations that are not exempt under IRC Section 501 ttenerally are required to fifo federal income tax returns and pay tax, where applicable. For further instructions, fonns and information please visit www .irs.ttov.
What you m•st do if you disagree with this determiaation
If you want to contest our final detetmination, you have 90 days from the date tbis determination letter was mailed to you to file a petition or complaint in one of the three federal courts listed below.
How to file your action for declaratory judgment
If you decide to contest this determination, you may file an action for declaratory judgmellt under the provisions ofIRC Section 7428 in one of the following three venues: l) United States Tax Courl, 2) the United States Court of Federal Claims or 3) lhe United States District Court for lhe District of Colwnbia.
Please contact the cled:: of the appropriate court for mies and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal au IRS Determination cu Tax-Exempt Status. You may write to the courts at the following: addresses:
United States Tax Court U.S. Court ofFedeml Claims U.S. District Cowt for the District ofCohunbia 400 SecoaiStreet,NW 717MadiscuPlace,NW 333 Comt:itutionAve .• N.W.
W~n, OC 20217 Washington, OC 20439 W~oo, DC 20(X)l
Latter 8337 (12-2020)
Calllog...,.74808E
Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declaratory judgment under IRC Section 7428.
Information about the IRS Taxpayer Advocate Service
The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. T AS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at:
Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting T AS does not extend the time to file an action for declaratory judgment.
Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information.
Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676).
If you have questions, you can call the person shown at the top of this letter.
If you prefer to write, use the address shown at the top of this letter. Include your tekphone number, the best time to call, and a copy of this letter.
Keep the original letter for your records.
Enclosures:
Publication 1
Publication 594
Publication 892
Sincerely,
L · A. Brinkle~
~ f&:n1~
A • g Director, Exempt Organizations Examinations
Letter 6337 (12-2020)
Catalog Number 74808E r.,a Department of the Treasury "'11 Internal Revenue Service IRS Tax Exempt and Government Entitles
CERIIFIED MAIL- Return Receipt Requested
Why you >re receiving this letter
0..:
21212022
Taxpayer ID number:
Fonn:
Tu penocaenotd: hnon to contact:
Name:
ID number:
Telephone:
Fax
Address:
… ,... contact 1ntorma111:m:
Name:
IOnumt>er:
Telephone:
Response due date:
313/2022
We enclose a copy of our audit report, Fmm 886-A, Explanation ofltems, explaining that we propose to detennine that you do not qualify for tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 50l(cX4).
Ifyouagree
If you haven't already. please sign the enclosed Fmm 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren1t an organization described in IRC Section 50 l ( c )( 4) for the periods above.
After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170.
If you disagree
1. Request a meeting or telephone conference with the manager shown at the top of this letter.
2. Send any infonnation you want us to consider.
3. File a protest with the IRS Appeals Office. If you request a meeting with tile manager or send additional infonnation as stated in 1 and 2, above, you 'II still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information.
The IRS Appeals Office is independent of the Exempt Organizations divisllon and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.
Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter.
4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS.
If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals.
Ifwe don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter.
Contacting the Taxpayer Advocate Office is a taxpayer right
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 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.taxpaycradvocatc.irs.gov or call 877-777-4778.
For additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).
2
If you have questions, you can contact the person shown at the top of this letter.
Enclosures:
Form886-A
Form6018
Publication 892
Publication 3498
Sincerely,
Sean E. O'Reilly
Director. Exempt Organizations
Examinations
3
Form 886-A
( )
Department of the Treasury - Internal Revenue Service
Explanations of Items
Schedule number or exhibit
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

# ISSUE

Whether is primarily engaged in social welfare activities and qualifies as exempt under section 501 (c)(4)?

# FACTS

( " " hereafter ) was formed as a nonprofit corporation in the of in . Its founder was , a businessman and member of the did not request a determination letter; it files Forms asserting status as a section is a 501 (c)(4) organization.
According to tax return, is dedicated to advocating and educating the public on issues, and to develop and advance an agenda for to promote real solutions to move forward. is closely affiliated with a political action committee that was formed around the same time as and is called is president of and was treasurer of serves as counsel for both entities.
During the audit period, reported receiving contributions of$ on its Form made two major types of expenditures in . First, it made contributions in the total amount of$ to . These contributions were marked as political on their ledger and agrees these contributions constitute political campaign intervention. filed reports with the showing spending to support candidates and/or oppose candidates for office.
Second, paid about$ to , a company that provides general consulting and political strategy, communications strategy, direct mailing, online engagement, television and radio production, and telephone voter contact to political campaigns.
The website provides a list of political candidates that it has helped get elected, all of whom are candidates. In , paid about $ to produce two advertisements, one for radio and one for television.
Below is the Transcript from the radio ad:
Catalog Number 20810W Page _1 _
Form886-A Department of the Treasury - Internal Revenue Service
Explanations of Items
Schedule number or exhibit
( )
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended The television ad produced by has essentially the same message, mentioning times in favorable terms the legislature and urging the viewer sign a petition on website. has not produced a copy of that petition. The video and radio commercials promote the for the of Both the video and radio transcripts credit the for the growth of the through legislation.
Below is a chart of the total expenses of $ reported by The data comes from the 11 . The chart shows that receives$ paid$ payments to and all other expenses total $ are political contributions.
The website states that
11
" file provided by agrees that the ." After my interview, the I site was taken down. made both video and radio commercials for also provided the video that they distributed to local television stations and was available on the internet. The video was shown on the organization's social media sites.

# LAW

Section 501 (c)(4) provides for the exemption from federal income tax of organizations not organized for profit but operated exclusively for the promotion of social welfare. Section 1.501 (c)(4)-1 (a)(2) of the Income Tax Regulations in part provides: is An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.
An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements. * * Private benefit:
To qualify under section 501 (c)(4), an organization must be "a community movement designed to accomplish community ends." Erie Endowment v. United States, 316 F.2d 151, 156 (3d Cir.
1962). An organization does not qualify under section 501 (c)(4) if it is operated primarily for the Form 886-A ( ) Name of taxpayer Department of the Treasury - Internal Revenue Service
Explanations of Items
Tax Identification Number (last 4 digits) Schedule number or exhibit Year/Period ended benefit of a private group such as its members, rather than for the purpose of bemefitting the community as a whole. Even if an organization can establish some benefit to th•~ community, it still does not meet the requirement of a section 501 (c)(4) organization if it is operated primarily to benefit a private group rather than the community as a whole.
In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), a school that trained individuals as campaign managers was denied exemption under IRC 501 (c)(3) because it operated for the substantial nonexempt purpose of benefiting the private interests of Republican Party entities and candidates. Although the school had a legitimate educational program, the Tax Court held that it conducted its educational activities with the partisan objective of benefiting Republican interests. The court noted that the school's partisan purpose distinguished its activities from the educational organization in Rev. Rul. 76-456. The concept of imp1ermissible private benefit applies to section 501 (c)(4) organizations as well. See Contracting Plumbers Co-op.
Restoration Corp. v. United States, 488 F.2d 684 (2d Cir. 1973).
Political campaign intervention:
Treasury Reg. 1.501 (c)(4)-1 (a)(2)(ii) provides that the promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of or in opposition to any candidate for public office. Treasury Reg. 1.501 (c)(3)-1 (c)(3)(iii) provides that activities that constitute participation or intervention in a political campaign on behalf or in opposition to a candidate include, but are not limited to, publishing or distributing written or printed statements or making oral statements on behalf of or in opposition to such candidate. In addition, the regulation says the term "candidate for public office" means an individual who offers himself, or is proposed by others, as a contestant for a national, State, or local elective public office.
An organization exempt under IRC 501 (c)(4) may engage in some political campaign activities as long as it is primarily engaged in activities that promote social welfare. Section 1.501 (c)(4)-1 (a)(2). In the context of section 501 (c)(3), courts have long held that the pr1~sence of a single substantial non-exempt purpose will preclude exempt status regardless of the number or importance of the exempt purposes, citing Better Business Bureau of Washington, D. C., Inc. v.
United States, 326 U.S. 279 (1945) (interpreting very similar Social Security Act statute). Courts that have considered the issue in the context of section 501 (c)(4) have adopted the same standard, citing Better Business Bureau and holding that a single substantial non-exempt purpose will preclude exemption under section 501 (c)(4) because the organization is not primarily operating for the promotion of social welfare. See Contracting Plumbers Co-op. Restoration Corp. v. United States, 488 F.2d 684 (2d Cir. 1973); Commissioner v. Lake Forest, Inc., 305 F.2d 814, 818 (4th Cir. 1962); Vision Service Plan V. United States, 2005 WL 3406321 (E.D. Cal. 2005), aff'd., 265 Fed. Appx. 650, (9th Cir. 2008), cert. denied, 555 U.S. 1097 (200~1).
A determination of what constitutes "more than insubstantial" is a question of fact to be determined under the facts and circumstances of each case. See Manning Ass'n v. Commissioner, 93 T.C.
596, 603 (1989); B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352, 357 (1978). In general, when Form 886-A ( ) Department of the Treasury - Internal Revenue Service
Explanations of Items
Schedule number or exhibit
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended considering the issue of "more than insubstantial" in the context of separate activities, the courts have engaged in a more quantitative, rather than qualitative, analysis. In Church of Boston v.
Commissioner, 71 T.C. 102 (1978) the court found that expenditures for non--ex1empt purposes that constituted 20% of total expenditures was enough to preclude exemption under section 501(c)(3). In World Family Corporation v. Commissioner, 81 T.C. 958 (1983), the court held that 10% non-exempt expenditures was insubstantial in the context of section 501 (c)(3). In Bethel Conservative Mennonite Church v. Commissioner, 80 T.C. 352 (1983), rev'd., 746 F.2d 388 (7th
Cir. 1984), the Tax Court held that expenditures for a medical aid plan comprising 22% of expenditures were not in furtherance of exempt purposes, were not insubstantial, and that the organization was not entitled to exemption under section 501 (c)(3). (The Seventh Circuit reversed the Tax Court, finding that the church's medical aid plan, available to all members of congregation in good standing and their dependents, did not disqualify church for exemption.) Taxpayer's position does not believe that it contributes more than % of its income to political parties. states that the commercials from are for the good of the growth of the and not political. agrees that the payments to were political.
They do not agree that the payments for the commercials and the campaign pmmoting the were political. has notified us that they will be diss,:>lving the organization sometime this year.
Government's Position does not qualify for exemption under section 501 (c)(4) because it does not engage primarily in activities that promote social welfare. Instead, it engages almost entirely in activities that constitute political campaign intervention and in activities that serve a private benefit to the interests of the in admits to having rnacle political contributions that account for percent of total expenditures during . Under whatever measure one uses to determine what is insubstantial, fails the test. expenditures on PCI were not insubstantial, and those expenditures alone preclude it from qualifying for exemption under section 501 (c)(4). And taken into account together with activities to promote the , about % ($ I $ ) of expenditures did not promote social welfare.
We have reviewed the advertisements and commercial made by also reviewed the radio transcripts. The radio transcripts state"
" " ,, "
" " promote the private interests of the www.irs.gov . We have " ThE!se advertisements Form 886-A (Rev. 5-2017) Form 886-A ( ) Name of taxpayer

# Conclusion

Department of the Treasury - Internal Revenue Service
Explanations of Items
Tax Identification Number (last 4 diqits) Schedule number or exhibit Year/Period ended You are not operated exclusively for the promotion of social welfare within the meaning of section 501 (c)(4) and the regulations thereunder. We have concluded, based on all the facts and circumstances that your activities do not further social welfare purposes because they constitute political campaign intervention and are focused on promoting the interests of the Therefore, does not qualify for exempt status under IRC § 501 (c)(4) of the Code for tax year ending