Bingo operations and related-party rent defeated charitable exemption

Plain-English summary

A public charity regularly operated bingo and pull-tab games three days each week and used part of the proceeds for grants. The IRS found that gaming consumed nearly all of the organization's income, expenses, worker time, and administrative resources, while independent charitable grants were insubstantial and many payments went to related organizations. Paid managers, security staff, professional services, meals, and drinks also meant the gaming business was not operated by substantially all uncompensated labor, so the feeder-organization exception did not apply. The organization also paid substantial above-market rent to a gaming hall that ultimately benefited the founder's father. The IRS revoked section 501(c)(3) status because the organization primarily operated a noncharitable gaming business and served a private interest.

Ruling snapshot

• Question: Did the organization's bingo business, limited grant making, compensated labor, and related-party hall rent satisfy section 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 61, 501(a), 501(c)(3), 502, 509; Treas. Reg. §§ 1.132-6 and 1.501(c)(3)-1; Better Business Bureau; P.L.L. Scholarship Fund; Piety; KJ's Fund Raisers

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Appeals Office
4330 Watt Avenue SA 7890 Employer Identification Number:

Sacramento, CA 95821 -7012

Release Number: 201722029 Person to Contact:

Release Number: 6/2/2017 Employee ID Number.
Date: March 7, 2017 Tel:
Fax:
Tax Period Ended:
05/31/2013

UIL: 0501 .03-00

Certified Mail

Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal
Revenue Code (the “Code”). It is determined that you do not qualify as exempt from Federal income tax

under section 501(c)(3) of the Code effective June 1, 20[redacted].

The revocation of your exempt status was made for the following reasons:

Your primary activity was the regular operation of bingo and pull-tab games. The regular
operation of bingo and pull-tab games does not, in itself, further tax-exempt purposes. You have

not demonstrated that you operated exclusively for exempt purposes as described in section
501(c)(3) of the Code.

• You operated for the primary purpose of carrying on a trade or business for profit and all of your
profits were payable to one or more organizations exempt from taxation under section 501 of the

Code. We hereby determined that you are a feeder organization not exempt from taxation as
described in section 502(a) of the Code.

• Treas. Reg. section 1.501(c)(3)-1(d)(ii) provides that an org
for exempt purposes unless it serves a public rather than a
determined that you operated for the benefit of private inter

anization is not operated exclusively
private interest. We hereby
ests of a private individual.

Contributions to your organization are not deductible under section 170 of the Code.

You are required to file Federal income tax returns on Forms 1120. File your return with the appropriate
Internal Revenue Service Center per the instructions of the return. For further instructions, forms, and

information please visit www.irs.gov.

If you were a private foundation as of the effective date of the adverse determination, you are considered
to be taxable private foundation until you terminate your private foundation status under section 507 of
the Code. In addition to your income tax return, you must also continue to file Form 990-PF by the 15th

Day of the fifth month after the end of your annual accounting period.

Processing of income tax returns and assessments of any taxes due will not be delayed should a petition
for declaratory judgment be filed under section 7428 of the Code.

We will make this letter and the proposed adverse determination letter available for public inspection
under Code section 6110 after deleting certain identifying information. We have provided to you, in a
separate mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the
documents attached that show our proposed deletions. If you disagree with our proposed deletions, follow

the instructions in Notice 437.


If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court,
2) the United States Court of Federal Claims, or 3) the United States District Court for the District of
Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date
this determination letter was mailed to you. Please contact the clerk of the appropriate court for rules for
filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write
to the United States Tax Court, 400 Second Street, N.W., Washington, D.C. 20217. See also Publication

892.

You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is
not a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer
Advocate cannot reverse a legally correct tax determination, or extend the time fixed by law that you have
to file a petition in a United States Court. The Taxpayer Advocate can however, see that tax matters that
may not have been resolved through normal channels get prompt and proper handling. If you want

Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit www.irs.gov/advocate

for more information.

If you have any questions, please contact the person whose name and telephone number are shown in
the heading of this letter.

Sincerely Yours,

Appeals Team Manager

Enclosure: Publication 892 and/or 556

cc:


Department of the Treasury Date: 12/11/15
Internal Revenue Service
IRS Tax Exempt and Government Entities Division Taxpayer Identification Number:
11.00 Commerce Street, MC 4900 DAI
Dallas, TX 75242 Form:
990
Tax year(s} ended:

May 31, 20
Person to contact / ID number

Contact numbers:
Phone Number

Fax Number:
Manager's name / ID number:

Manager's contact number:
Phone Number:
Response due date:

Certified Mail - Return Receipt Requested
Dear

Why you arc receiving this letter
We propose to revoke your status as an organization described in section 501(c)(3) of the Internal Revenue

Code (Code). Enclosed is our report of examination explaining the proposed action.

What you need to do if you agree
If you agree with our proposal, please sign the enclosed Form 6018, Consent to Proposed Action — Section

7428, and return it to the contact person at the address listed above (unless you have already provided us a
signed Form 6018). We'll issue a final revocation letter determining that you aren't an organization described in

section 501(c)(3).

After we issue the final revocation letter, we'll announce that your organization is no longer eligible for

contributions deductible under section 170 of the Code.

If we don't hear from you . “is
If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll issue a final

revocation letter. Failing to respond to this proposal will adversely impact your legal standing to seek a
declaratory judgment because you failed to exhaust your administrative remedies.

Effect of revocation status ;
If you receive a final revocation letter, you'll be required to file federal income tax returns for the tax year(s)

shown above as well as for subsequent tax years.

What you need to do if you disagree with the proposed revocation ;
If you disagree with our proposed revocation, you may request a meeting or telephone conference with the
supervisor of the IRS contact identified in the heading of this letter, You also may file a protest with the

Letter 3618 (Rev. 6-2072)
Catalag Number 34808F

IRS Appeals office by submitting a written request to the contact person at the address listed above within 30
calendar days from the date of this letter. ‘The Appeals office is independent of the Exempt Organizations

division and resolves most disputes informally.

For your protest to be valid, it must contain certain specific information including a statement of the facts, the
applicable law, and arguments in support of your position. For specific information needed for a valid protest,
please refer to page one of the enclosed Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status,
and page six of the enclosed Publication 3498, The Examination Process. Publication 3498 also includes
information on your rights as a taxpayer and the IRS collection process. Please note that Fast Track Mediation

referred to in Publication 3498 generally doesn’t apply after we issue this letter.

You also may request that we refer this matter for technical advice as explained in Publication 892. Please
contact the individual identified on the first page of this letter if you are considering requesting technical
advice, If we issue a determination letter to you based on a technical advice memorandum issued by the Exempt
Organizations Rulings and Agreements office, no further IRS administrative appeal will be available to you.

Contacting the Taxpayer Advocate Office is a taxpayer right ; ;
You have the right to contact the office of the Taxpayer Advocate. Their assistance isn’t a substitute for
established IRS procedures, such as the formal appeals process. The Taxpayer Advocate can't reverse a legally
correct tax determination or extend the time you have (fixed by law) to file a petition in a United States court.
They can, however, see that a tax matter that hasn't been resolved through normal channels gets prompt and
proper handling. You may call toll-free 1-877-777-4778 and ask for ‘Taxpayer Advocate assistance. If you

prefer, you may contact your local Taxpayer Advocate at:

Internal Revenue Service
Office of the Taxpayer Advocate

For additional information . ' .
If you have any questions, please call the contact person at the telephone number shown in the heading of this

letter. If you write, please provide a telephone number and the most convenient time to call if we need to
contact you.

Thank you for your cooperation.
Sincerely, .

Margaret Von Lienen —
Director, EO Examinations

Enclosures:

Report of Examination
Form 6018
Publication 892
Publication 3498

Letter 3618 (Rev. 6-2012)
Catalog Number 34800F


Schedule number or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number brine a
Issues

1. Should tax-exempt status under Internal Revenue Code section 501(c)(3)

be revoked because operation of a gaming halt is the organization’s primary activity, in violation of
Treasury Regulation section 1.501(c)(3)-1(c)(1)?

2. Should the organization’s tax-exempt status be revoked because it has a more than insubstantial
non-exempt purpose of providing private benefit to the gaming hall landlord in violation of Treasury

Regulation 1.501(c)(3)-1(d)(1)(ii)?

Facts
Background

, EIN . is exempt from Federal income tax under Internal Revenue Code
(IRC) section 501(c)(3) and is recognized as a public charity under IRC section 509(a)(2). The
organization was incorporated in the State of in June 20 and was recognized as exempt from
tax by the IRS effective October 20/ | ( ) is the Foundation’s founder and
president.
The initial audit interview was conducted with _ and _. CPA and representative, on
December 2,20 . , CPA, also served as a representative during the audit. The year
currently under audit is the year ending May 31,20° . The stated that activities in subsequent

years were not different in any material way, except that some costs may have changed slightly. IRS
records show that the due date for the Form 990 for the year ending May 31, 20° was extended by the
taxpayer to April 15,20 . The 20° Form 990 was received by examining agent during the audit on

August 27, 20° .

The purpose of as stated In the organization's bylaws is:
...to provide for the common unity and welfare of all local non-profit charities, their dependents and
heirs, and to promote the social welfare of their communities, the County of State of

In the primary year under audit, conducted two activities to achieve this purpose.

These activities were:
1) Awarding grants to County organizations
2) Conducting gaming to generate income

's the founder and president of three entities that all engaged in these two activities at
Bingo Hall website, these three organizations are the only

Bingo Hall. According to the
organizations that operate gaming in that location. All three are tax-exempt under IRC section 501(c)(3),

IRS records show the three entities with their effective dates of exemption are:

• October 20 .
• Foundation June 20
• Foundation October 20: _

Form 886-A (1-1994) Catalog Number 20810W Page 1 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit
Form 886-A (Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
May 31,20
’ board members were:
• president (also president of the two related organizations)
• secretary/treasurer
• director
• director (also a director of Collegiate Foundation)
• director
three most recent filed Forms 990 show the following:
3-year Form 990 comparison
year ending May 20 May 20 May 20

other contributions $ $ $
.. . gatnlng gross revenue $. .$ $

prizes i ($ ) AS ) ($ )

rent & - Sm, « O | {$ ) (S )

“other gaming expenses: ! .= Pet ig pe. & pou (s }

payments to deli ($ ) ($ ) ($ )
gaming net revenue $ $ a ae as
total net revenue $ $ $
grants $ $ $
salaries $ $ $
accounting $ $ $
other expenses $ $s. $ BS
total expense $ $ $
net income $ $ $

Many of these items are discussed further in this report.

• “Other contributions” were typically donations from winning players at the bingo hall

• Rent was for the gaming hall and was paid to based on a per-session fee

• “Payments fo deli" were payments to the deli located in the hall for: food prizes awarded to players,
complimentary drinks for players, and janitorial service

• “Salaries” was compensation paid the bingo manager at each session and was paid out of “other
contributions"

• Accounting fees were primarily monthly payments to the bookkeeper

As discussed in this report, the three organizations started by were closely related. They
shared the same president, they shared Bingo, they shared bingo workers, they used the same
vendors, and they made contributions to each other. The same activity was conducted on a daily basis
under one of three organizations‘ names. For this reason, it is more descriptive of the organizations'
activities, to review the finances of the three organizations on an aggregated basis. The aggregate
finances taken from the three most recently filed Forms 990 are as follows:

Form 886-A (1-1994) Catalog Number 20810W Page 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number ac exhibit
peng ina EXPLANATIONS OF ITEMS
Name of taxpayer Tax identification Number YearPeriod ended
May 31, 20
aggregate 3-year Form 990 comparison
year ending May 20 May 20: May 20

contributions from related orgs $ $ $

other contributions $ $ $

‘prizay SSS oe Ss ) 4s } M$ =
_fent (father offounder) > {$ » -48 ) ) ; \
other gaming expenses ($ ) ($ ) ($ )
payments to deli (brother of foundet) « . (S. y i full

gaming net revenue $ $ $

income $ $ $

scholarships to workers , $ $ $.

contributions to related orgs $ $ $

grants $ $ $

salaries $ $ $

accounting , S $ $

other expenses $ | $ $

expense $ $ $

net Income $ ($ ) $

Charitable activities

Planned grant program

application for exemption, Form 1023; stated that the anticipated activities would
be making grant distributions to nonprofit organizations for various community service activities such as
youth sports, youth education, and youth programs which encourage sobriety, education, public safety, and
the social welfare of residents of County. Grant applications would be distributed to the general
public. The board would review completed applications and would approve grants based on the size of the
funding request, the need and ability of the requesting party, and the benefit to the community.

The bylaws, signed In June 20 by then-Secretary . Specify that
there would be a Scholarship Committee of two to three board members. This committee would screen the
applications and recommend applicants for scholarships, maintain policies and procedures for selection,
and maintain records of award recipients. (Note: Before exemption was granted, the Determinations
Specialist requested that ‘ brother, be removed from the board and

replaced with an unrelated individual.]

Anticipated expenses were % of bingo income for prizes and % for overhead. The taxpayer Stated,
“Out of [the %,] the remaining balance will be distributed to charities under the Applicant s Grant
Application program.” In response to follow-up questions from the Determinations Specialist, the applicant

Form 886-A (1-1994) Catalog Number 20810W Page 3 publish.no.irs.gov Department of the Treasury-Internal Revenue Service


Schedule number ar ashlun

Form 886-A
Name of taxpayer Tax idantification Number YearPerod ended
May 31, 20

revised their expected charitable expenses tobe —_& of bingo income after payment of bingo prizes. The
applicant qualified the statement saying there Is no budget history on which to base predictions.

ual grant ram

| grant guidelines are available to the public on the Bingo website. The

website reads (with no correction to text), * Binao consists of 3 non-profit organizations,
: Foundation and Foundation both offer grants and

Foundation offers grants." A program overview says that all
County programs directed toward education, child and youth programs, and human
and social services. The wehsite prociaims:" —_% of profit goes to charity!” The current grant guidelines
include a general rule that prefers to award grants to 501(c)(3) organizations that

have been endorsed by the community as shown by community participation.

stated that board meetings were held quarterly to review grant applications. When requested to
provide copies of meeting minutes, supplied documents titled “Action of the board of directors iq
lieu of" annual meeting or quarierty grant reciplent meetings. _ Stated that he reviewed all
applications himself, confirmed that the criteria were met, and summarized and organized the applicant list
for approval by the board. Upon approval, he created the “in lieu of meeting” document. ‘The audit showed
that only one grant applicant was not awarded. stated that applicants are almost never denied

as long as they meet the minimum criteria and that the omission was likely a typo.

scholarships, and
three support

in the primary year under audit, the organization gave away atotalof$ =. $ of this, or %
was fo the other two organizations playing al Bingo. No applications were made by these
organizations. _ also said that bingo could have big losses, so they had to maintain a reserve of
funds and couldn't give too much money in grants. At the end of the primary year under audit, the
organization reported having $ in liquid assets.
The following grants were awarded in the primary year under audit.
date organization/check payable to amount FBO relationship
Jul- $ potential child of volunteer
Jul- $
Jul- $ potential child of volunteer
Jul- $ potential child of volunteer
Aug- s volunteer
Nov- $
Nov- $ related entity
Feb- $ related entity
Feb- $
Feb~ $
May- $
May- . $
$

Form 886-A (1-1994) Catalog Number 20810W Page 4 publish.no.irs.gov Department of the Treasury-Internal Revenue Service


Schedule number or exhibit
Form 886-A
Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

“for the benefit of* or FBO a specified individual. Some FBOs

Some grants were notated that the re
g dle and grants for the

could be matched with volunteer names, such as in the case of volunteer

benefit of
categories of giving
related entities $ %
volunteer-related $ %
all others $ %
$
Gaming activities
Gaming

Stated that he started the organization “because he saw a need.” He had experience with
bingo, and when the opportunity to run gaming for charity arose, he thought he could be “more successful”
than the predecessor. The Form 1023 application for exemption filed by the organization stated that
revenue would be generated from operating a weekly bingo session.

in the primary year under audit, ran six-hour gaming sessions at Bingo
three days per week. The current cost to play ranges from $ -$ depending on the number of games
included and whether play is on paper or electronic. Additional packs of paper games can be bought for $
each as can pull-tabs for $° each. -Bingo was advertised to the public in taxi cabs and in the newspaper.
The general ledger shows over $ paid for these advertisements in the primary year under audit,

Games played Included bingo, pull-tabs, and flash. Bingo and pull-tabs conform to the traditional meaning
of the games. Flash is a combination of bingo and pull-tabs. It is played with pull-tab-like cards. Players
tear off a cardboard flap and win based on the images revealed, like pull-tabs, or by marking off random
numbers called, like bingo. Of the five sample flash cards provided, an average of % of the payout went
to bingo-like winners and % went to pull-tab-like winners.

Bingo hail is a large, . Square foot structure. About square feet is used by the
Deli fo prepare and sell food and to provide drinks to players. The bingo hall has a large playing
room which estimated could seat —_— players and a smoking room which could seat another
players. There was also a small stage for the caller with a podium and equipment for selecting balls, a long
counter with Plexiglas displays for various pull-tabs and flash games, bingo display boards on each of the
four walls, and three free-standing pull-tab dispensing machines. The building also includes an entry way,

offices, and storage.

Relationship with bingo hall landlord

In the application for exemption, the taxpayer stated that that they were “currently negotiating a lease of a
facility for one session per week” at ; . Specifically, the Form 1023
application states: ,

• Applicant is currently negotiating a lease

• Applicant is not related to landlord

• Negotiations are at an arms-length transaction

Form 886-A (1-1994) Catalog Number 20810W Page 5 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

Upon follow-up questioning by the Determinations Specialist, -—_—_clarified that the bingo hall,

Bingo, was owned by and that the general managing partner of this entity was

, a relative of . During the audit, : ; further clarified

that _ is his father. The taxpayer stated that they chose Bingo because the

hall had availability for new tenants.

is a limited liability company with the following members in 19

oo 060

The purpose of the company was fo engage in any lawful act or activity for which a limited liability company
may be organized under the Limited Liability Company Act. _ is the company's
general manager. All member companies contributed resources to the company with a total value of

$

In20  , the members executed an amendment which transferred and assigned all of their rights as
members in to the and made the
the sole member of

The | was createdin19 by and his wife. Per the Trust agreement,

upon the death of the first Trustor, the Trust would be divided into a marital trust, a family trust, and a
survivor's trust. Exhibit 6 to the Trust directs the Trustee to separate out all applicable amounts in order to

take advantage of favorable federal tax treatment. has passed away. Compliance with the
original trust document has resulted in the following relevant trusts:

fo) (aka )

• ‘

• (aka )

°

°
Per the Trust agreement, receives all net income from the ona

quarterly or more frequent basis. The trustee has the power to amend or revoke the Survivor's Trust and to
distribute all income. He is the sole beneficiary of the Marital and Family Trusts only after the Survivor's

Trust is spent down.

Bingo rent
During the determinations process, stated that the rent amount was based on a local industry
survey. In , the application states, there was one other bingo hall aside from Bingo.
The industry survey showed that the bingo halls charged $: -$ per session. provided

non-contemporaneous documentation of the fair market value of bingo hall rentals which show per-session
lease amounts ranging from$ to$ . Publically available gaming reports filed with the City of

Form 886-A (1-1994) Catalog Number 20810W Page 6 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

for two local non-profits show per-session rents range from $ . to $ . The initial lease
agreement gradually increased rent from $0 per session in September 20 to $ in March 20
provided a copy of the license agreement between dba ;
. and . The agreement states, “For and in consideration of the License and

the Licensee's covenant to pay Rent and to perform the covenants and conditions set forth in this License,
Licensor hereby licenses to Licensée, and the Licensee hereby accepts from the Licensor the Premises, as
herein defined, in accordance with the terms...set forth below.” “The premises” is defined as the parking
area and portions of building excluding the kitchen and food concession area but including the tables,
chairs, and bingo equipment. The license to conduct bingo on Tuesday, Wednesday, and Thursday from 5
to 11pm commenced in 20 and terminates in 20 A rental fee will be paid in advance per bingo
session, whether or not the session is held. Base fee will be:

• $ for January 20 through July 20

• $ for August 20 through December 20

• $ for January 20 through June 20

• $ for July 20 through December 20
Rental fees for July 20 through June 20 are not indicated.

The license agreement is signed by _ on behalf of and
on behalf of .
In the primary year under audit, total rent expense was $ ,
match lease
date # sessions rate total agreement?
6/30/20 13 $ $ yes
7/31/20 412 $ $ no
8/31/20 not specified notspecified $
9/1/20 12 $ $ no
10/1/20 13 $ $ no
11/30/20 13 $ $ no
12/1/20 1z $ $ no
1/1/20 14 $ $ yes
2/28/20 12, «$ 5 yes
3/1/20 13. $ $ yes
4/1/20 . 12 $ $ yes
5/31/20 15 $ $ no
was owned by . The lease agreement for Bingo specifies that

the Licensor will operate or contract with a third party to operate a snack bar within the food concession
area during Licensee's bingo sessions. The agreement specifies that the organization will provide at least
two ten-minute breaks to allow customers an opportunity to buy concessions and that the organization will
pay a two-dollar-per-player-fee to the Deli to cover janitorial costs. The agreement also states that the Deli
Operator will give four dinner specials to the organization to use as a promotional giveaway during the
bingo session.

Form 886-A (1-1994) Catalog Number 20810W Page 7 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

Stated that the deli was handled by the Bingo landlord. He also stated that the two-
dollar-per-player fee was fo cover complementary soda and coffee for players. There was no contract

between the deli operator and

Weekly invoices from Deli submitted to reflect charges for each of the
three sessions held that week. The charges for each session are broken down into 1) player fee @& per
player to cover complementary beverages), 2) janitorial fee ($ per session), and 3) food. Invoice
amounts for food varyfrom$ to$  persession. These charges are for “player's reward fees" earned
by customers and cashed in for food at the Deli. Payments to Deli were recorded in the
General Ledger as *Hospitality.“ Total hospitality charges for the primary year under audit were $

Gaming workers

Per state gaming regulations, all gaming workers had to volunteer without compensation and all had to be
members of the organization. i complied with this requirement by making workers
Class A members upon signing into their shift, and terminating membership when they signed out at the

end of their shift. The bylaws describe Class A members: ,
Applicants shall be admitted to membership as a Class A member by placing his or her signature on

the staff list immediately prior to the bingo session for which said member is working and upon
approval of the session manager. ...such memberships...expire and terminate immediately upon
the conclusion of the bingo session for which the membership book relates.

stated that the volunteers from overlapped with the volunteers for the
other two organizations that gamed at Bingo. He said that the City didn't like to see the same
volunteers listed for multiple organizations. To meet the City’s needs, he moved volunteer names between
the different gaming charities to ensure there were no repeats.

. _ provided a copy of a volunteer list of | names submitted to the City of for the year
under audit and copies of the volunteer sign-in sheets for July through September 20 only. He stated
that the other nine months’ sign-in sheets were lost. The sheets provided meticulously tracked workers
names, position, start, and end times. The sheets were hand written and sometimes difficult to read. They
appear to list a totalof game workers with to workers persession. Ofthese only seven matched

the list provided to the City.

stated that grant applicants were not required to volunteer, but that the grant program served as

an incentive to volunteer, because by doing so they could help the community, including their own children.
He stated that ‘a parent might volunteer when they need money’ to send their child to a private school,

other two organizations shared gaming workers with and gave educational

scholarships.

Bingo workers received compensation in the form of food and drink provided during sessions. The
organization paid the Deli $ per gaming customer {o cover complementary drinks provided to them.
The value of the complementary beverages given to players during sessions can be applied to drinks given
to workers. Game workers could also claim a meal allowance valued at $ each session they worked,
though these were not always used, Total value of food and drink available to game workers was$

Form 886-A (1-1994) Catalog Number 20810W Page 8 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

Compensated gaming labor

Bingo Managers

stated that the bingo manager was the only compensated gaming employee. The
administrative services of a volunteer coordinator were necessary to ensure the sessions ran smoothly.
The application for exemption stated that the bingo manager would serve as a volunteer, but by the time of
the audit year, bingo manager was paid out of donations made by winning players during gaming sessions.
_ Stated that in this way, the organization complies with Penal Code Chapter 9 section
326.5(h) which provides that "Those members [staffing games] shall not receive a profit, wage, or salary
from any bingo game." Paragraph (j) says that “profits shall be used only for charitable purposes." All!

gaming managers compensated out of donations to ~ received Forms W-2.
_gaming managers

2013
$ manager
$ manager
$ substitute manager
$ substitute manager
$ substitute manager
$ substitute manager
$

2012
$ manager
$ manager
$ substitute manager
$ substitute manager
$

Other compensated labor

Other compensated labor included security at each gaming session; bookkeeping for gaming and grant
making; accounting fees for annual return preparation; and legal fees.

total compensation paid
gaming managers 20 ,prorated  $
gaming managers 20 prorated $

BY es
ais ey,

Form 886-A (1-1994) Catalog Number 20810W Page 9 publish.no.irs.gov Department of the Treasury-Internal Revenue Service


Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20°

Law

Operational test — primary purpose

Internal Revenue Code section 501(a) provides that: j ;
An organization described in subsection {c) ... shalf be exempt from taxation under this subtitle

unless such exemption is denied under section 502

Internal Revenue Code section 501(c)}{3) includes: ; ;
Corporations ... organized and operated exclusively for religious, charitable, scientific, testing for

public safety, literary, or educational purposes, or to foster national or international amateur sports
competition ..., or for the prevention of cruelty to children or animals, no part of the net earnings of
which inures fo the benefit of any private shareholder or individual, no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ... ,
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) provides that: ;
in orderto be exempt as an organization described in section 501(c)(3), an organization must be

both organized and operated exclusively for one or more of the purposes specified in such section.

Treasury Regulation section 1.501(c)(3)-1(c)(1) defines “exclusively”:
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 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its
activifies is not in furtherance of an exempt purpose.

Treasury Regulation section 1.501(c)(3)-1(d)(2) discusses the meaning of “charitable”:
The term charitable is used in section 501(c)(3) in its generally accepted legal sense .... Such term
includes: Relief of the poor and distressed or of the underprivileged; advancement of religion;
advancement of education or science; erection or maintenance of public buildings, monuments, or
works, lessening of the burdens of Government; and promotion of social welfare by organizations
designed to accomplish any of the above purposes, or (i) to lessen neighborhood tensions; (ii) to
eliminate prejudice and discrimination; (iii) to defend human and civil rights secured by law; or (iv) to

combat community deterioration and juvenile delinquency.

Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279, 66 S.Ct. 112, 90 L.Ed.
67 (1945), the Supreme Court wrote that a single non-exempt purpose, if substantial in nature, will

disqualify an organization from exemption under IRC section 501(c)(3).
In this instance, in order to fall within the claimed exemption, an organization must be devoted to

educational purposes exclusively. This plainly means that the presence of a single non-educationa!
purpose, if substantial in nature, will destroy the exemption regardless of the number or importance
of truly educational purposes. It thus becomes unnecessary to determine the correctness of the
educational characterization of petitioner's operations

Form 886-A (1-1994) Catalog Number 20810W Page 10 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A
Name of taxpayer Tax Identification Number Year/Period ended

May 31, 20

Operational test — private benefit

An organization does not qualify for exemption under IRC section 501(c)(3) if it serves a private interest,
Treasury Regulation section 1.501(c)(3)-1(d)(1)(ii) says:
An organization is not organized or operated exclusively for one or more of the [charitable]
Purposes specified...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.

In EST of Hawali v, Commissioner, 71 T.C. 1067 (1979), the Tax Court found that

although educational in nature, {the organization] served the commercial purposes of the for-profit
corporations and petitioner was therefore not operated exclusively for exempt purposes within the

meaning of sec. 501(c)(3)

In P.L.L. Scholarship Fund v. Commissioner, 82 T.C. No. 17, 82 T.C. 196 (1984), an organization with the

Stated purpose of raising money for scholarship funds conducted bingo games as its primary activity. The

games took place in a bar owned by three of the organization's five directors. The Tax Court held that a

substantial private purpose of the organization was to attract persons to the bar in the expectation that

these persons would purchase food and beverages. The Court held that the organization did not qualify for

IRC section 501(c)(3) exemption.
Petitioner was incorporated as a nonprofit corporation under lowa statutes for the purpose of raising
money to be used for providing college scholarships. The money was raised from the operation of
bingo games on the premises of the Pastime Lounge. Held, petitioner was not operated exclusively
for exempt purposes under the provisions of section 501(c)(3)... and 1.501(c)(3)-1(c)(1).

In K's F isers Inc. v. Commissioner, T.C. Memo. 1997-424 (1997): _
The Commissioner determined that petitioner did not meet the section 501(c)(3) requirements for
qualification as an exempt organization...{because the] petitioner failed to establish that it operated
exclusively for exempt purposes under section 501(c)(3). .... Petitioner engaged in the exempt
activity of raising money for charitable purposes. Petitioner also operated for the substantial private
benefit of KJ's Place and its owners. A substantial nonexempt purpose thus characterizes its
operation, disqualifying it from exemption under sections 501(a) and 501(c)(3).

Operational test ~— “feeder” organizations

IRC section 502(a) denies exemption to for-profit businesses which donate all profits to charitable

organizations: . ;
An organization operated for the primary purpose of carrying on a trade or business for profit shall
not be exempt from taxation under section 501 on the ground that all of its profits are payable to

one or more organizations exempt from taxation under section 501.

IRC section 502(b) excepts the following from the term “trade or business”:
(7) the deriving of rents which would be excluded under section 512(b)(3)... ;
(2) any trade or business in which substantially all the work in carrying on such trade or business is

performed for the organization without compensation, or

Form 886-A (1-1994) Catalog Number 20810W Page 11 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

(3) any trade or business which is the selling of merchandise, substantially all of which has been
received by the organization as gifts or contributions.

In Piety, Inc. v. Commissioner, 82 T.C. No. 16, 82 T.C. 193 (1984), the court found:

Petitioner's sole activity is the operation of bingo games, the profits from which are to be contributed
to organizations recognized by the Internal Revenue Service to be exempt from tax under section

501(c)(3).

Subject to the exceptions provided by section 502(b), section 502(a) prevents an organization which
is operated for the primary purpose of carrying on a trade or business for profit from qualifying for
exemption on the ground that its profits are payable to exempt organizations. Petitioner is operated
for the primary purpose of carrying on a trade or business for profit within the meaning of section
502(a). ... Section 502(a) therefore precludes petitioner from qualifying for exemption by merely
supporting exempt organizations unless one of the exceptions in section 502(b) Is applicable.

Petitioner may qualify for exemption only if it directly serves some exempt purpose. Nothing in the
record shows that it does so. Therefore, respondent's determination that petitioner is not operated

exclusively for exempt purposes must be sustained.

Compensation

IRC section 61 defines gross income as:

all income from whatever source derived, including (but not limited fo) ... compensation for services,
including fees, commissions, fringe benefits, and similar items

Treasury Regulation section 1.132-6(a) discusses fringe benefits:
Gross income does not include the value of a de minimis fringe provided to an employee. The term
“de minimis fringe" means any property or service fhe value of which is (after taking into account the
frequency with which similar fringes are provided by the employer to the employer's employees) so
small as to make accounting for it unreasonable or administratively impracticable.

Section 1.132-6(e) provides examples of de minimis fringe benefits:
occasional typing of personal letters by a company secretary; occasional personal use of an
employer's copying machine...; occasional cocktail parties, group meals, or picnics for employees
and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market
value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local
telephone calls; and flowers, fruit, books, or similar property provided to employees under special
circumstances (e.g., on account of illness, outstanding performance, or family crisis).

aco L. 166, Benevo tive Order of Elks, 696 F.2d 372 (1983), the Tax Court found

In

the provision of free beverages to constitute the payment of compensation, but that the amount was small

enough to not warrant denial of the ‘volunteer exception’ from unrelated business income tax.
The Tax Court held that the availability of free beverages to the rest of the workers by itself is
sufficient “compensation" to prevent the Lodge from taking advantage of the statutory exemption
[from UBij. In the Tax Court's view, any monetary or non-monetary payment, no matter how small,
equals “compensation” under the Code. The question of whether non-monetary “payment” equals
“compensation,” however, must be decided on the facts of each case. As calculated by the Tax
Court, the cost of the free beverages consumed averages to approximately $2.22 per worker, per

Form 886-A (1-1994) Catalog Number 20810W Page 12 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

Form 886-A (Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

night, or about 63 cents an hour. It cannot seriously be argued that the workers were induced to
work for this “compensation.” We do not believe that the Code's definition of compensation was

meant to include such a trifling inducement.

Organization Position

Agent asked . for his thoughts on the case in a phone call on June 17,20 . He stated that he
thought that the rent seemed high, but that It might be justified due to overhead expenses. He also said
that although there was a personal benefit to the Trust/landlord, was important to
the community because of the grants made, even if over half of grants were made to other organizations
founded and under the direction of , because of the social and recreational space the
organization provided.

Agent provided a draft report Form 886-A to only (at _ request) on July 23,20 . The
response was received on August 24,20 and stated as follows:

As we discussed we ( and {) observed some items in the Draft that do need correction or

clarification as follows: ;

1. Page 2, “Payments to Deli...” there was no mention of bingo playérs, so please Clarify that the

deli serves players.

2. Page 7, Deli, first paragraph, there isnota$ per player fee to the deli for
janitorial costs ;
3. Page 7, Deli, second paragraph, there is nota $. —_ fee per ‘worker’ to the deli.

The $. fee is for complimentary drinks, to “players” only.

4. Page 10, Bingo workers, the$ charge was per “player” only. They donot pay$ per
5.

“worker”.
. Page 10, Bingo workers, the meal allowance of $ is not always redeemed by the worker.

So, it is not something that is automatically collected by the Deli based on the number of
workers per session. It is collected only when a worker actually has a meal.

These requests are addressed in the current report.

Government Position

1. Should tax-exempt status under Internal Revenue Code section 501(c)(3) .
be ked becau perati agaming q primary activity, in violation of

revoke se operation of a gaming hall is the organization's
Treasury Regulation section 1,501(c)(3)-1(c)(1)?

To maintain exemption under {RC section’ 501(c)(3), an organization must be operated exclusively for
exempt purposes. Treasury Regulation section 1.501(c)(3)-1(c)(1) provides the following definitions of

“exclusively”: ; ,
1) an organization must engage primarily in activities which accomplish exempt purposes and

2) an organization will not be so regarded if more than an insubstantial part of Its activities is not in
furtherance of an exempt purpose. .
In other words, to qualify as operated exclusively for exempt purposes, generally at least [redacted]% of activities
must be charitable and no more than [redacted]% of activities may be non-charitable.

Form 886-A (1-1994) Catalog Number 20810W Page 13 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20
Primary activity

An analysis of organizational income and expenses can be used to measure the primary activities. (This
analysis allocates accounting expenses equally between gaming and grant making.)

year ending May 20
income source amount % of income
gross gaming income $ %
other contributions $ %
total income $

expense amount % of expense

paming expenses
prizes
rent
other
payments to deli
salaries
accounting
other expenses
total gaming expenses


grant expenses
payments to related orgs

$

grants $
accounting $
$

$


total grant expense

total expense

net income $

percent of income came directly from gaming or from donations made by winners.
_ percent of all expenses were directly related to gaming. Only % of all expenses were grants to
unrelated, tax-exempt organizations.

An analysis of time and resources consumed can also be used to determine the primary activities.
conducted gaming three days per week on a year-round basis. Each session required six
to eight game workers, a manager, and a security guard. Direct gaming activity alone required a minimum
of eight workers per session and hours annually (_ workers x 6 hours per session x 3 sessions per
week x 52 weeks per year). The gaming activity also required a portion of bookkeeping, accounting, and

legal activity.

Form 886-A (1-1994) Catalog Number 20810W Page 14 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended

May 31, 20

The grant making program, on the other hand, took only a few hours of and the bookkeeper's
time each quarter. A total of — grants were made in the audit year. If we allow an hour for the process of
awarding and accounting for each check, grants account for: hours out of total hours annually.

Again, a portion of bookkeeping, accounting, and legal time is not included In the total hours; if included it
would only reduce the grant program's portion of hours used.

There can be little question that __ primary activity was gaming. Gaming accounted
for % ofincome, % of expenses, and % of activity time. The organization did not engage
primarily in grant making and engaged more than insubstantially in gaming,

Exempt-purpose activity

operation as a whole must be considered to determine if the gaming activity was
operated for tax-exempt purposes. Factors to consider include the following: .

9 has been engaged in bingo and gaming since its inceptionin 20. The
high cost of gaming operations in the examined year was not due to Start-up costs, and remained
constant af least through the 20.20 ,and20 Forms 990. ;

• The size and extent of gaming activities was significantly larger than the size and extent of any
potential charitable activity. Gaming was operated three days per week, six hours per day and
utilized eight to ten active workers per session, plus the administrative support of a bookkeeper,
accountant, and attorney. The grant program took only a few hours of two people's time each year.

• Gaming produced over $ million in revenue while the grant program was valued at $ , only

% of gross income.
ut of the grants made, roughly %, were made to related organizations. ;
Only$ | in grants was made to independent charitable organizations - _% of gross income.
The largest recipients of organization funds after prizes were:

• $ to the gaming hall landlord (an LLC which ultimately benefitted father)

• $ for various gaming supplies and expense

• $ in payments to the gaming hall deli (owned by

• $ to related organizations

• A substantial portion of gaming income was used up by administrative and overhead. ;

• Average monthly rent paki was over $ , an exorbitant amount for an organization whose
Purpose was to raise money for charity.

• The organization did not state a specific amount (flat rate or percent of net income) to be used for
grants, This does not indicate that a charitable grant program was an integral part of the

organization's purpose.
• Gaming was advertised to the public to draw more customers. Over $ was spent on

advertising. ,
• The conduct of gaming was unrelated to the organization's exempt purpose aside from the need to
generate income

These factors show that the gaming activity had no charitable purpose. The predominant orientation of the
organization was directed toward running a business with no exempt purpose. In this context, the turnover
ofonly % of gross income for charitable purposes was not sufficient to retain tax-exempt status under

IRC section 501(c)(3).


brother)

Form 886-A (1-1994) Catalog Number 20810W Page 15 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

“Feeder” organizations

IRC section 502 provides that an organization cannot be granted exemption simply because ail profits from
its trade or business are remitted to tax-exempt organizations, unless it is substantially all operated with
non-compensated labor. Generally “substantially all" is taken to mean 85%.

does not qualify for this exemption from the disqualification under IRC 502 because

the gaming activity is not substantially all volunteer-run. Each gaming session required
workers. Two of these workers (the gaming manager and the security guard) were compensated in cash
on an hourly basis. The remaining game workers were compensated with beverages and meals valued at

$ . The bookkeeping, accounting, and legal services were also compensated.

compensated hours calculation
workers per session x 6 hours/session x 3 sessions/week x 52 weeks/year
bingo manager x 6 hours/session x 3 sessions/week x 52 weeks/year
security guard x 6 hours/session x 3 sessions/week x 52 weeks/year
accountant x manager hoursx Xestimatex  % allocation to gaming
CPA firm: $ charged annually/$  perhourx %allocation to gaming
Attorney: $ charged annually/$  perhourx % allocation to gaming

total compensated hours

The only non-compensated worker was

In Waco Lodge No. 166 Benevolent & Protective Order of Elks v. Commissioner, the Tax Court found that
free beverages to game workers constituted compensation, but that the compensation amount was de
minimus for the purposes of determining the applicability of the exception from tax in that case. In the case
of _ it ls the government's position that the free beverages and meals given to game
workers were compensation and should disqualify the business from the IRC section 509(b) exception to
exclusion from tax-exempt status. The beverages and meals afforded game workers were more
substantial than beverages given in the Elks case and in the “coffee, doughnuts, and soft drinks” example
given in IRC section 1.132-6(e). Furthermore, unlike the Code examples, the free beverages and meals
were given on a regular basis, to every game worker at every shift, not “occasionally.” Finally, if the game
workers are not considered compensated, the games were still not substantially all uncompensated,
Compensated hours not including game workers were % of all hours; uncompensated hours were only

%, not substantially all hours.

conducted two activities: gaming and grant making. it is the government's position
that the gaming activity was the primary activity and it was not charitable. Additionally, the charitable grant
making program was insubstantial. in this way, the organization violated both components of the
operational test contained within Treasury Regulation section 1.501(c)(3)-1(c)(1).
has failed to be operated exclusively for exempt purposes. Furthermore, the organization is disqualified
from tax-exempt treatment under IRC section 502 because substantially all of the work performed on behalf
of the organization is not carried out without compensation, The organization no longer qualifies for tax.

exempt status under IRC section 501(c)(3).

Form 886-A (1-1994) Catalog Number 20810W Page 16 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A (Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended

May 31, 20

2. Should the organization be revoked because it has a more than insubstantial non-exempt purpose

of providing private benefit to the gaming hall landlord in violation of Treasury Regulation
1.501(c)(3)-1(d)(1)(ii)?

This report has made an in-depth analysis of the primary purpose of and the
activities that the organization engaged in to achieve that purpose. The primary activity of the organization
has been found to be the operation of a gaming hall. What is the purpose of conducting this activity? An
analysis of expenses shows the following. (This does not include prize expenses, which run at % of
gaming income, and are substantially larger than any other expense.)

expense amount % of expense
gaming rent
other gaming expenses
payments to deli
grants to related orgs
accounting
grants
salaries
other expenses

VWNM MN HHH
KERKRR KM

Fifty-one percent of the expenses listed here are paid, ultimately, to family members of the organization's
founder and president.

The payments to the Deli, which is owned by brother, appear fo be

reasonable. The per-session charges were $. per player to cover the cost of complementary soda and
'., coffee provided to customers; a $ fee to cover janitorial expenses; and reimbursement for food ‘bought’
" by customers with ‘player's reward points.’ While total payments to the Deli are significant, they are

defensible.
Rental payments for the Bingo hall, however, constituted private benefit. Rent payments
averaged $ persessionand$ | permonth. These rental amounts are more than insubstantial.

had no contemporaneous documentation showing the amount of rent was determined in a way
similar to an arms-tength transaction. The only available contemporaneous documentation is the
application for exemption, Form 1023. Several of [redacted]'s statements made on the form were _
disingenuous because he implied that the landlord and other tenants at the hall were unrelated parties,
This was not the case as the landlord, via a chain of relationships, is ultimately father and
founded the other organizations that rented the hall. From the application correspondence:
• The bingo sessions will likely be conducted at . = .
• The bingo half owner is not represented on the Applicant's Board of Directors. ... To the best of
the Applicant's knowledge, the bingo hall owner is not represented on the boards of directors of any
of the non-profit organizations represented at the hall. s
• Applicant has not yet negotiated the rental of the bingo facility. The budget fot $ per session]
is based upon the rental paid by other organizations for that facility.

0. ...fixed suin is the same rate paid by all of the other non-profit organizations represented at the hall.
Applicant believes that this rate has been in effect for several years.

Form 886-A (1-1994) Catalog Number 20810W Page 17 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit
Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended
May 31,20
A 2015 survey of area business and retail spaces for rent finds the following:
description square footage monthly rent cost per square foot
downtown office suite
downtown office suite
downtown office space
office

small warehouse

medical office suite

shared storefront

downtown office/retall space
downtown retail

downtown office space
downtown restaurant
downtown retail office space

DM HIN NM HM HH HH MH
TP TIAA MHD MH WH OH

As square footage increases, the cost per square foot decreases. This chart shows the relationship of
rental size fo cost per square foot.

[illegible chart: square footage and cost per square foot]
The area of Bingo used by was square feet. Annual rent charged
for use of the space one third of the time was$ = or$ ~——_farr full annual rental. This equates to

$ per square foot, well above the highest amount paid for the smallest space available.

if we use the lowest cost per square foot found for the largest comparable space to estimate the fair market
value of Bingo, we get annual rent of $ ( x$ x )or$ for one third
usage. Compared to rent paid of $ , private benefit was $

One of purposes was to provide private benefit to the gaming hall landlord, which
was the father of founder and president. This was accomplished by paying annual
rent $ over fair market value. Per Treasury Regulation 1.501(c)(3)-1(d)(1)(ii), an organization
cannot qualify for exemption if it serves a private rather than a public interest. tax-exempt status should be revoked.

Form 886-A (1-1994) Catalog Number 20810W Page 18 publish.no.irs.gov Department of the Treasury-Internal Revenue Service

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
May 31, 20

Conclusion

tax-exempt status under Internal Revenue Code section 501(c)(3) be revoked

because it failed the primary purpose test under Treasury Regulation section 1.501(c)(3)-1(c)(1). The
organization's primary activity was operation of a gaming hail for non-charitable purposes. Any charitable

grant making activity was insubstantial.

Additionally, was operated more than insubstantially for the private benefit of the

gaming hall landlord through the payment of above market rate rent. Treasury Regulation 1.501(c)(3)-
1(d)(1)(ii) prohibits tax-exempt status under Internal Revenue Code section 501(c)(3) of any organization
that has a non-exempt purpose which is more than insubstantial, The organization's tax-exempt status

should be revoked.

is no longer a tax-exempt entity under IRC section 501(c)(3) as of June 1,20. the

earliest date examined as a part of this audit. is liable for filing Form 1120, not
Form 990-T, to report income as of June 1, 20° .

Form 886-A (1-1994) Catalog Number 20810W Page 19 publish.no.irs.gov Department of the Treasury-Internal Revenue Service