Exemption denied to fee-funded mortgage broker

Plain-English summary

A nonprofit applicant planned to originate mortgages for the general public and receive a one-percent loan origination fee from lenders for each loan it brokered. Its founder was also the owner of a for-profit financial consulting business, served as the applicant's sole employee, and was one of three directors. Although the applicant described future homebuyer education and financial counseling, it had not developed those programs or allocated money and staff time to them. The IRS concluded that the primary activity was a commercial mortgage brokerage serving lenders for a fee, not an exempt charitable or educational purpose. It also found that the applicant failed the special section 501(q) rules because it negotiated loans, did not provide tailored credit counseling, and had more than 20 percent of board voting power held by a compensated employee. After the applicant did not protest the proposed determination within 30 days, the IRS made the denial final.

Ruling snapshot

• Question: Does the proposed mortgage brokerage and counseling organization qualify for section 501(c)(3) exemption and satisfy section 501(q)?
• Outcome: denied
• Key authorities: IRC §§ 501(c)(3), 501(q), 513; Treas. Reg. § 1.501(c)(3)-1

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201
Date: July 3, 2017

Employer ID number:

Number: 201739016
Release Date: 9/29/2017

Contact person/ID number:

Contact telephone number:
Form you must file:

Tax years: All

UIL: 501.03-30

Dear :

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

Because you don’t qualify as a tax-exempt organization under Section 501(c)(3) of the Code, donors can’t
deduct contributions to you under Section 170 of the Code. You must file federal income tax returns for the tax
years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of
this letter unless you request an extension of time to file.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

We’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under Section 6104(c) of the Code). You should contact your state
officials if you have questions about how this determination will affect your state responsibilities and
requirements.

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


Department of the Treasury

Internal Revenue Service

Cincinnati, OH 45201
Date: May 8, 2017
Employer ID number:
Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:

B = Name
C = LLC Name
D = Date
E = State
F = Social Media Websites
x dollars = Amount

UIL: 501.03-30
Dear :

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(3) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
1) Do you meet the operational test for exemption under Section 501(c)(3) of the Code? No, for the reasons

described below.
2) Do you meet the provisions described in Section 501(q) of the Code? No, for the reasons described

below.

Facts
You incorporated as a non-profit corporation under the state law of E on date D. Your Articles of Incorporation
filed with E indicate you are organized pursuant to the E Nonprofit Corporation Code.

You also submitted another document titled Articles of Incorporation which were not filed with E. This
document states your purposes are:

1. Originating loans to assist individuals seeking help with mortgage financing, credit counseling, and
helping those who are disenfranchised.

2. Helping members in the community with their mortgage needs, through special programs and
projects.


2

You attested that you amended your Articles to include required Section 501(c)(3) language; however, to this
date there is no evidence of such an amendment on the Secretary of State website and it actually indicates you
are administratively dissolved.

Your founder and president, B, is the owner of C, a for profit business providing financial consulting services.
You stated that there will be no relationship or referrals between you and B’s for profit business, C. B is
experienced with loan modifications and also has ten years of experience as a senior mortgage broker and four
years of experience as a mortgage advisor. B is currently your sole employee and based on your financial data,
will receive x dollars as compensation. Besides B, you have two other individuals on your board of directors.

When we asked you to describe your activities, you responded that you will originate loans for first-time
homebuyers at par rate and assist low income individuals to qualify them in purchasing their homes, by using
all down-payment assistant programs, and closing cost programs. You explained that the par rate is the lowest
interest rate given by Wall Street every morning as a reference point for mortgage lenders. Banks may increase
the rate as they wish for whatever product they are offering. In addition, you will also provide comprehensive
counseling to homeowners having difficulties making their mortgage payment including establishing payment
agreements and working with homeowners to avoid foreclosure.

Moreover, you stated that your loan origination program is open to the general public Monday through Friday
during regular business hours. Any individual regardless of income may participate in your loan origination
program. You indicated that you will not charge a fee to any individual seeking to obtain a home loan.
Additionally, you will not make any solicitations for public donations and that none of your income will be
derived from the general public. Instead, you stated that your income will be from broker fees paid to you from
lenders for the loans you originate on their behalf. You provided that you will charge lenders a loan origination
fee of one percent of loan value on each loan you broker. You also indicated that you hope to eventually do in-
house processing of loans.

Concerning the step-by-step process for your loan origination program, numerous realtors with whom B has
worked with for many years will provide you a list of their clients needing a mortgage. You indicated that the
mortgage process has guidelines which must be followed and will take effect once you start operations. Either
B or other loan officers whom B has known for several years will conduct this activity. Some of the loan
officers will also be coming to work for you. When B originates the loan, he will follow the process from start
to finish. When others are originating the loan, the file must be approved by B or the sales manager before the
process can be completed. Your loan origination program is done through an application process that either
qualifies an individual or disqualifies them. You will require the same financial information from your
borrowers as a regular mortgage would require. This information consists of proof of income or check stubs
from last year, proof of stocks and bonds if any, proof of second income if any and bank statements for the last
three months. After one’s loan application is reviewed, the applicant is presented with a letter explaining the
status concerning whether the applicant qualifies and then you go from there.

You will advertise and receive referrals through churches, social media, word of mouth through realtors and
loan officers, and school teachers’ meetings. In addition, when affordable you will advertise through local
papers. You will also advertise on F. You will not receive customer referrals through the purchase of notice
default lists, mortgage lists or lead lists and you will not be paid to give referrals to any institution.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


3

You stated that you will provide financial counseling/seminars to the general public freely along with other
programs to properly prepare borrowers for the challenges of home ownership. You will provide a home

buyers’ seminar that details the responsibilities of home ownership, as well as the pitfalls and challenges to
expect. You will offer literature to the public and have experienced professionals in the real estate, mortgage,
and legal areas lecture from time-to-time. In addition, you will have experienced professionals conduct
seminars for loss mitigation, credit counseling, loan modification, foreclosures and how to negotiating payments
with mortgage companies on your payments. Additionally, you indicated that your excess revenues over
expenses will be used to conduct classes in the following subjects:

a. First time home buyers seminars;
b. Credit counseling;
c. Loan modification training programs;
d. Bankruptcy training/counseling;
e. Foreclosure counseling;
f. Helping borrowers negotiate payment arrangements of their mortgages
g. Loss mitigation.

When we asked you if you require counseling participants to engage in ongoing educational programs during
the course of their counseling, you responded that “We are not yet legal and therefore have not prepared any of
these yet. We must first have the legal rights to operate before we can start spending money on the creations of
all these programs and at that time we will be glad to furnish your office with copies of all documents you
need.”

When we asked you to state the number of time you meet with a borrower before recommending a particular
approach and the average amount of time your counselors spend in speaking with each borrower during an
initial inquiry and during subsequent follow-up inquiries, you replied that “All that is not yet prepared, we must
have legal rights to operate before preparing all these documents.”

When we asked you to state the percentage of time and money that is spent on any workshops, classes, seminars
on mortgage foreclosure intervention, financial counseling, mortgage loss mitigation, consumer budgeting
assistance, or other educational programs, you stated that “These sessions have not started yet and therefore I
cannot give you any time or money spent on them.”

It was first stated that your revenue will be from gifts, grants, and contributions, but you later clarified that your
revenues would be from broker fees paid to you from lenders for the loans that you originate on their behalf.
You stated that you will charge lenders a loan origination fee of one percent of the loan value on each loan that
you broker and that these fees will fund your operations. Your expenses will be compensation to officers,
directors, and trustees and occupancy expenses. You have not allocated time or resources to education or
counseling of the public. Your financial data does not show that you dedicate any revenues to activities
involving educational or counseling programs or allocate any expenses to the training of employees to provide
educational or counseling programs.

Law

Section 501(c)(3) of the Internal Revenue Code provides that corporations may be exempt from tax if they are
organized and operated exclusively for charitable or educational purposes and no part of their net earnings
inures to the benefit of any private shareholder or individual.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


Section 501(q) of the Code provides that organizations which provide “credit counseling services” as a
substantial purpose shall not be exempt from taxation under section 501(a) unless they are described in sections
501(c)(3) or 501(c)(4) and they are organized and operated in accordance with the following requirements:

(1)(A) The organization--

(i) provides credit counseling services tailored to the specific needs and circumstances of
consumers,

(ii) makes no loans to debtors (other than loans with no fees or interest) and does not negotiate
the making of loans on behalf of debtors,

(iii) provides services for the purpose of improving a consumer's credit record, credit history, or
credit rating only to the extent that such services are incidental to providing credit counseling
services, and

(iv) does not charge any separately stated fee for services for the purpose of improving any
consumer's credit record, credit history, or credit rating.

(1)(B) The organization does not refuse to provide credit counseling services to a consumer due to the
inability of the consumer to pay, the ineligibility of the consumer for debt management plan enrollment,
or the unwillingness of the consumer to enroll in a debt management plan.
(1)(C) The organization establishes and implements a fee policy which--
(i) requires any fees charged to a consumer for services are reasonable,
(ii) allows for the waiver of fees if the consumer is unable to pay, and
(iii) except to the extent allowed by state law, prohibits charging any fee based in whole or in
part on a percentage of the consumer's debt, the consumer's payments to be made pursuant to a
debt management plan, or the projected or actual savings to the consumer resulting from
enrolling in a debt management plan.
(1)(D) At all times the organization has a board of directors or other governing body-
(i) which is controlled by persons who represent the broad interests of the public, such as public

officials acting in their capacities as such, persons having special knowledge or expertise in
credit or financial education, and community leaders,

(ii) not more than 20 percent of the voting power of which is vested in persons who are
employed by the organization or who will benefit financially, directly or indirectly, from the
organization's activities (other than through the receipt of reasonable directors' fees or the
repayment of consumer debt to creditors other than the credit counseling organization or its
affiliates), and

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


(iii) not more than 49 percent of the voting power of which is vested in persons who are
employed by the organization or who will benefit financially, directly or indirectly, from the
organization's activities (other than through the receipt of reasonable directors’ fees).

Section 501(q)(4)(A) of the Code defines, for purposes of section 501(q), the term “credit counseling services”
to mean (i) the providing of educational information to the general public on budgeting, personal finance,
financial literacy, saving and spending practices, and the sound use of consumer credit; (ii) the assisting of
individuals and families with financial problems by providing them with counseling; or (iii) a combination of
the activities described above.

Treasury Regulation Section 1.501(c)(3)-1(e)(1) states an organization may qualify for tax exemption under
IRC § 501(c)(3) although it operates a trade or business as a substantial part of its activities,

1. if the operation of such trade or business is in furtherance of the organization’s exempt purpose or
purposes

2. and also if the organization is not organized or operated for the primary purpose of carrying on an
unrelated trade or business, as defined in Section 513 of the Code.

Treas. Reg. Section 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an organization described in
section 501(c)(3) of the Code, an organization must be both organized and operated exclusively for one or more
of the purposes specified in such section. If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Treas. Reg. Section 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 that accomplish one or more such
exempt purposes specified in section 501(c)(3) of the Code. An organization will not be so regarded if more
than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) provides that the term “educational,” as used in section 501(c)(3) of
the Code, relates to:

(a) The instruction or training of the individual for the purpose of improving or developing his
capabilities; or
(b) The instruction of the public on subjects useful to the individual and beneficial to the community.

In Rev. Rul. 69-441, 1969-2 C.B. 115, the Service found that a nonprofit organization formed to help reduce
personal bankruptcy by informing the public on personal money management and aiding low-income
individuals and families with financial problems was exempt under Section 501(c)(3) of the Code. Its board of
directors was comprised of representatives from religious organizations, civic groups, labor unions, business
groups, and educational institutions.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


6

In Better Business Bureau of Washington, D.C. v. U.S., 326 U.S. 279, (1945) the Supreme Court held that the
“presence of a single [non-exempt] purpose, if substantial in nature, will destroy the exemption regardless of the
number or importance of truly [exempt] purposes.

In B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978), the Tax Court found that a corporation formed to
provide consulting services did not satisfy the operational test under Section 501(c)(3) of the Code because its
activities constituted the conduct of a trade or business that is ordinarily carried on by commercial ventures
organized for profit. Its primary purpose was not charitable, educational, or scientific, but rather commercial.
In addition, the court found that the organization's financing did not resemble that of the typical section
501(c)(3) organizations. It had not solicited, nor had it received, voluntary contributions from the public. Its
only source of income was fees from services, and those fees were set high enough to recoup all projected costs
and to produce a profit.

In Consumer Credit Counseling Service of Alabama, Inc. v. United States, 78-2 U.S.T.C. 9660 (D.D.C. 1978),
the court held that an organization that provided free information on budgeting, buying practices, and the sound
use of consumer credit qualified for exemption from income tax because its activities were charitable and
educational.

In Easter House v. U.S., 12 CL. Ct. 476, 486 (1987), aff'd, 846 F. 2d 78 (Fed. Cir. 1988), the Claims Court found
an organization that operated an adoption agency was not exempt because a substantial purpose of the agency
was a non-exempt commercial purpose. The court concluded that the organization did not qualify for exemption
under section 501(c)(3) of the Code because its primary activity was placing children for adoption in a manner
indistinguishable from that of a commercial adoption agency. The court rejected the organization's argument
that the adoption services merely complemented the health related services to unwed mothers and their children.
Rather, the court found that the health-related services were merely incidental to the organization's operation of
an adoption service, which, in and of itself, did not serve an exempt purpose. The organization's sole source of
support was the fees it charged adoptive parents, rather than contributions from the public. The court also found
that the organization competed with for-profit adoption agencies, engaged in substantial advertising, and
accumulated substantial profits. Accordingly, the court found that the "business purpose, and not the
advancement of educational and charitable activities’ purpose of plaintiff's adoption service, is its primary goal"
and held that the organization was not operated exclusively for purposes described in section 501(c)(3).

In Living Faith, Inc. v. Commissioner, 950 F.2d 365 (1991), the Court of Appeals upheld a Tax Court decision
that an organization operating restaurants and health food stores in a manner consistent with the doctrines of the
Seventh Day Adventist Church did not qualify for exemption under section 501(c)(3) of the Code because the
organization was operated for a substantial non-exempt commercial purpose. The court found that the
organization's activities were "presumptively commercial" because the organization was in competition with
other restaurants, engaged in marketing, and generally operated in a manner similar to commercial businesses.

In Airlie Foundation v. Internal Revenue Service, 283 F. Supp. 2d 58 (D.D.C., 2003), the District Court relied
on the “commerciality” doctrine in applying the operational test. Because of the commercial manner in which
this organization conducted its activities, the court found that it was operated for a non-exempt commercial
purpose, rather than for a tax-exempt purpose. As the court stated: "Among the major factors courts have
considered in assessing commerciality are competition with for profit commercial entities; extent and degree of
below cost services provided; pricing policies; and reasonableness of financial reserves. Additional factors

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


7

include, among other things, whether the organization uses commercial promotional methods (e.g., advertising)
and the extent to which the organization receives charitable donations."

Application of Law

Organizational and Operational Tests

Section 501(c)(3) of the Internal Revenue Code sets forth two main tests for an organization to be recognized as
exempt. An organization must be both organized and operated exclusively for purposes described in Section
501(c)(3) of the Code and Treas. Reg. Section 1.501(c)(3)-1(a)(1). You provided questionable evidence that
you met the organizational test and you failed the operational test.

You primary activity is to operate as a mortgage broker to originate loans and serve as an intermediary between
the borrower and the lender. As a mortgage broker, you are compensated by the lender a fee of one percent of
the loan value on any mortgage loans you broker. Operating as a mortgage broker for a fee on a regular and
continuous basis is an unrelated trade or business for profit within the meaning of Section 513 of the Code.
Pursuant to Treas. Reg. Section 1.501(c)(3)-1(e)(1), you do not meet the requirements for recognition of tax
exemption under Section 501(c)(3) of the Code as your primary purpose is the operation of an unrelated trade or
business for profit within the meaning of Section 513 of the Code.

To satisfy the operational test, an organization must be operated exclusively for one or more exempt purposes
specified in Section 501(c)(3) of the Code. An organization will not be so regarded if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose. Treas. Reg. Section 1.501(c)(3)-
1(c)(1). As a mortgage broker, rather than serving the public at large, you assist lenders in finding borrowers
for their products and services. Operating as a mortgage broker for a fee from lenders does not serve an exempt
purpose. Thus, you are not engaged primarily in activities which accomplish one or more of the exempt
purposes specified in Section 501(c)(3) of the Code, and more than an insubstantial part of your activities is not
in furtherance of an exempt purpose. Therefore, you are not operated exclusively for an exempt purpose as
provided in Section 501(c)(3) of the Code and you fail the operational test as provided in Treas. Reg. Section
1.501(c)(3)-1(c)(1).

Specifically, you are operated for a substantial nonexempt purpose in contravention of the requirements of
Treas. Reg. Section 1.501(c)(3)-1(c)(1). In Better Business Bureau of Washington, D.C., Inc., the United States
Supreme Court provided that “the presence of a single [nonexempt] purpose, if substantial in nature, will
destroy the exemption regardless of the number or importance of truly [exempt] purposes.” Since your primary
purpose is the conduct of an unrelated trade or business for profit, by operating as a mortgage broker, you serve
a substantial nonexempt purpose, which precludes tax exemption under Section 501(c)(3) of the Code.

Applying the factors cited in Airlie Foundation, Inc., you are operated for a substantial nonexempt commercial
purpose. As a mortgage broker, you are in direct competition with other mortgage brokers in the industry that
provide services to lenders in exchange for a fee. You provide a service to lenders for which you are
compensated at market rates. You charge lenders a loan origination fee of one percent of loan value on each
loan that you broker. In addition, you will advertise your services on F and possibly through the local
newspapers. You will make no solicitations for funding from the public. You will receive zero funding from
public donations or grants. You are solely funded by broker fees you receive from lenders for loan origination

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


8

services you provide on their behalf. Thus, you meet most of the factors provided in Airlie Foundation, Inc.
indicating that you are operated for a substantial nonexempt commercial purpose.

You are similar to the organizations described in B.S.W. Group, Inc., Easter House, and Living Faith because
you are operating for a substantial nonexempt commercial purpose rather than for a tax-exempt purpose. You
are in direct competition with other mortgage brokers in the mortgage loan industry. Like a commercial for
profit business, you are open to the general public Monday through Friday during regular business hours. Your
loan origination services are available to anyone in the general public. Your borrowers are not limited to a
charitable class of individuals. Your borrowers however, must qualify for your loan origination services based
on the financial information they provide.

Your Activities Are Not Educational

You do not operate a substantive, ongoing counseling or public educational program. You have not
demonstrated that your activities are described in Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i). You stated that
you will provide educational programs and counseling but you were unable to provide details of any programs
you may offer. You only provided a list of possible subjects that you may cover and that experts from time to
time will present these programs. When we asked you the amount of time and resources you will spend on
counseling and educational activities, you stated that as you have not started these activities, you are unable
provide us the amount of time or resources you will spend on these activities. In addition, your financial
information only shows resources devoted to the salary of a director and rent. Your budgets show that you have
no financial resources devoted to counseling or educational activities.

You have not shown that your activities are designed to provide instruction or training “useful to the individual
and beneficial to the community” within the meaning of Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i). Thus, you
are not operated exclusively for educational purposes within the meaning of Section 501(c)(3) of the Code.

You are not like the organizations in Consumer Credit Counseling Service of Alabama and Rev. Rul. 69-441
because you have not shown that you provide educational programs that are structured to improve the
borrower’s understanding of their financial problems or their skills in solving them. Your goal is to determine
if borrowers are eligible for your loan origination services.

Section 501(q) of the Code

You do not meet the requirements of Section 501(q) of the Code because you do not provide credit counseling
services tailored to the specific needs and circumstances of consumers as described in Section 501(q)(1)(A)(i)
of the Code. You do not conduct initial or follow-up meetings with potential borrowers to gather information to
understand their particular financial situation or needs, or to council individuals on how to improve their
financial situations. Your goal is gather financial information only to the extent to determine a potential
borrower’s eligibility for your loan origination services.

You also do not comply with Section 501(q)(1)(A)(ii) of the Code. You are negotiating loans on behalf of
debtors for which you are compensated by the lender at a rate of one percent of the total loan value. Therefore,
you fail to meet the requirement of section 501(q)(1)(A)(ii) of the Code.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


9

Furthermore, you do not meet Section 501(q)(1)(D)(ii) of the Code because your founder/president is a
compensated employee and is one of your three board members. Your governing body does not comply with
Section 501(q)(1)(D)(ii) of the Code that requires that at all times the organization must have a board of
directors or other governing body not more than 20 percent of the voting power of which is vested in persons
who are employed by the organization or who will benefit financially, directly or indirectly, from the
organization's activities, because one out of three of your board members will benefit financially from your
operation.

Therefore, had you established that you otherwise met the requirements of section 501(c)(3), your failure to
satisfy the requirements of Section 501(q) of the Code would prevent you from being exempt from taxation
under Section 501(a) of the Code.

Your position

You stated that you have already submitted the information in your application and reasoning based in law
explaining how you are organized and operated exclusively for the purposes described in Section 501(c)(3) of
the Code. You stated you have spoken to the Service and re-iterated how your activities and operations comply
with the requirements under Section 501(c)(3) of the Code. You stated that it is beyond your understanding
why there is a delay in granting the tax-exempt status for your organization.

Our response to your position

Your primary activity is to provide mortgage broker services to lenders for a fee. You are not operated
exclusively for a tax-exempt purpose under Section 501(c)(3) of the Code. You are operated for a substantial
nonexempt purpose rather than a tax-exempt purpose as specified under Section 501(c)(3) of the Code. You fail
the operational test as described in Treas. Reg. Section 1.501(c)(3)-1(c)(1).

Conclusion

We hold that you do not meet the requirements for recognition of tax exemption under Section 501(c)(3) of the
Code. You are not operated exclusively for a tax-exempt purpose as specified under section 501(c)(3) of the
Code. As your primary purpose is to serve as a mortgage broker on behalf of lenders for a fee, you are operated
for a substantial nonexempt purpose. Moreover, exemption under Section 501(c)(3) of the Code is precluded
because your primary purpose is the operation of an unrelated trade or business as defined under Section 513 of
the Code. Furthermore, you do not operate a substantive, ongoing program of public education or counseling,
and you do not meet the requirements of Section 501(q) of the Code.

If you don’t agree

You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you
must send a statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone
number

• A copy of this letter highlighting the findings you disagree with
• An explanation of why you disagree, including any supporting documents

• The law or authority, if any, you are relying on

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


10

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization, or your authorized representative

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I examined this protest statement, including

accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts 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 he or she hasn'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 provided a basis for us to reconsider our determination. If
so, we'll continue to process your case considering the information you provided. If you haven’t provided a
basis for reconsideration, we'll forward your case to the Office of Appeals and notify you. You can find more
information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-
Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court at a later date because
the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest
Please send your protest statement, Form 2848, if needed, and any supporting documents to the applicable
address:

U.S. mail:
Internal Revenue Service
EO Determinations Quality Assurance
Room 7-008
P.O. Box 2508
Cincinnati, OH 45201

Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Room 7-008
Cincinnati, OH 45202

You can also fax your statement 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 he or she received
it.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


11

If you agree
If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from you

within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on your
income tax filing requirements.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If
you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W