IRS revokes charity whose only activity was a business networking event

Plain-English summary

A tax-exempt organization described its purpose as promoting trade, commerce, tourism, and friendship between countries. During the examined year, its only activity was a free trade, commerce, and cultural exchange event where business owners, investors, and professionals networked, discussed investment opportunities, and met service providers. The IRS found that this activity primarily advanced commercial and private interests rather than an exempt charitable or educational purpose. It also concluded that the organization had not established that its net earnings did not benefit private parties. The organization's president agreed to revocation, and the IRS revoked Section 501(c)(3) status back to the stated effective date.

Ruling snapshot

• Question: Did the organization's business networking event preserve its qualification under IRC § 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 513, 7428; Treas. Reg. § 1.501(c)(3)-1(a), (c), (d), (e)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street MC 4920 DAL
Dallas, TX 75242

Number: 201809011
Release Date: 3/2/2018

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: SEP 21 2017
DIVISION
Person to Contact: Identification Number:
In Reply Refer to:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

CERTIFIED MAIL —Return Receipt Requested

UIL Code : 501.03-00

Dear

This is a Final Adverse Determination Letter that your exempt status under section 501(c)(3)
of the Internal Revenue Code (IRC) is revoked. Recognition of your exemption under IRC
section 501(c)(3) is revoked effective January 1, 20xx.

Our adverse determination was made for the following reason(s):

You have not established that you are operated exclusively for an exempt
purpose or that you have been engaged primarily in activities that accomplish
one or more exempt purposes within the meaning of IRC section 501(c)(3).

You have not established that no part of your net earnings inure to the benefit
of any private shareholder or individual.

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

You are required to file Federal income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the year ending December 31, 20xx and for all
years thereafter.

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

Code.

If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Claim Court or the District
Court of the United States for the District of Columbia before the 91st day after the date this

determination was mailed to you. Contact the clerk of the appropriate court for the rules for
initiating suits for declaratory judgment.

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that
can help protect your taxpayer rights. We can offer you help if your tax problem is causing a
hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you
qualify for our assistance, which is always free, we will do everything possible to help you.
Visit taxpayeradvocate.irs.gov or call 1-877-777-4778.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.

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

Sincerely yours,

Maria Hooke
Director, Exempt Organizations Examinations

Enclosure:
Publication 892

Date:
July 14, 2017
Taxpayer Identification Number:

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Exempt Organizations Examinations
Form:

Tax Year(s) Ended:
Person to Contact / ID Number:

Contact numbers:
Telephone:
Fax:

Manager’s Name / ID Number:

Manager's Contact Number:

Certified Mail — Return Receipt Requested
Dear

Why you are 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

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

Letter 3618 (Rev. 6-2012)
Catalog Number 34809F

may file a protest with the 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,

Director, EO Examinations

2 Letter 3618 (Rev. 6-2012)
Catalog Number 34809F

Enclosures:

Form 6018

Form 4621

Final Report of Examination
Publication 892

Publication 3498

Letter 3618 (Rev. 6-2012)
Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

Date of Notice:
Corrected - Final Report

Whether the Organization continues to qualify for exemption from Federal income tax under Section
501(c)(3) of the Internal Revenue Code.

Facts:

was incorporated in the state of on June 30, 20xx.
Per the Articles of Incorporation, they were formed for the following purposes:

“The specific purpose of this corporation is to promote and facilitate trade, commerce, tourist and
friendship between and »

filed Form 1023 for exemption on November 10, 20xx and
was granted exemption as a 501(c)(3) on November 19, 20xx with an effective date of exemption of June
30, 20xx.

The Organization was selected for audit to ensure that the examined organization's activities and
operations align with its approved exempt status.

An organization exempt under 501(c)(3) needs to be organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary or educational purposes or to foster national and
amateur sports competition.

Letter 3606 with Form 4564 IDR, Information Document Request, dated September 13, 20xx was sent to
Organization requesting copy of Articles of Incorporation, description of activities, statement of revenue,
expenses, assets and liabilities and meeting minutes for the tax year ending December 31, 20xx.

Reply from Organization was received on November 14, 20xx. Organization sent Articles of Incorporation,
dated June 30, 20xx. Articles of Incorporation met the organizational test for Section 501(c)(3). Along with
the Articles of Incorporation was an amendment dated October 10, 20xx. The amendment was for
updating the name to from to the correct spelling

Description of activity was received. The only activity they had for tax year December 31, 20xx was a
Trade, Commerce and Cultural Exchange Event.

The purpose for the event serves as a bridge that connects elites in different industry to gather together to
share their experience and insights. This event helps elites from to learn more about

, and supports them in expanding their business or specialties to . Moreover, elites
from different countries get to understand other country's cultural and industries’ policies and
opportunities. In addition, specialists have the opportunity to learn from professionals in other industries,
and have a better understanding of different industries. This also serves as a networking opportunity for
professionals and investors from different industries to promote potential cooperation among them.

Attendants of this activity are business owners, investors, specialists from : Specialist and
professionals in industries such as real estate, education, restaurant, media, art, hospitality, and finance

from ; Business executives and student leaders from and

Form 886-A(Rev.4-68) | Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

Additional Form 4564 IDR, Information Document Request, was sent to Organization on December 28,
20xx asking for more information regarding their activities. Requested current officer's name, title and a
good phone number and where the officer can be reached to discuss the examination.

Received reply through E-Fax on January 11, 20xx.

Organization only had one activity, The Trade, Commerce and Cultural Exchange Event. Organization
gave the same example as in original reply of November 14, 20xx. The reply did state the event format
was for networking and has no relationship with the government.

This is a free event for people to get to know more about the business culture, environment and any other
topics in different countries, especially : and the .
For example, attendants such as business owners and investors from attended this event to get to
know more about the business related policies and environment. This will help them in investing in the
. Moreover, they get the chance to meet real estate agents who can offer them with different

investment projects, and also residential houses for their own dwelling. In addition, they have the chance
to interact with student leaders to get to know more about the school life in the and help them to make
better decision on where they want to send their kids to school.
Vice versa, people living in the also have the chance to network with professional in and

to learn more about the living and business environment in
This is a networking event where elites from different industry can gather together to share their
experience, learn from each other, and broaden their minds.

There are no members and one donation was received in the amount of $x,xxx from

Law:

Section 1.501(c)(3)-1(a)(1) of the regulations provides that in order to be exempt under § 501(c)(3), an
organization must be both organized and operated exclusively for one or more of the exempt purposes
specified in that section. If an organization fails to meet either the organizational test or the operational
test, it does not qualify for exemption.

Section 1.501(a)(1)-1(c) defines a "private shareholder or individuals" as "persons having a personal and
private interest in the activities of the organization." Thus, 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.

Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively for one
or more exempt purposes only if it engages primarily in activities which accomplish one or more of such
exempt purposes specified in § 501(c)(3). An organization will not be so regarded if more than an
insubstantial part of its activities is not in furtherance of an exempt purpose.

Section 1.501(c)(3)-1(c)(2) provides that "an organization is not operated exclusively for one or more
exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or
individuals..."

Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively for
one or more exempt purposes unless it serves a public rather than a private interest. To meet the
requirement of this subsection, the burden of proof is on the organization to show 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.

Form 886-A(Rev.4-68) | Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

Section 1.501(c)(3)-1(d)(2) states, in part, that the term "charitable" in § 501(c)(3) includes relief of the
poor and distressed or of the underprivileged; advancement of religion; advancement of education or
science; lessening of the burdens of government; and promotion of social welfare by organizations
designed to accomplish any of the above purposes.

Section 1.501(c)(3)-1(d)(3)(i) states that the term "educational" in § 501(c)(3) includes the instruction of
the public on subjects useful to the individual and beneficial to the community.

Section 1.501(c)(3)-1(e)(1) provides that an organization may meet the requirements of § 501(c)(3)
although it operates a trade or business as a substantial part of its activities, if the operation of such trade
or business is in furtherance of the organization's exempt purpose or purposes and if the organization is
not organized or operated for the primary purpose of carrying on an unrelated trade or business as
defined in § 513. In determining the existence or nonexistence of such primary purpose, all the
circumstances must be considered, including the size and extent of the trade or business and the size and
extent of the activities which are in furtherance of one or more exempt purposes. An organization which is
organized and operated for the primary purpose of carrying on an unrelated trade or business is not
exempt under § 501(c)(3).

Organizational and operational tests

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

Operational test

Primary activities - 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 such exempt purposes
specified in section 501(c)(3).

Exempt purposes
Charitable defined

-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 the burdens of Government;

-Promotion of social welfare by organizations designed to accomplish any of the above purposes.

In Better Business Bureau of Washington D.C., Inc. 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. The Court found that a trade
association had an "underlying commercial motive" that distinguished its educational program from that
carried out by a university, and therefore, the association did not qualify for exemption.

In B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978), the Tax Court considered an organization
that provided consulting services to groups that were mostly § 501(c)(3) organizations. The organization
charged fees for its services set at or close to its own cost. The court concluded that there was nothing to
distinguish these activities from those of an ordinary commercial consulting enterprise, and affirmed the
Service's denial of exemption under § 501(c)(3).

Form 886-A(Rev.4-68) | Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
20xx12

In Easter House v. United States, 12 Cl.Ct. 476, 487 (1987), citing section 1.501(c)(3)-1(d)(1)(ii) of the
regulations, without opinion, 846 F.2d 78 (Fed. Cir. 1988), an organization is not operated exclusively for
exempt purposes if it serves a private rather than a public interest.

Governments Position

You do not satisfy the requirement of Treas. Reg. Section 1.501(c)(3)-1(e). Your activities do not directly
further an exempt purpose. You operate for the primary purpose of carrying on a trade or business that
does not further an exempt purpose. A review of the facts indicates you operate a networking event for
business owners and investors.

You state this will help them to invest in the , and they get the chance to meet real estate
agents who can offer them different investment projects and also residential houses for sale for their own
dwelling.

You do not meet the requirements of Treas. Reg. Section 1.501(c)(3)-1(c)(1) because you are not
operated exclusively for charitable purposes. An organization is operated for charitable purposes only if it
engages primarily in activities that accomplish one or more exempt purposes. More than an insubstantial
part of your activities furthers non-charitable purposes.

Your activities do not fall within the definition of charitable as found in Treas. Reg. Section 1.501(c)(3)-
1(d)(2). While you state your purpose is to benefit a charitable class of individuals, you have not
demonstrated that the activities you conduct are exclusively charitable.

Section 1.501(c)(3)-1(d)(ii) of the regulations provides that an organization is not organized or operated
exclusively for one or more exempt purposes unless it serves a public rather than a private interest. Thus,
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.

Taxpayers Position:

President signed Form 6018 on May 27, 20xx and agrees to the revocation of their
501(c)(3) tax exempt status.

Conclusion:

Based on the information provided in your Form 1023EZ and supporting documentation, we conclude that
you are not operated exclusively for purposes described in § 501(c)(3).

Accordingly, you do not qualify for exemption as an organization described in § 501(c)(3) and you must file
federal income tax return 1120.

Contributions to the organization are not deductible under § 170.

exempt status is revoked to effective date of exemption,
January 1, 20xx.

Form 886-A(Rev.4-68) | Department of the Treasury - Internal Revenue Service
Page: -4-