Denies exemption for vague youth aid and training programs

Plain-English summary

An organization applied for section 501(c)(3) status to support young people through savings assistance, activities, scholarships, mentoring, and job training. The IRS found that its articles did not limit it to exempt purposes and that the administrative record lacked objective aid criteria, unbiased scholarship procedures, and adequate details about its auto-detailing and housing-rehabilitation training. The organization also failed to answer a second request for additional information. The IRS concluded that it had not met either the organizational or operational test for exemption. After the organization did not protest the proposed denial within 30 days, the IRS made the adverse determination final and stated that donors could not deduct contributions under section 170.

Ruling snapshot

• Question: Did the organization establish that it was organized and operated exclusively for purposes described in section 501(c)(3)?
• Outcome: Denied.
• Key authorities: IRC §§ 170, 501(a), and 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Proc. 2017-5.

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Date: January 4, 2018

Employer ID number: [redacted]

Number: 201813017
Release Date: 3/30/2018
Contact person/ID number: [redacted]

Contact telephone number: [redacted]

Form you must file: [redacted]

Tax years: [redacted]

UIL: 501.03-00

Dear [redacted]:

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.

We sent a copy of this letter to your representative as indicated in your power of attorney.

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
P.O. Box 2508
Cincinnati, OH 45201

Date: September 14, 2017
Employer ID number: [redacted]
Contact person/ID number: [redacted]

Contact telephone number: [redacted]

Contact fax number: [redacted]

Legend:

B = Date
C = State
D = Name
H = Investment
J = Name
K = Name

UIL:
501.03-00

Dear [redacted]:

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

Do you qualify for exemption under Section 501(c)(3) of the Code? No, for the reasons stated below.

Facts

You were incorporated on B in the State of C. The purpose clause on your Articles of Incorporation provides
the following:

We are committed to ‘Head-Start Career and College Saving’s Fund’s.’ For the benefit of
supporting higher education for area children from 1 year to 21 years Alumnis... We are
Building D, Art’s and Craft’s, Three Car Garage for Automotive Detail Training and Automotive
Rehab Training; Opening the doors to after school programs Mentoring and Tutoring Free
Escorted Trips and Tours. Fund-raisers that support preparing area children for brighter futures.

You stated on Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal
Revenue Code, that your organization’s mission is “solely committed to educating, mentoring, tutoring and
nurturing our communities’ children and families, as well as providing assistance with financial burdens of
schooling, and preparing our youths for skilled job training and higher education. You will assist youths and
families to prepare and save for college and get a head start on their careers. You will provide job skills training,
transportation and utilities as well as mentoring. You plan to collaborate with other non-profits for youth
sponsorship through church and school.

You submitted Schedule H from Form 1023 for organizations providing scholarships. You did indicate that you
will maintain case histories showing the recipients of your scholarships and relatives of members of the
selection committee, or of your officers, directors or substantial contributors are eligible for awards. You did
not submit any of the required supplemental information to the Schedule H of the Form 1023.

You stated in your response to our request for additional information that you do not offer scholarships at the
current time but may in the future. If you do offer scholarships, they will be based on merit, teacher
recommendations and need. The scholarships will be in the form of H. You did not, however, provide any
information, when we asked as part of our requested for additional information, on the measures you will take
to ensure an unbiased selection of scholarship recipients.

You provided the following information as part of your response to our request for additional information:
You stated that:

we are reaching out to the parents of children age 1 to 21 K. We encourage families to start saving early
for their child successful futures. So, through opportunities to wash cars we get to send small group of
children 15 at a time on free escorted trip and yours with $ [redacted] in their hands. We offer H in our efforts of
connecting with families and children at risk and try to help parents purchase secure J. Utility Pool to
share with all children members at age [redacted]. Managed by an investment company.

You conduct weekly car washes to raise funds that are then used to provide various activities for youth whose
parents cannot otherwise afford the activities. You do not charge any fees for this program. Other than the
statement that you will provide funds for activities for youth whose parents cannot otherwise afford the
activities, you have not indicated whether you will assess the needs of the recipients of aid or described the
objective criteria you use to select recipients for your funding.

You accept donor advice as to the use of contributions that are maintained in a separate account. You maintain
oversight of the funds in the donor advised accounts in that three people oversee all cash and resources and
report to the accountant. Finally, the financial data you submitted indicate your income consists of donations
and car washes services. Your expenses include fundraising, purchase of H, occupancy and professional fees.

Our second request for additional information, to which you did not respond, solicited detailed information
regarding your proposed activities. Your President indicated in a telephone conversation with us that you would
only be conducting two training programs: auto detailing and housing rehabilitation. The purpose clause of your
Articles of Incorporation also mentioned your auto detailing and auto rehabilitation training programs. We
requested detailed information regarding your proposed auto detailing training program including the
curriculum/instructors of the program, where the program will be conducted, and the relationship between you
and the facility owner.

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

We also requested additional information regarding your proposed housing rehabilitation training program.
Detailed information regarding the curriculum, participants, classroom/offsite training, where the program is
conducted, and tuition charged. You did not submit the requested information to demonstrate that the auto
detailing and housing rehabilitation training programs are operated exclusively to further one or more tax-
exempt purposes under section 501(c)(3) of the Code.

Law

Section 501(c)(3) of the Code provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, 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(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization to engage in, otherwise more than as an insubstantial part
of its activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of
such exempt purposes specified in 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)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term “charitable” also includes lessening of the burdens of government.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) defines the term educational as the instruction or training of the
individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects
useful to the individual and beneficial to the community.

Revenue Procedure 2017-5, 2017-1 I.R.B. 2321, Section 6 (and its predecessors) provides that a favorable
determination letter or ruling will be issued to an organization only if its application and supporting documents
establish that it meets the particular requirements of the section under which exemption from federal income tax
is claimed. Section 3 states that a determination letter or ruling on exempt status is issued based solely upon the
facts and representations contained in the administrative record. The applicant is responsible for the accuracy of
any factual representations contained in the application.

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

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

Pius XII Academy v. Commissioner, T.C. Memo. 1982-97 provides that an organization must establish through
the administrative record that it operates as an exempt organization. Denial of exemption may be based solely
upon failure to provide information describing in adequate detail how the operational test will be met.

In La Verdad v. Commissioner, 82 T.C. 215 (1984), the administrative record did not demonstrate that the
organization would operate exclusively in furtherance of an exempt purpose. Therefore, denial of organization’s
request for tax-exempt status was reasonable.

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that
the actual purposes displayed in the administrative record supported the Service’s denial, stated “It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant.” The court noted that if the petitioner had evidence that contradicted these findings, it should have
submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

Ohio Disability Association v. Commissioner, T.C. Memo 2009-261 states denial is justified because responses
to requests for additional information failed to supplement the initial application or clarify purposes and
activities, and generalizations did not provide sufficient detail to determine that the organization would be
operated exclusively for exempt purposes.

Application of law

A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided an adequate, detailed description of activities to establish you meet the requirements of Section
501(c)(3) of the Code. Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated
in Treas. Reg. 1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for
purposes described in Section 501(c)(3).

Your Articles of Incorporation do not limit your purposes to one or more exempt purposes. As a result you
have not satisfied the organizational test described in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).

You do not meet the operational test under Section 501(c)(3) of the Code because you have not establish that
you are operated exclusively for one or more exempt purposes under Section 501(c)(3) of the Code as required
under Treas. Reg. Section 1.501(c)(3)-1(c)(1). You have not shown that you are operated exclusively for a
charitable purpose as provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2). You have not provided information
to show that you assess the needs of your recipients of aid or on the criteria you use to select recipients for your
aid. You have not shown that the assistance you provide is limited to charitable recipients including the poor
and distressed or the underprivileged. Therefore, your assistance to relieve the financial burdens of schooling,
offering of H and assisting to purchase J, are not described in sufficient detail to demonstrate that you are
operated exclusively for charitable purposes.

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

Additionally, you have not established that you are operated exclusively for an educational purpose as stated in
Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i). You have not provided any specific details about educating,
mentoring, tutoring and nurturing the communities’ children and families. Although relatives of members of
the selection committee, or of your officers, directors or substantial contributors are eligible for scholarship
awards, you have not described the measures, if any, you will take to ensure an unbiased selection of
scholarship recipients. You have also not provided an adequate description of your job skills training programs,
including your auto detailing and housing rehabilitation training programs.

You have not provided sufficient information to demonstrate how your programs further exclusively one or
more tax-exempt purposes under Section 501(c)(3) of the Code. Therefore, you have not provided a sufficient
description of your activities to establish that you meet the requirements for recognition of tax exemption under
of Section 501(c)(3) of the Code as required by Revenue Procedure 2017-5.

An organization must establish through the administrative record how it meets the operational test. (See
Universal Life Church, , La Verdad, New Dynamics Foundation and Ohio Disability Association.) As in
Universal, you have the burden of establishing that you qualify for tax exemption. In Pius XII Academy, La
Verdad, and New Dynamics, it was provided that an organization must establish, through its administrative
record, that it meets the requirements for exemption. Because you failed to provide sufficient details about your
activities in your initial application and in your responses to our request for additional information, you have not
shown that you meet the requirements for exemption under Section 501(c)(3) of the Code. As provided in New
Dynamics, any gaps in the administrative record will be resolved against the applicant. Similarly, in Ohio
Disability Association, the court found that even when additional information was provided, but it contained
generalizations and failed to clarify purposes, denial is justified. You have not submitted sufficient information
to meet your burden of establishing that your operations will be exclusively in furtherance of exempt purposes
under Section 501(c)(3) of the Code.

Conclusion

Based on the information submitted, you have failed to establish that you are organized and operated
exclusively for exempt purposes within the meaning of Section 501(c)(3) of the Code and the related Income
Tax Regulations. Therefore, based on the administrative record, we hold that you do not qualify for exempt
under Section 501(c)(3) 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

• 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: Street address for delivery service:
Internal Revenue Service Internal Revenue Service
EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008
P.O. Box 2508 Cincinnati, OH 45202
Cincinnati, OH 45201

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

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.

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

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