Online gaming community denied Section 501(c)(3) status

Plain-English summary

An organization operated online game servers, moderated chat, contests, radio shows, and occasional in-person meetups intended to connect LGBTQ people and allies in a supportive environment. Its articles lacked a written exempt-purpose clause, and the dissolution clause allowed remaining assets to go to persons or organizations engaged in any not-for-profit activities rather than limiting them to Section 501(c)(3) purposes. The IRS also found that providing gaming access to people of all ages was a substantial recreational purpose. Although moderators offered peer support, crisis resources, and protection from harassment, those services were secondary to gaming and were available through an environment similar to commercial game servers. The organization therefore failed both the organizational and operational tests. It did not protest the proposed determination, so the denial became final and contributions were not deductible.

Ruling snapshot

• Question: Did the online gaming organization satisfy the organizational and operational tests for Section 501(c)(3) exemption?
• Outcome: Denied.
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Better Business Bureau v. United States, 326 U.S. 279 (1945); GameHearts v. Commissioner, T.C. Memo. 2015-218

Full text (IRS public release)

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

Release Number: 201824012
Release Date: 6/15/2018
UIL Code: 501.03-05
501.03-30

Date: March 23, 2018

Employer ID number:

Contact person/ID number:

Contact telephone number:

Form you must file:

Tax years:

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.

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: January 17, 2018

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend: UIL: 501.03-05, 501.03-30

G = Game 1
H = Game 2
X = Date 1
Y = Date 2
Z = State

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 tax exemption under Section 501(c)(3) of the Code? No, for the reasons described
  below.

• Do you meet the organizational test under Section 501(c)(3) of the Code? No, for the reasons
  described below.

• Do you meet the operational test under Section 501(c)(3) of the Code? No, for the reasons described
  below.

Facts
You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption Under Section 501 (c)(3) of

the Internal Revenue Code, on X.

You attest that you were incorporated on Y, in the state of Z. You also attest that you have the necessary
organizing document, that your organizing document limits your purposes to one or more exempt purposes

2

within the meaning of Section 501(c)(3) of the Code, that your organizing document does not expressly
empower you to engage in activities, other than as an insubstantial part, that are not in furtherance of one or
more exempt purposes, and that your organizing document contains the dissolution provision required under
Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you
have not conducted and will not conduct prohibited activities under Section 501(c)(3) of the Code. Specifically,
you attest you will:

• Refrain from supporting or opposing candidates in political campaigns in any way

• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
  individuals

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
  insubstantially

• Not be organized or operated for the primary purpose of conducting a trade or business that is not related
  to your exempt purpose(s)

• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
  made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations
  outlined in Section 501(h)

• Not provide commercial-type insurance as a substantial part of your activities

During our review of your Form 1023-EZ, we requested detailed information supplemental to the above
attestations. You provided a further activity description in writing. We mailed you a copy of your Articles of
Incorporation that we obtained from the Z Secretary of State website.

Your Articles of Incorporation do not include a written purpose clause.

Your dissolution clause provides:
“On dissolution or final liquidation of the corporation, its assets shall be distributed as follows:
(1) All liabilities shall be paid and discharged, or adequate provision for payment and discharge shall be
made.
(2) Assets held on condition requiring return or transfer on dissolution of the corporation shall be
returned or transferred as required by the condition.
(3) Assets received and held subject to a limitation permitting use only for charitable, religious,
benevolent, educational or similar purposes, but not held on a condition requiring return or transfer on
dissolution of the corporation, shall be transferred to one or more appropriate domestic or foreign
corporations, societies or organizations under a plan of distribution adopted as provided in this chapter.
(4) Other assets shall be distributed as provided by the articles of incorporation or bylaws to the
extent that the articles or bylaws provide the distributive rights of members, or any class of members, or
provide for distribution to others.
(5) Any remaining assets may be distributed to persons, societies, organizations, or domestic
or foreign corporations engaged in activities not for profit, as provided in a plan of distribution
adopted by the council of administration of the corporation and in compliance with the
constitution and bylaws of the corporation.”

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

Your activities include running gaming servers, holding special online events, weekly online events, and
organizing meetups.

You indicated that you operate 24 hours a day to connect lesbian, gay, bisexual, transgender, and queer people
and their allies through gaming and hosted multimedia events in an accessible and moderated online
environment. Activities consist of chat and collaborative play online. Players from all over the world connect
to your website, your moderated voice chat group, and your server to access the video games G and H which
you configure and pay to host. You provide a common server where everyone can access your programs.
Players volunteer to serve as moderators and operators who introduce new members to the community,
moderate chat to prevent harmful behavior, and moderate gameplay to prevent cheating.

Special online events take place one to three times per quarter. They may consist of contests with prizes
awarded that take place online, whether created in a video game on one of your servers, or occurring online
through the server’s web forums. Prizes are often virtual, consisting of play-currency on the G server, or may
be real prizes consisting of gifts to download a video game. Games may be donated or you may purchase the
games for these purposes. The purpose of the contests and prizes is to bring people together and foster
community.

Weekly, a volunteer DJ hosts an online radio show. Players connect to listen through a web browser or radio
player on their own device; or, they may participate live, interfacing with other listeners in the server chat, in
the G video game server, or on a webcam. Players can request songs to be played, and the radio show itself
consists of humor and music. After each radio show, a H video game playing event takes place, giving players
a common time to meet and play together. Players can chat by voice using your moderated voice chat group.

In addition to the online activities, you coordinate annual meetups in a selected city where adult members can
meet in person and affirm the friendships they have developed online while playing together. Activities at
meetups depend on the chosen location but can consist of time spent at museums, restaurants, arcades or
tabletop gaming. Fees charged to attend meetups are proportional to your cost to host the meetup. You stated
that approximately five percent of your time and resources is spent on meetups, while the rest is devoted to
online activities.

Participants in your activities include adults and teenagers, although you assert most are teens. You indicated
most of your userbase is lesbian, gay, bisexual, transgender, or queer. You do not charge any participation fees
for any of your online activities. Your current operations are supported entirely by charitable donations from
individuals. The majority of your costs are associated with hosting the G and H online gaming servers. Other
resources are devoted to improving the quality of gameplay and preventing server latency. You also incur
expenses for your website, which integrates with the video game servers, and the VPN (virtual private network),
which provides security.

Law

Section 501(c)(3) of the Code exempts from federal income tax: corporations, and any community chest, fund
or foundation, 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 to the benefit of any
private shareholder or individual.

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

4

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that for an organization to be exempt under Section
501(c)(3) of the Code, it 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 or 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 organizing document limits the purposes of such organization to one or more
exempt purposes and does not expressly empower the organization to engage, otherwise than as an insubstantial
part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) provides that an organization is not organized exclusively for one or
more exempt purposes unless its assets are dedicated to an exempt purpose. An organization’s assets will be
considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization’s articles or by operation of law, be distributed for one or more exempt purposes,
or to the federal or state or local government for a public purpose.

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 such
exempt purposes specified in Section 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.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) provides that the term “charitable” is used in Section 501(c)(3) of the
Code in its generally accepted legal sense and 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; promotion of social welfare
by organizations designed to accomplish any of the above purposes; and, among other purposes, to combat
community deterioration and juvenile delinquency.

Treas. Reg. Section 1.501(c)(3)-1(d)(3) provides in relevant part that the term “educational” as used in Section
501(c)(3) of the Code relates to the instruction of the public on subjects useful to the individual and beneficial
to the community. The regulations further provide that an organization may be educational even though it
advocates a particular position or viewpoint, so long as it presents a sufficiently full and fair exposition of
pertinent facts to permit the public to form an independent opinion or conclusion.

Revenue Ruling 68-72, 1968-1 C.B. 250, describes an organization that operated a supervised facility to bring
together young people of college age with church leaders, educators and leading businessmen of the community
for the purpose of holding discussions on religion, current events, and social problems. It was formed for the
purpose of furthering the religious, intellectual and moral development of persons of college age through the
operation of a “coffee house.” Personal counselling was provided to aid the young adults in making social
adjustments. The social aspects of the organization were merely incidental to and in furtherance of its
charitable purpose.

Revenue Ruling 77-366, 1977-2 C.B. 192, provides that a nonprofit organization that arranges and conducts
winter-time ocean cruises during which activities to further religious and educational purposes are provided in
addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does
not qualify for exemption under Section 501(c)(3) of the Code. In addition to the usual cruise activities, the

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

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programs conducted on each cruise include a schedule of lectures, discussion groups, and special interest
workshops on religious topics, at which attendance is not required. The organization accomplished both
charitable and non-charitable purposes through its cruises.

Revenue Ruling 78-305, 1978-2 C.B. 172, describes an organization formed to educate the public about
homosexuality in order to foster an understanding and tolerance of homosexuals and their problems. The
organization collected factual information relating to the role of homosexual men and women in society and
disseminated this information to the public. Such an organization furthered charitable and educational purposes
and qualified for exemption under Section 501(c)(3) of the Code.

Revenue Ruling 80-215, 1980-2 C.B. 174, provides that an organization formed to develop, promote and
regulate a sport for individuals under 18 years of age and to promote sportsmanlike competitions within a state
qualified for exemption from federal income tax under Section 501(c)(3) of the Code. By developing,
promoting, and regulating a sport for individuals under 18 years of age, the organization combats juvenile
delinquency by providing a recreational outlet for the young people.

In Better Business Bureau v. United States, 326 U.S. 279 (1945), the court held that an organization is not
operated exclusively for exempt purposes, and thus will not qualify for exemption under Section 501(c)(3) of
the Code, if it has a single non-exempt purpose that is substantial in nature. This is true regardless of the
number or importance of the organization's exempt purposes.

In Harding Hospital, Inc. v. United States, 505 F.2d 1068 (1974), the court held that an organization seeking a
ruling as to recognition of its exempt status has the heavy burden of proving that it satisfies all the requirements
of the exemption statute. Whether an organization has satisfied the operational test is a question of fact.

In First Libertarian Church v. Commissioner, 74 T.C. 396 (1980), the court stated that the church failed to show
that it successfully segregated the clearly social and political aspects of its supper club meetings and its
publication from its religious purposes. As the church operated for social and political purposes to more than an
insubstantial degree, it failed to qualify for exemption under Section 501(c)(3) of the Code. The court stated
that an organization will not qualify for exemption if a non-exempt activity is more than an insubstantial part of
its overall activities or if an activity has more than an insubstantial non-exempt purpose. The court explained,
“Clearly the regulations and cases contemplate that a single activity may be carried on for more than one
purpose. If a substantial secondary purpose is not an exempt one, qualification under Section 501(c)(3) will be
denied.”

In Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), the court concluded that a “religious retreat
facility” was not operated primarily for an exempt religious purpose. The organization failed to establish how
the religious retreat experience being offered differed from the experience at another quiet inn or lodge. They
were operated primarily to provide members of the public with social and recreational activities in a commercial
manner.

In GameHearts v. Commissioner, T.C. Memo. 2015-218, the court had to decide whether the organization was
operated exclusively for the charitable purposes of promoting adult sobriety and general welfare by offering
gaming opportunities in a sober environment. However, it was unable to conclude the organization was
“operated exclusively” for one or more exempt purposes. The form of recreation offered as therapy was also
offered by for-profit entities, and the organization introduced new participants to that for-profit recreational

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

6

market. While the organization itself did not profit from the recreation it offered, the court concluded that
recreation was still a significant purpose, in addition to the therapy provided, because of the inherently
commercial nature of the recreation and the ties to the for-profit recreational gaming industry. Accordingly, the
organization did not operate exclusively for charitable purposes within the meaning of Section 501(c)(3) of the
Code.

Application of law

Section 501(c)(3) of the Code and Section 1.501(c)(3)-1(a)(1) of the regulations set 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). Based on the information you provided in your application and
supporting documentation, we conclude that you fail both tests.

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) because your Articles of
Incorporation are lacking a written purpose clause and thus you are not organized exclusively for one or more
exempt purposes described in Section 501(c)(3) of the Code; you do not have a purpose clause which limits
your purposes to one or more exempt purposes.

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(b)(4) because your assets are not dedicated
to an exempt purpose. Your dissolution clause is not sufficiently narrow to limit the distribution of your assets
exclusively for charitable, educational, or other Section 501(c)(3) purposes. For example, it states that “any
remaining assets may be distributed to persons, societies, organizations, or domestic or foreign corporations
engaged in activities not for profit.” This type of distribution is broader than those specified in Section
501(c)(3) of the Code. “Not for profit” activities may be outside the scope of Section 501(c)(3).

Your Articles of Incorporation do not include a written purpose clause, and the dissolution clause is not
sufficiently narrow to limit the distribution of your assets exclusively for charitable purposes. Accordingly, you
do not satisfy the organizational test and you are not organized for exempt purposes.

You are also not described in Section 501(c)(3) of the Code nor Section 1.501(c)(3)-1(a)(1) of the regulations
because you fail the operational test. Specifically the facts show you are not operated exclusively for Section
501(c)(3) purposes but for the purpose of furthering commercial recreational purposes.

You are not operated exclusively for an exempt purpose as described in Treas. Reg. Section 1.501(c)(3)-1(c)(1).
Specifically the facts show you engage in a substantial non-exempt activity, namely providing access to online
gaming servers to people of all ages. Although your activities are geared towards lesbian, gay, bisexual,
transgender, and queer people and their allies, more than an insubstantial part of your activities are in
furtherance of the non-exempt purpose of recreational gaming.

Your activities do not fall within the definition of “charitable” as found in Treas. Reg. Section 1.501(c)(3)-
1(d)(2). Although some of the participants in your activities may qualify as distressed or underprivileged, you
have not demonstrated that the activities you conduct are exclusively charitable. You are hosting game servers
accessible to anyone throughout the world, and there is no way you can ensure that online participants are
members of a charitable class, such as youth below the age of 18 years. You have indicated that adults
participating in the gaming activities may participate in meetups and meet in-person after playing together
online, thus you cannot contend that your exclusive focus is on combating juvenile delinquency.

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

7

You are distinguishable from the organization described in Rev. Rul. 68-72. You do not operate a supervised
facility focused on young adults wherein they may take part in discussions on subjects such as current events
and social problems or receive personal counseling. Substantially all of your activities take place in an online
environment. There are no assurances that participants are under the age of 18, or even young adults of college
age. Participants of any age may play games and interact in your virtual space. You have no way to restrict
access to participants of a certain age; anyone may create a profile and sign up to play. Although your
volunteers may moderate chat to prevent harmful behavior and moderate gameplay to prevent cheating, your
activities are focused on playing online games such as G and H as opposed to providing personal counseling or
social services. The social aspects of the organization described in Rev. Rul. 68-72 were merely incidental to
and in furtherance of its charitable purpose, whereas any charitable or educational services you provide are
incidental to the recreational and social aspects of online gaming.

You are like the organization described in Rev. Rul. 77-366. In this example, individuals on the cruise had
access to educational and religious lectures and workshops, but attendance at these events was not required.
Participants in your activities may have access to peer counseling and support, however they may choose to take
part in online gaming without accessing such services. You have extensive social and recreational activities
that are not consistent with the purposes described under Section 501(c)(3) of the Code. Similar to the
organization described in Rev. Rul. 77-366, the extensive amount of time, energy, and other resources which
are regularly devoted to the conduct of social and recreational gaming activities, together with the manner in
which such activities are conducted online like other recreational gaming programs, demonstrates that your
social and recreational activities serve substantial independent purposes of a non-charitable nature.

Unlike the organization described in Rev. Rul. 78-305, you are not collecting factual information to disseminate
to the general public in order to educate them about homosexuality in order to foster an understanding and
tolerance of homosexuals and their problems. Your activities do not fall within the definition of “educational”
as found in Treas. Reg. Section 1.501(c)(3)-1(d)(3) because you are not instructing members of the public on
subjects useful to the individual and beneficial to the community. Rather, you are hosting online recreational
gaming where lesbian, gay, bisexual, transgender, and queer players may interact.

You are not like the organization described in Rev. Rul. 80-215. You are not combating juvenile delinquency
by providing a recreational outlet for youth ages 18 years or younger. You have no way to limit participation in
your gaming to youth who are under the age of 18. Participants of any age may play G and H via your server.
Your primary activity is operating in a social and recreational manner through the provision of game servers for
recreational purposes. Furthermore, your activities do not exclusively serve a charitable class of individuals,
such as youth under the age of 18.

The court in First Libertarian Church v. Commissioner explained that a single activity may be carried on for
more than one purpose. But if a substantial secondary purpose is not an exempt one, qualification under Section
501(c)(3) of the Code will be denied. We acknowledge that you offer access to an environment where lesbian,
gay, bisexual, transgender, and queer people may interact without being exposed to harmful behavior.

However, you also serve to promote the online recreational gaming industry in general. Accordingly, more than
an insubstantial part of your activities is devoted to recreational activities. Therefore, you are not operated
exclusively for exempt purposes described under Section 501(c)(3).

You are like the organization in Schoger Foundation v. Commissioner. They failed to establish how their
religious retreat experience was any different from an experience at any other quiet inn or lodge providing

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

8

social and recreational activities in a commercial manner. Similarly, you have failed to establish how providing
access to online gaming differs from any other game servers providing access to the same types of games.

You are like the organization in GameHearts v. Commissioner. Your recreational gaming activities may serve
as therapy to a specific group of individuals. However, providing access to games such as G and H serves to
promote the for-profit recreational gaming market in general. Aside from the fact that you claim to serve a
disadvantaged group, hosting a server where participants may play games such as G and H is indistinguishable
from other online commercial gaming companies providing access to such games. Although there is no
evidence you are profiting from the recreation you offer, recreation is nonetheless a significant purpose of your
organization. And as stated in Better Business Bureau v. United States, an organization will not qualify for
exemption under Section 501(c)(3) of the Code if it has a single non-exempt purpose that is substantial in
nature. This is true regardless of the number or importance of the organization's exempt purposes.

Your position

You asserted that you exist to give a supportive environment online to lesbian, gay, bisexual, and transgender
youth who have unsupportive environments in real life. You state that your G server is a place where kids can
go to play the game with others, but also have the opportunity for person-to-person contact which opens
communication channels that allow it to act as a social media platform. They may choose to chat in online
public forums, or they may chat privately online and talk about their feelings, hardships they are facing, and get
peer support from other players. You stated the at-risk youth can make friends, vent their frustrations, or gain
pointers on common issues such as bullying, coming out to family, and self-acceptance.

You indicated that you give lesbian, gay, bisexual, and transgender youth a place to play and connect, free from
harassment. You explained that these individuals are subjected to high levels of harassment in other forums of
online gaming activity, as video games have long been the exclusive territory of young, heterosexual white
males. You said you serve as a place they can access resources such as suicide prevention hotlines. You
claimed that the social and entertainment aspects of your activities are incidental, but necessary, aspects to
building and sustaining your online community.

Lastly, you said you develop leadership and mentorship skills with the lesbian, gay, bisexual, and transgender
community. You said the majority of your volunteers are teens and young adults who are often experiencing
their first taste of real responsibility because they are trained in conflict resolution, interpersonal relations, peer
counseling, and crisis recognition and intervention. Your founder is a social work student trained in suicide
prevention who developed the strategies used by your staff to compassionately help those in crisis.

Our response to your position

We do not dispute that you offer access to an online environment where lesbian, gay, bisexual, and transgender
youth may find support without being exposed to harmful behavior. However, any social media platform with
public and/or private chat capabilities, whether nonprofit or commercial, could be accessed and utilized for the
same purpose. Using commercial online games such as G and H as a forum for your activities primarily serves
to promote this for-profit gaming industry.

You are of the opinion that the social and entertainment aspects of your activities are incidental, but necessary,
aspects to building and sustaining your online community. However, we contend that your charitable activities
are secondary to your recreational purposes. The social aspects of the “coffee house” described in Rev. Rul. 68-

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

72 were merely incidental to and in furtherance of its charitable purpose, whereas any charitable or educational
services you provide are incidental to the recreational and social aspects of online gaming.

Furthermore, participants from any background may play games and interact in your virtual space. You have
no way to restrict access to participants of a certain age or disadvantaged group. Anyone from around the world
may create a profile and sign up to play, which is no different than other commercial online gaming
experiences.

Although your volunteers may moderate chat to prevent harmful behavior and intervene in a time of crisis, this
is only secondary to your online gaming, contests, and radio shows. Your overall focus is on playing online
games such as G and H as opposed to providing peer counseling or social services.

Conclusion

Based on the above facts and analysis, we conclude that you are neither organized nor operated exclusively for
Section 501(c)(3) purposes. You do not meet the organizational test for exemption because your Articles of
Incorporation are lacking a written purpose clause, and your dissolution clause is not sufficiently narrow to
permanently dedicate your assets to an exempt purpose. As explained in Harding Hospital, Inc. v. United
States, an organization seeking a ruling as to recognition of its exempt status has the heavy burden of proving
that it satisfies all the requirements of the exemption statute. You have not provided sufficient evidence to
prove that you satisfy the operational test under Section 501(c)(3) of the Code. Your activities serve the
substantial non-exempt purpose of providing youth and adults access to online recreational gaming.

Accordingly, you do not qualify for exemption under Section 501(c)(3) and you must file federal income tax
returns. Contributions to you are not deductible under Section 170 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

• 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:

Letter 4036 (Rev. 7-2014)
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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.

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.

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

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