Political association denied charitable exemption

Plain-English summary

An unincorporated association sought recognition as a Section 501(c)(3) charity. Its bylaws promoted political activity, required officers and members to be voters of one political party, and described election-related activities, even though the organization said it did not endorse candidates. The association did not provide its original organizing document and its amendments did not remove the potentially disqualifying language. Its governing documents also lacked provisions limiting its purposes to exempt purposes and dedicating its assets to exempt use upon dissolution. The IRS concluded that the organization failed the organizational test and denied exemption, which became final when no protest was filed within 30 days.

Ruling snapshot

• Question: Did the political membership association's organizing documents satisfy the requirements for Section 501(c)(3) exemption?
• Outcome: Denied because the administrative record did not establish that the association was organized exclusively for exempt purposes.
• Key authorities: IRC § 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(b)(1)(i), 1.501(c)(3)-1(b)(4); Rev. Proc. 2018-5

Full text (IRS public release)

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

Date: April 12, 2018

Employer ID number:
Number: 201827013

Release Date: 7/6/2018 Contact person/ID number:

                                      Contact telephone number:
                                      Form you must file:

                                      Tax years:

UIL: 501.00-00, 501.03-04

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
P.O. Box 2508
Cincinnati, OH 45201

Date:
February 8, 2018
Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
501.00-00
C = Year 501.03-04
D = Date
E = Political party

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

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

Facts

You are an unincorporated association and assert that you were originally formed around C, but you did not
provide a copy of your original organizing document. However, you provided a copy of your amended Bylaws
that were signed and dated on D. Your amended Bylaws state that your purpose is:

• To encourage effective political activity

• To educate your members and to inform and be informed about the issues facing society

• To encourage the development of qualified women candidates for public office, and the participation
of women in all phases of governmental activity, and

• To encourage participation in activities which enhance the community, the environment and which
will increase the development of and the community at large.

Your Bylaws further state that you will be active in the general, municipal and special elections on behalf of
such candidates who have been nominated either by primary election, nominating convention or substituted
nomination. Your purpose is to encourage and to help women take a more vital role in the electoral process, not
to publicly endorse candidates in primary elections. You will encourage effective political leadership by
educating your members and being informed about issues facing society.

Your Bylaws further state that your officers and members shall be active voters of the E political party. The
required Section 501(c)(3) language regarding your purpose and dissolution is not included.

When asked about possible political activities eluded to in your Bylaws, you asserted that you are a charitable
organization. You provided examples of some of the charitable work you do, such as making donations to other
charities. You also said that you do not endorse any candidates and you invite all candidates to speak to your
membership. According to your Bylaws, your officers and members must be members of the E political party.
Despite this fact, you said that you do not support any political candidate or political party.

You provided an amendment to your Bylaws which states that you have formed cluster groups to reach all
registered E women of your city throughout the metropolitan area. The cluster groups will be comprised of
registered E women from all wards and divisions. The purpose of the cluster groups is to encourage all
registered E women in your city to take an active part in political issues facing society and the E party to gain a
better understanding of the political issues and process of the E party. The amendment was brief and only
discussed the idea of cluster groups.

Later you provided another an amendment to your Bylaws which states that you do not support or endorse any
political candidates. It is noteworthy that you again did not provide a full copy of your amended Bylaws; rather,
you submitted an attachment to the original Bylaws which didn’t say that it was amending any particular section
of the original. It also didn’t remove references to potential political activities from the first copy of the Bylaws
you submitted.

Despite two written requests, you did not provide a copy of your original organizing document. Also, despite
multiple requests, potentially disqualifying language was not removed from your Bylaws and the required
Section 501(c)(3) language was not added regarding the purpose and dissolution.

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 engage, otherwise 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(b)(4) holds 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 operation of law, be distributed for one or more exempt purposes.

Revenue Procedure 2018-5, 2018-1 I.R.B. 233, 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. 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.

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, Inc. v. Commissioner, T.C. Memo. 1982–97, affd. 711 F.2d 1058 (6th Cir. 1983), 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 (2009), 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 supporting documentation 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).

You did not provide a copy of your initial organizing document. Your amended Bylaws do not limit your
purpose to one or more exempt purposes or dedicate your assets to an exempt purpose upon your dissolution.
As a result, you have not satisfied the organizational test described in Treas. Reg. Sections 1.501(c)(3)-
1(b)(1)(i) and Treas. Reg. Section 1.501(c)(3)-1(b)(4).

You did not provide us with a copy of your initial organizing document. The subsequent copy of your amended
organizing documents did not limit the purposes of your organization to one or more exempt purposes or
indicate that your assets are dedicated to an exempt purpose. Therefore, there is not sufficient documentation to
establish that you are exempt from taxation as required by Section 501(c)(3) of the Code and Rev. Proc. 2018-5.
As in Universal Life Church, you have the burden of establishing that you qualify for tax exemption.

In Pius XII Academy, Inc., La Verdad, and New Dynamics Foundation, it was established that an organization
must establish, through its administrative record, that it meets the requirements for exemption. Because you
failed to provide sufficient details in your initial application and the additional documentation you provided did
not meet the statutory and regulatory requirements for exemption, you have not established that you meet the
requirements for exemption under Section 501(c)(3) of the Code. As provided in New Dynamics Foundation,
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 did not provide supplemental information;
therefore, we are unable to determine that you qualify for exemption.

Conclusion

Based on the information submitted, you have failed to establish that you are organized 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, you fail to qualify for exemption under Section 501(c)(3).

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:

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.

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