201843016: Revokes an eco-tourism nonprofit's 501(c)(3) exemption for commercial services and private benefit

View official IRS release (PDF)

Plain-English summary

This is a final IRS determination revoking the section 501(c)(3) exemption of a nonprofit that promoted sustainable travel and eco-tourism. The organization sold certifications, assessments, training, marketing, technical assistance, and other support to hotels, airlines, cruise lines, tour operators, destinations, and other tourism businesses. The IRS found that these fee-based services were substantial commercial activities, not merely incidental education, and that they directly helped private businesses attract eco-conscious customers and increase sales. Any benefit to the environment, indigenous communities, or the public was indirect and incidental to those business benefits. The IRS also treated the organization's carbon-offset sales as a nonexempt commercial activity rather than charitable donations. Because a substantial nonexempt purpose defeats the operational test under section 501(c)(3), the IRS revoked the exemption retroactively, required corporate income-tax returns, and stated that contributions would no longer be deductible under section 170.

Ruling snapshot

• Question: Did the nonprofit continue to qualify under section 501(c)(3) while selling eco-certification, consulting, marketing, training, and carbon-offset services to tourism businesses?
• Outcome: Revocation (retroactive)
• Key authorities: IRC § 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1(a), (c), and (d), 1.501(a)-1(c), and 1.513-1(b); Rev. Rul. 72-369; B.S.W. Group, Inc. v. Commissioner; American Institute for Economic Research v. United States; Better Business Bureau v. United States; IRC § 170

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

TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION

Date: MAY 24 2018

Number: 201843016
Release Date: 10/26/2018

Person to Contact: [redacted]
Identification Number: [redacted]
Telephone Number: [redacted]
In Reply Refer to: [redacted]

LAST DATE FOR FILING A PETITION WITH THE TAX COURT: [redacted]

UIL: 501.03-00

CERTIFIED MAIL - Return Receipt Requested

Dear [redacted]:

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). Our favorable determination letter to you dated June 3, 20XX, is hereby revoked and you are no longer exempt under section 501(a), as an organization described in section 501(c)(3) of the IRC, effective January 1, 20XX.

Our adverse determination was made for the following reasons:

You have not established that you are organized and 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 no longer deductible under section 170 of the 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 Court of Federal Claims 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. You may write to the courts at the following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

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,

[signature]
Maria Hooke
Director, Exempt Organizations Examinations

Enclosures:
Publication 892

---

[Proposal cover letter — Letter 3618 (Rev. 9-2017)]

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

Date: March 13, 2018
Taxpayer Identification Number: [redacted]
Form: [redacted]
Tax Year(s) Ended: [redacted]
Person to Contact: [redacted]
Employee ID: [redacted]
Telephone: [redacted]
Fax: [redacted]
Manager's Contact Information: [redacted]
Employee ID: [redacted]
Telephone: [redacted]
Response Due Date: [redacted]

CERTIFIED MAIL – Return Receipt Requested

Dear [redacted]:

Why you’re receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3).

If you agree

If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501(c)(3) for the periods above.

After we issue the final adverse determination letter, we'll announce that your organization is no longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t apply now that we've issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the IRS.

If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals.

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 adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS 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 TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

For additional information

You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

for Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 4621-A, Exempt Organizations – Report of Examination (Proposed Status Changes)
Form 886-A, Explanation of Items, and Exhibits I through XI
Form 6018, Consent to Proposed Action
Publication 892
Publication 3498

---

Form 886-A, Explanations of Items (Rev. January 1994)
Year/Period ended: 12/31/20XX and 12/31/20XX

[Redaction note: throughout this Form 886-A, the IRS release blanks the organization's name and the names of individuals, businesses, programs, places, websites, contract parties, and other identifying details. It replaces dollar figures, counts, and specific years with "0", "$0", or "20XX". Those are redaction placeholders. Blanked text is shown below as [redacted]. Financial charts were deleted from the public release and are identified as "CHART DELETED."]

ISSUES

1. Is more than an insubstantial part of [redacted]'s activities providing commercial services?

2. Do the activities of [redacted] more than incidentally benefit tour and travel businesses that operate within the tourism industry?

3. Does [redacted] conduct exclusively exempt activities and thus meet the operational test under Section 501(c)(3) of the Internal Revenue Code?

4. Should [redacted]'s exemption under Section 501(c)(3) of the Internal Revenue Code be revoked because it fails the operational test by conducting substantial commercial activities that promote the tourism industry and privately benefit tour and travel businesses that operate within the tourism industry?

FACTS

State Incorporation and Organizational Information

[redacted] ([redacted]) incorporated on March 21, 20XX as a not-for-profit corporation under [redacted] state law. The Articles of Incorporation provide that [redacted] will have no voting members. In an attached statement with the filed Articles of Incorporation, [redacted] describes its purposes as exclusively charitable, religious, literary, scientific and educational purposes, including the making of distributions to organizations that qualify as exempt organizations under Section 501(c)(3) of the Internal Revenue Code (Code).

Upon the dissolution of the corporation, after payment of liabilities, the board of directors shall dispose of all assets exclusively for the purposes of the corporation or to such organizations organized exclusively for charitable, religious, literary, scientific or educational purposes that qualify as an exempt organization under Section 501(c)(3) of the Code.

[redacted] registered as a foreign (out-of-state) corporation in the state of [redacted] on June 20, 20XX. Although this registration was administratively dissolved for failure to file annual reports in 20XX and 20XX, the organization filed for reinstatement of its foreign corporate registration with the state of [redacted] each time and is currently shown in good standing.

[redacted]'s By-laws describe the same purposes as stated in the Articles of Incorporation and include acquiring gifts and donations to be donated to other charitable entities. The Bylaws state [redacted]'s affairs shall be managed by a board of directors. The number of directors shall be [redacted] ([redacted]) and they shall be elected annually. Each director shall hold office until his successor is duly elected and qualified or until his death or resignation. A director may be removed for cause by a unanimous vote of all directors then in office. Vacancies occurring on the board of directors shall be filled by the board of directors. In the event the entire board of directors is vacant and there are no directors available to fill the vacancies by appointment, the vacancies shall be filled by appointments made by the closest heirs of the person who last served as a director of the corporation. Officers of the corporation are elected annually by the board of directors and include president, one or more vice-presidents, secretary, treasurer, and any other offices the board determines are necessary. The president is the principal executive officer and subject to the direction and control of the board of directors.

Exemption Application

[redacted] filed a Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal

Revenue Code, on April 10, 20XX. The application and its attachments described its purposes and
activities as follows:

1. Develop, market, and adopt standards for environmental business practices; advocate for the
   implementation of said practices across the travel and tourism industry so that resource managers
   and travelers can easily identify authentic environmental travel and eco-tourism operators.

2. Provide eco-certification for tourism operators who incorporate financially viable, environmentally
   and socially responsible practices into their operations, so consumers can buy and book with
   confidence.

3. Increase and develop consumer demand and awareness (of) environmental business practices
   across the travel and tourism industry, so that tourism operators move towards more environmental
   business practices.

4. Commit to the conservation and enhancement of quality travel experiences and actively contribute
   to community-based and grass-root conservation projects, so the travel and tourism industry
   advances as a whole and available resources are reinvested in our natural resources.

While Article II of the Bylaws states the corporation shall have no members, [redacted] marked on its exemption
application that it did have members and described its members as tourism operators who are committed
to incorporating financially viable, environmentally and socially responsible practices into their operations.
[redacted] described the benefits members receive in exchange for membership dues as follows:

• Consulting services (0 hours annually) designed to increase your company’s profitability through
  integrating sustainable travel practices into your organization’s operations and helping to streamline
  your operating systems

• Public relations efforts (0 times annually) focused on helping to influence consumers current and
  future travel and tourism industry employees, and opinion leaders about companies that make
  sustainability their responsibility.

• Monthly electronic [redacted] newsletter

• Inclusion of member’s company logo and [redacted] rating and a link to your website in [redacted]
  newsletter.

• Listing in [redacted] web-based [redacted]-directory (0-word profile plus on image)

• Listing in [redacted] members database with your company’s rating, Premium partner members are
  allowed a 0-word profile, supporting business members a 0 word profile and contributing individual
  members a 0 word profile

• Voting Rights — 1 vote per member

Initially, the IRS was not certain that [redacted]'s purposes and activities met the requirements for exemption under
Section 501(c)(3) of the Code. IRS correspondence with [redacted] during the application process stated that
developing, adopting, and marketing standards for environmental business practices for the travel and

tourism industry appeared to be a purpose designed to promote and increase business opportunities for
the travel and tourism industry. Additionally, providing certification for operators in the eco-tourism business
is a further indication that the organization’s purpose is to promote the eco-tourism and travel industry.
Combine the above with the promotion and awareness campaign for consumers, it appeared that the
purposes and the activities designed to carry out those purposes were not charitable or educational within
the meaning of Section 501(c)(3) of the Code. Any protection afforded the environment from the
organization's activities would be indirect and not the organization’s primary purpose.

In response, [redacted] stated it had misspoke in its exemption application as to actively marketing sustainable
travel and tourism operators to consumers. [redacted] then stated it did not intend to promote any individual tour
operators, nor seek to improve the travel industry, but rather it is focused exclusively on building
awareness, appreciation and respect for local people and the environment. In its last statement, [redacted] clarified
that its purposes and activities are exclusively charitable and educational. It will educate US travelers about
traveling in a responsible, sustainable manner and educate US tourism providers about how to integrate
financially viable, environmentally and socially responsible practices into their operations. To help achieve
this, [redacted] will provide related educational and training materials for travelers and tourism providers. It will
develop a voluntary [redacted] certification program to measure tourism provider's positive and
negative environmental, economic, and social-cultural impacts that will help travelers identify tourism
providers committed to best practices for [redacted]. Finally, [redacted] stated Sustainable Business
Consulting will not be part of [redacted]. All references to Sustainable Business Consulting and the services
offered was removed from [redacted] website.

Based upon the above clarifications, the IRS issued on June 3, 20XX a favorable determination for
exemption under Section 501(c)(3) of the Code.

Annual Filing and Examination

[redacted] filed annual returns Form 990, Return of Organization Exempt From Income Tax, for tax years 20XX to
the current tax year. The IRS selected for examination the Form 990 returns for tax years ending
December 31, 20XX and December 31, 20XX.

Public Information
During the examination, the IRS obtained information about the organization from public sources such as

the [redacted] Secretary of State website for the charitable organizations registered with them (Exhibit 1).
This website shows [redacted] as established 03/21/20XX and initially registered 06/25/ 20XX. [redacted] shows its
charitable purposes on this charities website as follows:

[redacted] is organized to: develop, market and adopt standards for
sustainable / environmental business practices; advocate for the implementation of said practices
across the travel and tourism industry and consumer marketplace; and to provide eco-certification
for tourism operators; and promote organizations that demonstrate support for environmental
conservation, socio-cultural responsibility and economic profitability within the travel and tourism
industry. ([redacted]) was founded to build awareness, appreciation and
respect for local people and our environment through education and outreach. The organization has
been providing consumers and travel related businesses and organizations with the tools and
resources necessary to achieve sustainability since September 20XX. [redacted] has provided printed
copies of its guide to sustainable travel and tourism to over 0 business owners interested in
integrating responsible practices into their business operations, distributed the document
electronically from its web site, and has sold more than 0 copies of its reader on sustainable travel

and tourism to college students. In addition, [redacted]'s management team is invited to speak at dozens of
major international and domestic conferences and events annually, affording the opportunity to
reach thousands of leaders within the travel and tourism industry. [redacted]'s management team is also
invited to speak to college students on a regular basis. With more than 0 unique e-newsletter
recipients from over 0 countries and 0 media contacts, [redacted] is regarded as one of the best sources for
eco-[redacted] and [redacted] information and resources in the travel and tourism industry. And, as
an industry specific, globally respected independent 501(c)(3) non-profit, [redacted] is very effective at
gaining public exposure and media traction for industry leader partners.

Organization’s Website
Also, during the examination, IRS reviewed [redacted]'s website starting in November 20XX. [redacted]'s website is
www.[redacted].org and at that time it showed an extensive selection of services for tour operators.

[redacted] developed tools and standards to allow destinations and businesses to assess their progress
environmentally, socially and economically and to ensure that the tourism industry was driving conservation
and alleviating poverty. [redacted] developed the [redacted] program, a self-assessment tool and Eco-certification. The
process assists travel providers in mitigating their negative environmental, economic, and socio-cultural
impacts and maximizing the benefits they provide to the environment, local and indigenous people and
their communities. Businesses (travel providers) can sign up annually and complete an online self-
assessment which identifies and measures key impacts of sustainability and provides ways to implement
industry best practices. Benefits from this annual membership include exclusive webinars, marketing
opportunities, and a consultation with an ([redacted]) eco-certification specialist. Certification is accomplished by
submitting to [redacted] the business’ Required Policies and Documentation for review and approval. The final
process includes an on-site assessment performed by a local [redacted]-Accredited Assessor. Annual fees for the
self-assessment tool range from $0 to $0, and the certification is a one-time fee ranging from $0 to $0. The
fees for the on-site assessment depend on many factors and were not shown on the website. All fee
ranges depend on the gross revenues of the businesses and whether the business is a member of [redacted] or
not.

[redacted]'s website also offered two certification programs for travel professionals working on tourism-related
projects in developing countries, including staff from donor and government agencies, non-governmental
organizations, consulting firms, universities, businesses, and other entities. The certifications center around
completion of course material and testing using the [redacted]
Online Tool Kit and Resource Series’ first course entitled: [redacted].
[redacted]'s website provided a link for the training program to the website maintained by
[redacted] ([redacted]). [redacted] describes the program as follows:

[redacted] Specialist and [redacted] Professionals programs are
designed to give you the skills and knowledge necessary to facilitate professional growth and
maximize your career opportunities in this diverse, exciting and expanding industry. Designed
with travel and tourism professionals of all experience levels in mind, from entry-level to
executive, the [redacted] Specialist and [redacted] Professionals programs provide successful
applicants with a formal credential and a dynamic professional development opportunity. The
cutting-edge self-paced courses utilized in the program feature [redacted] developed content.

The first certification program, [redacted] Specialist, required a fee of $0 for the certification. The
participant must demonstrate one year of experience within the tourism industry, complete the 0 units in the

first course entitled: [redacted], and complete the timed course content

examination. The 0 units covered the following topics:

Introduction to
Tourism Policies, Practice, and International Cooperation
Tools and Strategies
The Green Economy and Tourism
Tourism, Trade, and Development
Biodiversity Conservation and Protected Areas
Collaborative Mechanisms and Social Networks
Standards and Quality Assurance Systems

The second certification program, [redacted] Professional, required a fee of $0 for the
certification. The participate for this certification must demonstrate 0 years of experience within the tourism
industry, complete the same course and examination describe above for the $0 certification, plus complete
0 out of 0 additional courses within the Online Tool Kit and Resource Series along with the timed
examination for each of the three additional courses.

The 0 additional courses the [redacted] Professional participant can choose from within the
Online Tool Kit and Resource Series of [redacted]: [redacted]
course material are as follows:

• Project Development for [redacted], A [redacted] by [redacted] Approach

• Tourism Destination Management, Achieving Sustainable and Competitive Results

• Tourism Investment and Finance, Accessing Sustainable Funding and Social Impact Capital

• Enterprise Development, A Business Planning Approach

• Tourism Workforce Development, A Guide to Accessing and Designing Programs

• Scientific, Academic, Volunteer, and Educational Travel, Connecting Responsible Travelers with
  Sustainable Destinations

• Tourism and Conservation, Sustainable Models and Strategies

• Powering Tourism, Electrification and Efficiency Options for Rural Tourism Facilities

[redacted]'s website at the time stated industry leaders are taking advantage of the benefits and opportunities
sustainable business practices offer. The website stated, “[redacted].” And “[redacted].” The website continued saying,
“[redacted].”

Also, [redacted] described its Eco-certification as “a program to help travelers identify responsible tourism
businesses and to help tourism business manage their environmental impact while helping to offset the
CO2 emissions resulting from travel.” Finally, the website stated, since 20XX [redacted] has helped communities,
hotels, airlines, cruise lines and governments to plan responsibly — to chart their road maps for
responsible growth so that they can contribute to the economic and social well-being of the one in eleven
people around the globe whose lives and livelihoods depend on the world’s wanderlust. At that time [redacted] had
helped more than 0 destinations to protect their natural and cultural assets, enhanced the experience of

millions of visitors and increased the livelihoods of millions of people living in travel and tourism
destinations globally.

Form 990 return information - Revenues
For the tax years ending December 31, 20XX and December 31, 20XX, the organization’s Form 990

reported the following revenues:

CHART DELETED

The categories and description of the revenue are explained below.

Member dues

For tax years 20XX and 20XX annual membership dues were $0 for premium partner members, $0 for
supporting business members, and $0 for contributing individuals. Members also pay an annual
membership fee, an application fee for Eco-certification and other program fees. The fees and annual
membership fees are based on the member’s gross revenues. The examination reviewed the QuickBooks
accounting records and found that the revenue reported as membership dues on the Form 990 is

[redacted] program membership and invoiced travel reimbursements for the [redacted] program certifications, planning and
assessments. The [redacted] program is explained in a brochure provided during the examination (Exhibit III).

Grants, Contributions, Donations

Grant revenues received in the tax 20XX tax year were included with the total for contributions and
donations. A grant from ([redacted]) in the amount of $0 (see Exhibit XI) was
reclassified at the end of the 20XX tax year to the contributions and donations category from the program
service revenue category. A sponsorship payment of $0 from [redacted] was included in this
category. The remaining contributions and donations for the 20XX tax year were primarily from sales
receipts of B2C (business-to-consumer) purchases. These are portions of payments individual consumers
pay to [redacted] (a for-profit travel documents service provider) for products and services where a
percentage of the fee or additional amount is “donated back’ to either the organization or [redacted] for designated
environmental projects or carbon offset projects. In the 20XX tax year, however, many of the amounts
shown in the contributions category reported on the Form 990 return are also invoiced amounts for services
like carbon management program, project retainers, or work performed with travel companies such as [redacted].

Finally, [redacted] receives in this category funds for the [redacted] ([redacted]) per a contract
agreement with [redacted]. The majority of the funds collected in this program are reported back over to

the [redacted] with the exception of the 15 percent administrative fee due [redacted] for the administration of the
program on behalf of [redacted].

Educational and advisory services

[redacted]'s records show this revenue includes payment for speaker fees, webhosting for carbon calculators,
retainers for management systems and on-going support, retainers for industry training, on-site
assessments, [redacted] sales, technical assistance contracts, and marketing workshops. The services were
purchased by a cruise line, tour companies, hotels, airlines, overseas tourism development agencies and
counsels, university, and other tourism industry entities. This revenue includes amounts released over time
for contracts in progress from [redacted] and [redacted] for contracted services and
from [redacted] in [redacted] Development Plan.

The Form 990 reporting for tax year 20XX also included in this category revenues under the QuickBooks
account for Assessments, Planning & Sustainable Marketing, which included amounts from [redacted] for
quarterly reports and roll out # of the [redacted]. See brochure

provided during the examination that provides additional information on what business solutions [redacted] offers
to travel industry businesses (Exhibit III).

Standards, monitor, training

This revenue was paid by hotels, universities, tourism ministries, and travel businesses. [redacted] invoiced and
received retainers and fees for businesses sustainability management systems and sustainability
standards; managing, promoting, and producing webinar series for industry and assessor training;
standards development and monitoring; and [redacted]. The training material contains business
management material for strategic planning to grow a business in sustainable travel and tourism. It
presents the financial opportunities and advantages, challenges, planning, history and accepted criteria of
growing a business in sustainable travel and tourism.

Assessment, planning, marketing

This revenue includes contract labor; managing, promoting, and producing webinar series and media
marketing campaigns; submissions and reporting for contracts in progress, and installments for programs,
such as the early adopters program. Many of this work is also described in the business solutions brochure
provided during the examination (Exhibit III).

Education Networks

The revenue reported on the Form 990 return for this category included revenues from carbon offset
credits, carbon credit calculator, terra pass and algorithm project, payments for a
[redacted], and annual participation fees in the [redacted] ([redacted] and [redacted]). Fees
were paid by airlines, hotels, cruise lines, and other travel and tour businesses. The QuickBooks
accounting showed revenues reported in this category under partnerships and marketing. This network is
explained in a brochure provided during the examination (Exhibit IV).

Carbon sales

Carbon sales and the trading of carbon offsets on the public market, including foreign markets, is revenue
is from B2C sales of [redacted] & [redacted] calculators, united booking path, and united static path calculator. The
organization accepts contributions from individuals and businesses to offset their carbon use. The amounts
are invested in projects that reduce greenhouse emissions and stimulate demand for renewable energy.
The organization has contacts with several carbon offset providers. A liability is recorded based on
contractual terms with those providers for metric tons of carbon sold by [redacted]. The carbon offset liability is
paid based on terms with each provider. For the 20XX tax year, these carbon sales are reported in with the
grants, contributions, and donations reporting on the Form 990.

All other Program Service Revenue

This revenue is primarily from [redacted] sales and [redacted] Standard sales paid by hotels and tour shore
excursion operators for Eco-certifications and assessments. [redacted] developed and markets “[redacted] Framework”
to meet challenges of managing multiple operations and resources. [redacted] provides online tools that allows
multiple users, roles, access, and shared resources. To meet the challenge of data collection,

[redacted] provides data collection, aggregation of sustainability indicators, and monitoring results for individual
operations. [redacted] regularly markets [redacted] as the world’s first comprehensive, global sustainable [redacted]-
certification program offered by a non-profit. (Also see Exhibit II.)

Samples of Contracted Work

Exhibit V — Agreement with [redacted] ([redacted]) $0

This contract is for a grant project originally executed in 20XX and this is a fourth amendment to the original
contract. [redacted] will receive a total of $0 as a fee for [redacted] activities and travel reimbursements. The contract
outlines responsibilities and deliverables. Condensed responsibilities and deliverables are shown
below:

1. Continue working with shore excursion providers.
2. 20XX Action Plan — streamline a multi-[redacted] approach for certification process
3. Design and implement 0 hands-on training workshops for tour operators
4. Design and deliver an online/offline tour verification system
5. Continue to implement an outreach and awareness campaign
6. Design an incentive program to ensure [redacted] Excursion team achieves its goals

II. Continue working with [redacted] and its select partners providing technical advice.

1. Telephone support — up to 0 meetings via telephone
2. Onsite consultation including awareness training, technical advising, creating an action plan

III. Continue providing assistance and support to [redacted] staff as they complete
[redacted] Professionals training and certification program.

IV. Help to position [redacted] as a leader in [redacted].

1. Develop an online [redacted] Destination Management system about [redacted] Destination sustainable
   management performance
2. Facilitate one on-site meeting to review progress, enlist support, and solicit feedback

V. Project management of all deliverables and communications.

1. Technical Advisory and feedback to [redacted]
2. Quarterly meetings via teleconference with [redacted] and [redacted] project managers
3. Monthly progress reports
4. Two on-site meetings of 1-2 days

Exhibit VI — Contract with [redacted] $0
This contract is for consulting services on the [redacted] Development for Inclusive Green Growth
in [redacted] beginning April 19, 20XX and ending March 15, 20XX. The contract fee is no greater
than $0, which is broken down as $0 remuneration for staff of [redacted] based upon a number of days and daily fee
and $0 in reimbursed expenses that includes airfare, hotels, meals, and transportation costs. Payment of
fees are upon attaining deliverables:

• signing of contract and submission of work plan

• submission of final [redacted]

• submission of final action and investment plan
• submission of monitoring database and guidelines
• submission of final recommendations report
  Exhibit VII — Project Agreement with [redacted] $0

This project agreement for contracted services is effective August 26, 20XX and continues to June 30,
20XX. [redacted] will be paid a fee of $0 for a Tourism Development Plan. This plan includes Brand Development,

Establishing Destination Marketing Company(s), Establishing a Tourism Dashboard, and Maintaining
Implementation Support. Travel expenses will be billed separately from the contract fee.

[redacted]'s deliverables include:

• Market demand assessment, tourism product and attraction inventory, mapping of [redacted] Destination,
  product development recommendations, risk and security assessment plans

• work plans, vision and goal plans, zoning recommendations, economic modeling results
  draft and final development plans with presentations, forums for feedback, market analysis

• develop [redacted] criteria and guidelines for implementation, develop indicators for
  community tourism impact monitoring, train the trainer programs, pilot testing, data collectors

• 0 days technical support averaging 0 days per month over the course of 9-12 months, 0 training
  sessions,

Exhibit VIII — Contract with [redacted] (dba [redacted]) $0
This contract is effective June 30, 20XX for the contracted work for Phase 3 of the
([redacted]). [redacted] will provide the following:

a) Manage and administer [redacted] operations on an ongoing basis, maintaining operational systems,
accounting procedures and internal controls; providing participating businesses with administrative
and technical support; awarding funds to projects

b) Provide technical support to [redacted] ([redacted]) on new and existing projects; review,
provide feedback on [redacted] marketing collateral; support [redacted] marketing strategy; support roll-out of
implementation plan; determine how to expand the fund to include other philanthropic causes;
contact [redacted] lodging partners to introduce them to the fund; conduct quarterly meetings to assess
performance

c) Draft a Two-Year Implementation Plan to improve funding partner participation to generate more
project funding

d) Refine orientation and training program, train management and frontline staff of new participating
businesses and improve overall staff buy-in and support; review and set up procedures to align
donation mechanisms into booking transactions; review and set up accounting procedures and
internal controls; develop train the trainer programs for participating businesses to train their staff on
the funding process

e) Train potential new participating businesses at the 20XX [redacted] Governor's Conference, staff the
booth, and meet with existing and potential new participating businesses

The deliverables of this contract include

• Ongoing [redacted] operations management up to 0 hours per month
• 0-0 page Implementation Plan
• Training up to 0 participating businesses
• [redacted] Training Guide
• Train the Trainer Program
• Participating in the 20XX [redacted] Governor's Conference on Tourism

Exhibit IX — Sub-Grant Agreement with [redacted] for [redacted] project $0
This sub-grant agreement covered August 1, 20XX to November 5, 20XX. The purposes of the grant were
to provide specific activities and deliverables for the [redacted] ([redacted]) in

partnership with other stakeholders. The following activities and deliverable were to be conducted and
provided:

• Preliminary assessment finding for [redacted]

• Compile a Listing of [redacted] and [redacted] ([redacted]) training
  participants

• Compile Listing of citations of accepted publications, papers on research subsidized by [redacted]

• Compile MOUs and agreements

• Report on cash match, in-kind match, and other funds secured by [redacted] for [redacted] work

Exhibit X — Early Adopter Program Agreement with Global [redacted] Council $0
This agreement was made on October 5, 20XX to continue until February 28, 20XX. [redacted] (named
“Consultant” in this agreement) will conduct on-site evaluations of Global [redacted] Council

([redacted]) Early Adopter tourism Destination participants. [redacted] will determine each Early Adopter participant's
sustainability in economic, environmental, and socio-cultural issues and report findings back to [redacted] on how
each Destination met current tourism sustainability standards. $0 will be paid for each Destination (up to 0
selected destinations).

Sample of Grant Award

Exhibit XI — Grant Award from [redacted] ([redacted]) $0

This grant from the [redacted] was awarded to [redacted] for its proposal for the [redacted]
International Toolkit and pilot in [redacted]. [redacted] prepared a year-end report on this
project describing how it created a monitoring tool called

([redacted]). The [redacted] system provides a plug-and-play means to collect, manage and monitor data on

[redacted] performance. Two destinations participated in a pilot program to receive Destination assessment,
customized indicators, and a database system for recording their results.

The grants funds were also used for three destinations’ implementation projects. The three destinations

included [redacted] and [redacted]; [redacted], [redacted] and [redacted]. The [redacted] and [redacted] Destination received

[redacted] Professionals online training program for 0 government officials in [redacted] and one in-person
session for 0 officials on sustainable Destination management in cruise destinations and marine
conservation. The [redacted] project received a [redacted] ([redacted]) and action plan
for [redacted]. Finally, the funds designated for the [redacted] project were used to bring

together Destination stakeholders in a workshop setting to develop an action agenda for Destination
sustainability. [redacted] provided technical assistance to assess the feasibility of establishing quality and
sustainability Destination standards program for tour operators and hotels.

Form 990 return information - Expenses
For the tax years ending December 31, 20XX and December 31, 20XX, the organization's Form 990
reported the following expenses:

CHART DELETED

Examination — Interview with Chief Executive Director.

During the examination interview, the revenue agent asked the then-current Chief Executive Officer (CEO)
and founder, [redacted], to explain the claims on its initial exemption application information that [redacted]

would remove the business consulting services from [redacted] materials yet consulting appears to be a
substantial part of [redacted]'s current activities. [redacted] explained that the term “consulting” is simply a
difference in semantics. When [redacted] provides advisory services and technical assistance, often that is called a
consultation or consulting services. However, [redacted] explained, [redacted] doesn’t offer consulting services;
rather, [redacted] offers tools and advisory services to innovate and involve the clients in the process. [redacted] has
programmatic offerings to companies and destinations.

The examiner asked [redacted] to explain [redacted]'s regional offices in [redacted], [redacted], and [redacted] as described on
its website. [redacted] clarified that the offices may have been overstated, but they have representatives in
different parts of the world. They had established charitable organizations in the [redacted] and [redacted] but those

organizations have stopped functioning prior to the examination.

[redacted] states on its website that its program is a cost-effective way to illustrate a Destination’s commitment to
[redacted], including access to a service of sustainable solutions and marketing benefits. IRS asked [redacted] to explain

“marketing benefits” of [redacted] Destination partner's programs. [redacted] said the concept is to benefit all
[redacted] and [redacted] in an inclusive way.

IRS asked [redacted] to explain what it describes on its website for a “solution activity” as “Marketing and
Communications.” The website states [redacted] will help businesses integrate sustainability into their marketing
and product development strategy, leading to increased visitor numbers and stronger brand loyalty.
[redacted] explained that [redacted] tried to help increase sustainability in travel by communicating the impacts and benefits
and integrate producers.

IRS asked if any type of verification is done on the data that tour businesses input to rate themselves on
“impact counter” since the data is used to “demonstrate tangible improvements to the lives of at least 0
million people” (“[redacted]”). [redacted] said no verification is done.

[redacted] explained the eco-certification program was originally for individual companies but [redacted] could
benefit more members by their package program. Additionally, individuals can voluntarily donate a dollar
when they purchase services from companies.

[redacted] explained that their training courses differ from training given to travel agents to promote sales of eco-
friendly travel because [redacted] training is not geared towards offering travel service rather it’s toward how to
support sustainable travel and how to link to supply chains.

IRS asked if donors receive anything in exchange for their donation. [redacted] said some grants are tied to
outcomes, for other grants services are provided.

LAW

Section 501(c)(3) of the Internal Revenue Code (Code) provides, in part, exemption from federal income
tax for organizations that are organized and operated exclusively for religious, charitable, scientific, literary,
or educational purposes, provided that no part of the organization’s net earnings inures to the benefit of any
private shareholder or individual.

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

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

Regulations 1.501(c)(3)-1(c)(2) specifies 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.

Regulations Section 1.501(a)-1(c) defines private shareholder or individual within this Section 501 as
persons having a personal and private interest in the activities of the organization.

Regulations Section 1.501(c)(3)-1(d)(1)(ii) provides that 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,
an organization must establish that it is not operated for the benefit of designated individuals or the persons
who created it.

Regulations Section 1.501(c)(3)-1(d)(3)(i) defines education as:

A. The instruction or training of the individual for the purpose of improving or developing his
capabilities, or
B. The instruction of the public on subjects useful to the individual and beneficial to the community.

Regulations Section 1.513-1(b) defines the term "trade or business" to include any activity carried on for
the production of income from the sale of goods or performance of services and which otherwise
possesses the characteristics required by Section 162 of the Code (relating to the deductibility of business
expenses). The phrase "for profit" was intended to describe the commercial nature of the activities and not
to refer to whether an actual profit is made.

Rulings and Case Law

Commercial Purpose, Performance of Services

Revenue Ruling 72-369 describes an organization that was formed to provide managerial and consulting
service at cost to unrelated exempt organizations does not qualify for exemption. Providing managerial and
consulting services on a regular basis for a fee is a trade or business ordinarily carried on for-profit. The

services provided at cost and solely for exempt organizations is not sufficient to characterize the activity as
charitable within the meaning of Section 501(c)(3) of the Code.

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

In American Institute for Economic Research v. United States, 302 F. 2d 934 (Ct. Cl. 1962), the Court
considered the status of an organization that provided analyses of securities, industries, and of the
economic climate in general. The organization sold subscriptions to various periodicals and services
providing advice for the purchase of individual securities. Although the court noted that education is a broad
concept and assumed for the sake of argument that the organization had an educational purpose, it held
the organization had a significant non-exempt commercial purpose that was not incidental to the
educational purpose. It was, therefore, not entitled to exemption under Section 501(c)(3) of the Code.

Educational

Revenue Ruling 71-504 ruled that a medical society currently exempt under Section 501(c)(6) of the Code
may not be reclassified as an educational or charitable organization under Section 501(c)(3) of the Code.
The ruling listed all the activities of the society and identified those that made up a substantial portion of the
society's total activities. While some of the society's activities were charitable and/or educational, a
substantial part of its activities was directed primarily at the promotion of the medical profession and thus
furthered the common business purposes of its members, activities that are not considered educational or
charitable. Therefore, the society may not be reclassified since it had substantial non-charitable and non-
educational purposes and activities.

An educational program must be conducted for exclusively educational purposes, with only incidental
nonexempt purposes. In Revenue Ruling 59-6, a professional association was held not exempt under
Section 501(c)(3) of the Code where its educational program was only an incidental part of activities that
had as a principal purpose the professional advancement of the members as a group.

Economic Development

In Revenue Ruling 77-111 exemption was denied to two organizations and their described activities. One
organization sought to increase business patronage in an economically deteriorated area by promoting the
area through media advertising and other means. The other organization sought to revive lagging retail
sales and combat economic decline of an urban area by constructing a shopping mall to make the area
more competitive with outlying shopping areas. Although the first organization’s activities may further
charitable purposes, their overall thrust was to promote all businesses in the area, regardless of whether
they were experiencing a hardship or considered part of a charitable class. The second organization failed
to further charitable purposes because its activity primarily benefited the businesses located in the newly
constructed shopping center.

Environmental, ecological significant land

In Revenue Ruling 78-384, an organization preserving ecologically significant land for farming or other uses
the organization deemed ecologically suitable was not found to be operated for a charitable purpose under
Section 501(c)(3) of the Code. Its activities were not found to be preserving land that had any di[illegible]nctive
ecological significance, and any benefit to the public from the organization’s self-imposed use restriction
was too indirect and insignificant to establish that the organization served a charitable purpose.

[redacted] (cited the following two revenue rulings in its Form 1023 application for exemption.)

Revenue Ruling 76-204 describes an environmental conservancy formed by scientists, educators,
conservationists, and representatives of the community at large to acquire and preserve natural
environments of ecological significant undeveloped land. The ruling determined the conservancy qualifies
for exemption under Section 501(c)(3) of the Code since it maintains the land and limits public access for
protection of delicate eco-systems.

Revenue Ruling 80-278 holds that an organization that Institutes litigation as a party plaintiff to maintain
environmental protections afforded in state and federal legislation operates exclusively for charitable
purposes within the meaning of Section 501(c)(3) of the Code. The organization does not bring suits in
instances where a substantial purpose is to benefit a private party or interest. The litigation program is
financed by membership dues and public donations. The ruling states, in determining whether an
organization meets the operational test, the issue is whether the particular activity undertaken by the
organization is appropriately in furtherance of the organization’s exempt purpose, not whether that
particular activity in and of itself would be considered charitable. The organization described in the ruling
accomplishes the exempt purpose of preserving and protecting the natural environment for the benefit of
the public by Instituting litigation to force agencies to enforce the legislation already in place that protects
the environment. The activity of entering into law suits is not, in and of itself, charitable; however, in this
instance it does further an exempt purpose and is reasonably related to accomplishing that purpose.

Establishing and Maintaining Standards of Quality

Revenue Rulings 73-567 and 74-553 found organizations formed by members of the medical profession to
establish and maintain standards for quality and excellence in service qualified for exemption under Section
501(c)(6) but not under Section 501(c)(3) of the Code. The principal activity of both organizations in both
rulings was directed to establishing and maintaining standards for the quality and costs of medical services.
Although this activity may result in a measurable public benefit, the primary objective in both cases was to
maintain the professional standards, prestige, and independence of the organized medical profession and
thereby furthers the common business interest of the organization’s members.

Private versus Public interests

In the case Christian Stewardship Assistance, Inc. v. Commissioner, 70 T.C. 1037 (1978), the organization
failed to establish that it served a public interest rather than a private interest. The organization was formed
to assist charitable organizations in their fundraising activities with individual contributors. The organization
provided financial planning and tax advice to individual contributors on charitable giving so that they could
maximize their charitable donations and tax benefits. The organization said their financial planning advice
ultimately benefits charities through the contributor’s donations. The court ruled that the financial and tax

planning services were a nonexempt activity and the tax benefits inuring to the contributors are more than
insubstantial in nature. Exemption under Section 501(c)(3) of the Code was not allowed.

In another case, American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), an organization
that operates a school to train individuals to fill positions in political campaigns was found to serve the
private interests of entities and candidates of a particular political party and did not, therefore, have broad
public benefit. This was true even when no portion of the net earnings inured to the benefit of private
shareholders or individuals. The court clarified that the proscribed private benefit under Section 501(c)(3) of
the Code includes benefits to unrelated third parties and that size alone will not per se transform a
benefited class into a charitable class.

Other

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Court held
that the presence of a single non-exempt purpose, if substantial in nature, will preclude exemption
regardless of the number or importance of truly educational or charitable purposes.

GOVERNMENT’S POSITION
Commercial Purpose, Performance of Services

The examination of the books and records for [redacted] found that a substantial part of [redacted]'s activities are providing
commercial services. [redacted]'s activities include selling administrative and marketing services to the travel and
tour industry business owners. [redacted] provides business consultations; marketing, administrative, computer,
and technical assistance; certification; and employee training services to its members, tourism businesses
and professionals, and other tourism-related entities. Many of these services are per contracted
agreements. The examination found that a substantial portion of the revenue [redacted] reported is revenue from
the sale of or provision of services, including the revenue reported as grants and member dues.

The majority of [redacted]'s revenue is compensation for business support services. Many of the services are often
sold as a packaged deal as in their membership package. In the 20XX tax year [redacted] reported $0 as member
dues yet the examination of the records shows that most ($0) of this is payment for contracted services
provided as part of the membership, such as certifications, document assessments, monitoring and on-site
assessments. This demonstrates that membership revenue is not considered supportive membership dues,
but rather fees for services.

For the 20XX tax year [redacted] reports $0 of income from educational and advisory services and $0 from
standards and monitoring training. In both of these categories, businesses can select services such as
research and development, computer program and website development, contracted certification and
monitoring, consultation, marketing, business support, and business development education. In the 20XX
tax revenues, all of the above categories were shown in program service revenues. Many of the advisory
and consulting services [redacted] provides to its members and clients are explained in the Business Solutions
brochure (Exhibit III). [redacted] helps businesses with Action Plans for sustainability, marketing assessment and
marketing plan development that enhance brand identify and loyalty. The fees collected in these revenue
categories all relate to providing the advisory, consulting, assessment, monitoring, and business
development services to travel and tourism industry businesses.

Other revenue sources of services to members and tourism businesses or customers is shown in the
category for assessment, planning, and marketing. In the 20XX tax year [redacted] reported revenue of $0 in this
category. The examination of the books and records showed that revenue in this category was for
management services, promotion, producing media marketing, submissions reporting, and installment
payments for programs, such as the early adopters program. The invoices, contracts, and receipts viewed
during the examination showed these activities as advisory and consulting services provided on a fee
basis. In the 20XX tax year almost half of [redacted] revenue was reported in program service revenue for these
activities and services. Many of these services are also included in the brochure provided during the
examination (Exhibit III).

The grant from ([redacted]) in the amount of $0 (Exhibit XI) was reclassified at the
end of the 20XX tax year to the contributions and donations category. However, during the year, the
QuickBooks accounting showed the income for this project being reclassified monthly from contracts in
progress and in the following categories: assessments, standards and monitoring, and planning. The same
reporting for contracts in progress with [redacted] was found in the 20XX tax year QuickBooks accounting as well.
Thus, [redacted] considered this funding as program service revenues for services because of the work performed
for this grant proposal and client.

Another revenue category reported in the 20XX tax year was for educational networks. [redacted] reports $0
revenue in this category. However, the examination found the accounting records show that many of these
payments are for carbon offsets, carbon credit calculator, and marketing campaigns. For the 20XX tax
year, the educational networks revenues from [redacted] and [redacted] were included with program service revenues as
well as in the partnerships and marketing category. The purposes of these networks are more to assist the
businesses within the industry network to trade ideas, solutions and share lessons learned (see Exhibit
IV). This activity and its membership serves the interests of the member businesses and is not considered
an educational or charitable activity within the meaning of Section 501(c)(3) of the Code.

[redacted] reports for the 20XX tax year its carbon sales as $0. This revenue is received from computer programs
setup by [redacted] to track carbon sales from customers of travel and tourism companies who designate a portion
of their purchases from these travel and tourism companies to go to environmental and conservation
programs. However, [redacted] also receives revenues in the donations category that customers can designate as
a donation for a carbon offset. [redacted] has contracts with several carbon offset providers and re-directs
donations and sales received by these computer programs to the carbon offset providers for credit
retirement from designated conservation projects. Carbon sales revenues are actually higher than the
above amount for the tax year 20XX when the portions of the donations category that are for carbon sales
are considered. Therefore, true donation revenues for 20XX are lower than reported and the carbon sales
should be higher. For the 20XX tax year, all of the carbon sales are reported in the contributions category
and reported as such on the Form 990 return. Thus, the carbon sales activity appears to be an understated
revenue source. Finally, donations for carbon offsets are not true donations and are not tax-deductible
donations under Section 170(c) of the Code. As such, the carbon sales are non-exempt, commercial
sources of revenue.

[redacted] reported $0 of other revenue in the tax year 20XX that is from sales of its [redacted] Framework. This on-line
computer programing provides hotels and tour operators a tool for data collection, data indicator
aggregation, monitoring, and results that are designed to fit each business.

The majority of these income sources are from business support services that [redacted] provides to for-profit
companies or other tourism-related industry entities such as hotels, tours, cruise and airline companies.

The revenue is not from activities that are solely educational. The education provided by [redacted] is only a part of
its package of commercial services. While some of the activities can be considered educational, [redacted] goes
further and provides support services to its members and clients. These support services help the
businesses and clients to implement the programs. The services are not just advisory; they provide
administrative and technical support, as well as on-going monitoring that members and clients pay for with
their annual membership and/or contract fees. These services are priced at or near commercial rates and
meant to cover the costs of providing those services, including fees meant to cover the travel costs
associated with on-site consultations, assessments, and training.

A general internet search finds several for-profit businesses that offer similar services to travel and tour
businesses teaching and offering certification for a fee. These businesses also offer
strategy, development, consulting, environmental management, research, business planning, marketing
and communications for the tourism industry. ([redacted])

[redacted]'s operations are in direct competition with these for-profit businesses that offer the travel and tourism
industry similar services of training, certification, and benchmarking for businesses to achieve a high level
of sustainability.

The sampling of the contracts and agreements [redacted] signed during the 20XX tax year describe the numerous
services and deliverables [redacted] provides its members and clients. Some of the contracts and agreements
even define the services [redacted] provides as consulting services and define [redacted] as the “consultant.” The
deliverables are more than just educational trainings and workshops. They are deliverables that are meant
to improve a client’s sustainability practices, and ultimately the environment, but also, in turn, improve the
economic standing of the business. Many of the contracts state [redacted] will design marketing and awareness
campaigns meant to showcase businesses to consumers to entice them to conduct business with them
because they have eco-friendly practices. The eco-certifications are specifically marketed to clients and
members so that eco-friendly consumers will be able to recognize the eco-friendly businesses to which
they’ll want to transact business. The other commercial services described in the contracts include
technical support and monitoring. These services are beyond educational classes and workshops.

[redacted] is similar to the entities described in Revenue Ruling 72-369 and the court cases, B.S.W. Group, Inc. v.
Commissioner and American Institute for Economic Research v. United States. The organizations in these
cases provided management and consulting services on a regular basis for a fee. The services were
provided in a commercial manner similar to for-profit entities. [redacted] operates similarly in a commercial manner
through competitive advertising that consistently includes emphasis of the profit to be made from the
lucrative and growing market of eco-tourism or green products. [redacted] provides technical and consulting
services and support to clients who seek its services for a fee similar to for-profit entities that provide these
services to the travel and tourism industry. As the one court case noted, education is a broad concept; but
if an organization has a significant non-exempt commercial purpose that is not incidental to the educational
purpose, exemption cannot be allowed. [redacted] is similar to the entity in this ruling where [redacted] does provide
education and trainings; however, the full range of additional services, management, assessments,
analysis, marketing, and technical assistance offered to tourism businesses and industry clients is more
than an insubstantial part of [redacted]'s offerings to its members and clients. The additional services help their
clients incorporate sustainable business practices that will also improve their economic profitability. These
activities further commercial, non-exempt purposes more than incidentally.

Educational

[redacted] is similar to the entities described in Revenue Rulings 71-504 and 59-6 where the organizations had
some charitable and educational activities, but a substantial part of their activities were directed primarily at
the promotion of the business profession and thus furthered the common business purposes of its
members. As noted above, the services provided by [redacted] help improve their member and client businesses
through the implementation of sustainability business practices. The educational activities have the ultimate
objective of increasing sales of the travel and tourism entities. [redacted] promotes the use of its services and eco-
certification programs to its clients and members because eco-tourism and green products are a growing
market. The on-line, certification training and course material is substantially about how to run a travel
business and increase profits by tapping into the growing market of eco-travelers. The sections for
marketing clearly prove this point. [redacted] is marketing to tourism businesses, educating them, advising them,
and helping them present themselves to the eco-friendly customers as eco-friendly and a better choice
than non-eco-friendly businesses. This demonstrates that [redacted] knows its programs will more than incidentally
improve their member and client businesses; and this business improvement is more than an incidental by-
product of the eco-sustainability purposes of [redacted]. The educational and commercial services provided by
[redacted] are a substantial part of [redacted]'s activities and they further the business purposes of its members and clients.

Finally, the purposes of [redacted]'s educational efforts are not educational as defined by the Regulations: to
improve an individual or develop his capabilities. Their educational programs primarily serve to improve the
businesses, entities, and groups in the tourism industry. While the educational programs may ultimately
benefit the environment and indigenous communities, it is only through the improvement of the tourism
businesses that operate in that environment and in those communities. The education is to the
professionals and businesses in the tourism industry on how to improve their business practices; their
educational programs only indirectly benefit the communities as a whole.

Economic Development

[redacted] is similar to the organizations described in Revenue Ruling 77-111 because its purposes and activities
are not limited to a charitable class of businesses — those that are in an economically declining area or
operating in an economically declining industry. [redacted] will work with and assist any tourism related entity or
business, regardless of the economic profitability or size of the business. Two of [redacted]'s largest clients are
well-known travel industry giants, [redacted] and [redacted]. [redacted]'s programs more than
incidentally improve the tourism businesses they work with and even promote the fact that the business will
improve because consumers are looking more and more for eco-friendly businesses.

It is possible that some individuals who may be described as a charitable class under Section 501(c)(3) of
the Code may benefit incidentally from [redacted]'s activities. While some of [redacted]'s training materials and their
website promote improvements to indigenous poor or disadvantaged people, it is only through the
improvements to the tourism industry businesses and groups that conduct their activities (by following
[redacted]'s guidance) in those areas. [redacted]'s training, services, and tools are directed to improve the businesses that
operate in those areas with the overall, but indirect or incidental, goal of improving those indigenous
communities. An incidental benefit to a charitable class is insufficient to meet the requirements for
exemption under Section 501(c)(3) of the Code.

Environmental, ecological significant land

[redacted] is similar to the organization described in Revenue Ruling 78-384 where the ecological preservation is
too indirect for the organization to exclusively further charitable purposes. [redacted]'s purpose of protecting the
environment is an indirect result of [redacted]'s operations. [redacted]'s members and clients must utilize [redacted]'s trainings,

programs and proposals, and operate within those guidelines before the environmental preservation and
protection purposes are achieved. [redacted]'s programs and assistance to their members and clients directly serve

the needs of those members and clients with only an indirect and incidental public benefit.

[redacted]'s activities do not directly conserve, protect, or restrict the use of sensitive land to protect the natural
environment. [redacted] provides information on the benefits of environmentally friendly travel and offers
technology, tools, trainings, and consulting services to businesses and the travel and tour industry that will
assist those entities to preserve the environment. The trainings and services themselves do not preserve or
protect the environment in a manner that exclusively furthers a charitable or educational purpose within the
meaning of Section 501(c)(3) of the Code. Any charitable benefit is incidental to the direct benefit to travel
and tour businesses that can increase tour and travel sales by self-identifying with [redacted]'s endorsement and
marketing themselves as “green.”

In its initial application for exemption, [redacted] cited both Revenue Rulings 76-204 and 80-278 stating its
activities furthered charitable purposes similarly to the organizations in those rulings. However,

[redacted]'s activities are not directly or reasonably related to the accomplishment of a charitable purpose. In those
rulings, the organizations either acquired land for preservation or filed lawsuits against entities to enforce
environmental protections already in place by legislation. [redacted] does not do either of these activities. Rather,
[redacted] encourages and assists travel and tour industry businesses to become eco-friendly, marketing this concept
to them not only because of the environmental protection aspect, but because it will give them a
competitive marketing edge. With the eco-certification, eco-conscience consumers will choose those
companies over non-certified companies to transact business because the consumer has the perception
(because of the [redacted]-endorsed certification) that those businesses operate in ways that are not detrimental to
the environment. Those businesses without certification will lose that segment of consumers and thus lose
profits. The eco-certification brings in more eco-conscience consumers, which in turn, increases profits to
members’ businesses. This is a direct benefit to travel and tour industry businesses resulting from [redacted]'s
programs and activities. Encouraging businesses to operate in environmentally friendly ways and enticing
consumers to transact with these businesses is not a direct means for accomplishing the charitable
purpose of preserving or protecting the environment. [redacted]'s programs benefit the member businesses and
travel and tour industry significantly, with the environmental protections only accomplished as an incidental
consequence. Additionally, unlike the organization described in 80-278, [redacted]’s funding is not primarily from
membership dues or public donations; the majority of revenue is from sale of their services and
programs. Finally, unlike the organization described in Revenue Rulings 76-204, [redacted] is not controlled by
scientists, educators, conservationists, and representatives of the community at large; [redacted]'s board is made
up of representatives involved in for-profit travel and tourism businesses.

Establishing and Maintaining Standards of Quality

[redacted]'s eco-certification program is similar to the program to maintain standards for quality and excellence in
service in the medical profession described in Revenue Rulings 73-567 and 74-553. The organizations in
these rulings were requesting an exemption change from Section 501(c)(6) to 501(c)(3) of the Code.
However, the ruling determined the standards and monitoring benefited the medical profession and
furthered the common business interests of its members rather than resulting in any measurable public
benefit. [redacted]'s eco-certification program similarly benefits the certified businesses as described above by
making them more attractive to eco-friendly consumers. This activity does not provide a measurable public
benefit or further a charitable purpose within the meaning of Section 501(c)(3) of the Code.

Private versus Public Interests

The majority of [redacted]'s members and clients are for-profit travel and tourism businesses and professionals and
[redacted] assists them to increase their business and their profits. Even though [redacted] has some educational activities
and conducts some research and development projects for specific conservation groups and communities,
the examination found that [redacted] provides a substantial amount of non-exempt commercial activities and
services to for-profit travel and tourism businesses. These services benefit the for-profit businesses by
helping them meet sustainability standards that are attractive to eco-friendly consumers with the two-fold
goal of eco-sustainability and increased sales and profitability. Thus, a substantial part of [redacted]'s operations
result in conferring private benefits to the travel industry businesses (non-charitable, private interests). Any
public benefit resulting from the help [redacted] provides the businesses to increase their eco-sustainability
practices is indirect and incidental to the benefits realized by the industry businesses from the increased
consumer patronage.

[redacted] is similar to the organization discussed in the court case, Christian Stewardship Assistance, Inc. v.
Commissioner, where the court found that the activity conducted to further charitable purposes more
benefited the private interests of the clients receiving the financial planning. The court ruled that financial
and tax planning services were nonexempt activities and the benefits of such activities to the recipients
were more than insubstantial. The situation is the same with provision of commercial services —
management, monitoring, assessing, technical assistance, administrative, marketing, and design
consultations. These services and assistance benefit the travel and tourism industry and businesses
substantially through increased eco-friendly consumer patronage.

As determined in the ruling in the case, American Campaign Academy v. Commissioner, the size of a
benefited group does not transform them into a charitable class. [redacted]'s activities and services primarily assist
private, for-profit companies, such as hotels, tour companies, cruise lines and airlines, as well as tourism-
related commercial operators, travel Destination groups, and other tourism-industry entities. Assistance to
these mostly commercial operators does not further a broad public benefit. The commercial operators’
businesses improve from [redacted]'s services and programs. That serves the private interests of those
commercial businesses more than incidentally. It overrides the public and charitable benefit of
environmental and eco-system preservation.

Other

[redacted]'s activities primarily help private, commercial operators, travel corporations, and travel Destination
groups to develop and sell their products/services or promote and encourage tourism in particular areas.
The services [redacted] provides to for-profit tourism industry businesses more than incidentally benefits those
non-charitable interests (as noted above) and, as such, further non-exempt purposes. While some of [redacted]'s
on-line training courses and activities are considered educational and some of [redacted]'s research and
development work with other conservation groups may further a charitable purpose of preserving the
environment, the examination found that a significant part of [redacted]’s activities are the provision of non-exempt,
commercial services. As shown in the case, Better Business Bureau of Washington, D.C. v. United States,
the presence of a single non-exempt purpose, if substantial in nature, will eliminate an organization's
exemption regardless of the number or importance of truly exempt purposes.

[redacted] stated in its exemption application that member benefits included “consulting services designed to
increase your company’s profitability” and “public relations efforts” meant “to influence consumers.” While
later clarified that it misspoke about the consulting services, these, in fact, are what [redacted] provides to its
members and clients for fees and/or per contractual agreements. The examination found that the majority

of [redacted]'s activities are providing various services including marketing, tracking systems, technical assistance
and monitoring, assessments, and consultation services directly to travel and tourism industry entities.
Additionally, several projects [redacted] worked during the 20XX and 20XX tax years assisted tourism industry
committees or groups to identify ways and means to improve tourism such that the environment is
preserved and/or protected. It appears that the IRS’ initial response during [redacted]’s exemption determination
process remains true — certification of tourism business operators, combined with the promotion and
consumer awareness campaigns, indicate the primary purposes are to promote the eco-tourism and travel
industry. Any protection afforded the environment from the organization’s activities is indirect and not the
organization’s primary purpose.

The carbon offset sales activity is the trading of carbon offsets on the public and foreign markets. The
revenue received from this source, including the amounts reported as donations, are not true donations.
[redacted] only acts as a conduit to collect carbon credits for offsets. The trading of carbon offsets is not an exempt
activity under Section 501(c)(3) of the Code. Therefore, the revenue reported on the Form 990 return for
this activity is non-exempt revenue.

The examination found that a significant amount of the activities conducted by [redacted] are commercial services
provided to members and tourism industry clients. These are considered non-exempt activities. The carbon
offset sales activity is also considered a non-exempt activity. The activities appear to more benefit the
travel and tourism industry with any protection afforded the environment an indirect benefit. These factors
show that a substantial part of [redacted]'s activities are non-exempt activities that do not further charitable or
educational purposes within the meaning of Section 501(c)(3) of the Code. Thus, [redacted]'s operations do not
meet the operational test under Section 501(c)(3) of the Code.

TAXPAYER’S POSITION

The organization has preliminarily agreed to the revocation of exempt status as outlined in the initial report.

CONCLUSION

[redacted] does not meet the operational test under Section 501(c)(3) of the Code. More than a substantial part of

[redacted]'s activities are the provision of non-exempt commercial services and carbon offset sales. The advisory
and consulting services and assistance provided to their for-profit business members and clients in the
travel and tourism industry privately benefit these non-charitable interests more than incidentally.

Therefore, [redacted]'s exempt status under Section 501(c)(3) of the Code should be revoked as of January 1,
20XX, the first day of the tax year for the year under examination. Contributions, donations and grants to
[redacted] will not be not deductible under Section 170 of the Code starting in the 20XX tax year. [redacted] will be required
to report its income for the 20XX tax year and thereafter on Form 1120, U.S. Corporation Income Tax
Return.