Professional association lost charity status but received nonretroactive relief

Plain-English summary

A national organization and its regional subordinates had been recognized as a § 501(c)(3) public charity and covered by a group exemption. Its activities included professional standards, certification, industry publications, advertising, conferences, networking, career services, and advocacy for members of a profession. The IRS concluded that substantially all of those activities promoted the profession and members' common business interests rather than charitable or educational purposes. It revoked the central organization's exemption and ended the group ruling, while noting that the organization might qualify as a § 501(c)(6) business league. Because the original application accurately described the anticipated activities, the IRS granted § 7805(b) relief so the revocation would not apply retroactively to earlier tax years.

Ruling snapshot

• Question: Did the organization remain qualified under § 501(c)(3), what happened to its group ruling, and was nonretroactive relief available?
• Outcome: Revocation with relief. Charity status and the group ruling ended, but § 7805(b) relief protected prior years.
• Key authorities: IRC §§ 170(b)(1)(A)(iv), 501(c)(3), 501(c)(6), 509, 7428, and 7805(b); Rev. Proc. 80-27

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected, and unreadable signature text is marked [illegible]. Wording is otherwise verbatim.

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St.
Dallas, Texas 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: October 25, 2018

Number: 201907011
Release Date: 2/15/2019

Tax Year Ending:

Taxpayer Identification Number:
Person to Contact:

Employee Identification Number:
Employee Telephone Number:

UIL: 501.03-00

CERTIFIED MAIL — RETURN RECEIPT
Dear

This is a final determination that you do not qualify for exemption from Federal income tax under
Internal Revenue Code (the “Code”) section 501(a) as an organization described in Code section
501(c)(3) effective October 25, 20XX. Your determination letter dated August, 19XX is revoked.

The revocation of your exempt status was made for the following reason(s):

Organizations described in section 501(c)(3) of the Internal Revenue Code and exempt from tax
under section 501(a) must be both organized and operated exclusively for exempt purposes. You
have failed to establish that you are operated exclusively for exempt purposes. Substantially all
your activities are directed primarily at the promotion of the profession and
thus further the common business purposes of your members.

Contributions to your organization are no longer deductible under IRC §170 after October 25,
20XX.

Organizations that are not exempt under section 501 generally are required to file federal income
tax returns and pay tax, where applicable. For further instructions, forms, and information, please

visit www.irs.gov.


If you decide to contest this determination, you may file an action for declaratory judgment under
the provisions of section 7428 of the Code in one of the following three venues: 1) United States
Tax Court, 2) the United States Court of Federal Claims, or 3) the United States District Court for
the District of Columbia. A petition or complaint in one of these three courts must be filed within
90 days from the date this determination letter was mailed to you. Please contact the clerk of the
appropriate court for rules and the appropriate forms for filing petitions for declaratory judgment
by referring to the enclosed Publication 892. You may write to the courts at the following
addresses:

United States Tax Court
400 Second Street, N.W.
Washington, D.C. 20217

U.S. Court of Federal Claims
717 Madison Place, N.W.
Washington, D.C. 20439

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

Processing of income tax returns and assessments of any taxes due will not be delayed if you file
a petition for declaratory judgment under section 7428 of the Internal Revenue Code.

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 1-877-777-4778.

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

Sincerely,

Maria Hooke
Director, EO Examinations

Enclosure:
Publication 892


Date:
June 15, 2018
Taxpayer Identification Number:

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

Exempt Organizations Examinations
Form:

Tax Year(s) Ended:
Person to Contact

Employee ID:
Telephone:
Fax:
Manager's Contact Information:

Employee ID:
Telephone:
Fax:

Response Due Date:

CERTIFIED MAIL — Return Receipt Requested
Dear

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

Letter 3618 (Rev. 9-2017)
Catalog Number 34809F


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.

Revenue Procedure 80-27 requires that, in the event your tax-exempt status is revoked, your
group exemption will also be revoked. If that occurs, none of your subordinates will be able to
rely on the group ruling for tax-exempt status. You should notify each subordinate of this
proposed action.

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,

[illegible]

for Maria Hooke

Director, Exempt Organizations
Examinations

Enclosures:
Form(s) 886-A, 6018, 4621-A
Pub(s) 892, 3498

2
Letter 3618 (Rev. 9-2017)
Catalog Number 34809F

Form 886A Department of the Treasury Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

ISSUES

1. Whether ( ) continues to

qualify for exemption under Internal Revenue Code (Code) section 501(c)(3). No, for the
reasons given below.

2. If does not continue to qualify for exemption under Code section 501(c)(3), what
is the effect on the group ruling determination? The group ruling determination is
automatically revoked, for the reasons given below.

3. Does qualify for relief under Code section 7805(b)? Yes, for the reasons stated
below.
FACTS
You filed Articles of Incorporation in the State of August 21, 19XX. On November 22,
20XX you filed certificate with Commonwealth of State Corporation Commission to

transact business in

Your former name was . Your current name is

( ). You were granted exemption in August
19XX under section 501(c)(3) of the Internal Revenue Code (Code). You are further described as
a public charity under Code sections 509(a)(1) and 170(b)(1)(A)(iv).

In October 19XX you were issued Group Exemption Number (GEN) 0000 recognizing your
subordinate organizations, referred to as Regions, under Code sections 501(c)(3) and
509(a)(2). You currently consider yourself having four (4) operating Regions:

1. ( )
2. ( )
3. )
4. ( )

In addition to your own annual information return, you file a separate group return on behalf of
your operating Regions.

Your Articles of Incorporation indicate you shall be organized exclusively for charitable,
religious, educational, and scientific purposes, including, for such purposes, the making of
distributions to organizations that qualify as exempt organizations under Section 501(c)(3) of
the Internal Revenue Code of 1954 (or the corresponding provision of any future United States
Internal Revenue Law). Your Articles indicate no other purposes.

Your Constitution & By-laws (Amended: March 20XX) indicate the purposes of the
shall be: to promote high standards of business practices and
ethical conduct among its members; to unite into one organization those persons whose

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

Form 886A Department of the Treasury Internal Revenue Service Schedule No. or

Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

major responsibility is providing to the students, faculty, staff and
guests of their respective colleges and universities; to provide for the collection,
dissemination, and interchange of information among the members; to foster a
cooperative spirit with other college and university professional organizations; to provide
opportunities for training, career development, skill development and other forms of
professional growth, and to promote as a valid component of the total
educational process; to foster cooperation, support, and growth of the regional, state
and local associations of college ; to maintain a high percentage of the
institutions of higher education as members; to promote as an asset to higher
education; to foster international goodwill through cooperation and liaison with kindred
associations throughout the world; to represent the interests of college and university

to local, state and federal legislative bodies and agencies; and, to
undertake any activities permitted by applicable law.

Memberships are a joint National and Regional membership. The primary membership class is
Institutional with dues based on the number of full-time enrolled students at the institution. The
institution must be either a degree granting accredited college, university, or other type of post-
secondary institution. Member institutions are represented by a designated full-time employee
from the institution or from a wholly-owned subsidiary of the institution. Member institutions can
have more than one (1) participant, but each member institution gets only one (1) vote at
meetings. :

Other membership classes include non-voting Business Partners, Retirees, and individual
Members in Transit between member institutions.

The activities of the organization include:

a) Establish" Code of Ethics and Professional Conduct for

b) Aim towards instituting and enforcing industry standards for
professionals

c) Develop ( ) certification which is only available
through ; provide credentials to those professionals that meet eligibility criteria
and pass a standardized examination of knowledge in key areas

d) Publish a quarterly industry magazine ( ) containing industry news,
event coverage, membership information, and products and services available to
members

e) Publish online "Buyer's Guide" tool to assist members procuring industry related
products and services

f) Sell advertising in magazine, website, and other publications

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

Form 886A Department of the Treasury Internal Revenue Service Schedule No. or

Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

g) Offer direct-mail solicitation services in publications

h) Publish several monthly "e-Newsletters" with current events, professional development
opportunities for members, member news, commentaries, and industry specific articles

i) Produce videos and " " for member professional development
j) Maintain a social networking website for members, the ”

k) Establish an on-line jobs, internships, and provide
discounts to members advertising jobs at their institutions

l) Advocate for equal compensation in equivalent jobs across the
industry

m) Provide extensive on-line educational and networking opportunities for members
through virtual roundtables, on-line forums, and webinars

n) Sponsor National conference and provide administrative, technical, and financial support
to four Regional conferences

o) Compile, maintain, and provide a membership directory, updated annually, and only
available to members in good standing

p) Provide scholarships for members to attend programs

q) Recognize outstanding achievement by individuals in the industry through
National and Regional awards program

r) Coordinate with member institutions and business partners to host seminars for higher

learning; for example, ” ; f
" " and “ "

s) Offer members free subscription to magazine, an industry publication

t) Contract to provide professional management and administrative services to an
independent organization, ( )

The activities listed in paragraphs (a) through (t) constitute substantially all the organization's
activities.

Income is primarily from annual conferences, membership dues, management fees,
professional development and certifications, journals, publications and advertising, and
investments. Expenses include administration and personnel, conferences, program
development and certifications, Board of directors and leadership, and publications.

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

Form 886A Department of the Treasury Internal Revenue Service Schedule No. or

Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

The administrative file shows no indications the organization misrepresented its anticipated
activities during the application process. activities have been consistent across years
from 19XX to present. The organization has requested relief under Code section 7805(b).

Section 501(c)(3) of the Code provides, in relevant part, exemption from federal income tax for
corporations, and any community chest, fund, or foundation, organized and operated
exclusively for religious, charitable, scientific, literary, or educational purposes, no part of the
net earnings of which inures to the benefit of any private shareholder or individual.

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

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

Section 1.501(c)(3)-1(d)(1)(ii) of the Income Tax Regulations states that an organization is not
organized or operated exclusively for exempt purposes unless it serves a public rather than a
private interest. It is necessary for an organization to establish that it is not organized or
operated for the benefit of private interests such as designated individuals, the creator or his
family, shareholders of the organization, or persons controlled, directly or indirectly, by such
private interests.

Section 509(a)(1) of the Code excludes from the definition of "private foundation" organizations
described in clause (iv) of section 170(b)(1)(A) of the Code.

Section 170(b)(1)(A)(iv) of the Code describes organizations that are organized and operated
for the benefit of certain state and municipal colleges and universities and that normally receive
a substantial part of their support (exclusive of income received in the exercise or performance
by such organization of its charitable, educational, or other purpose or function constituting the
basis for its exemption under Code section 509(a)) from the United States or any state or any
political subdivision thereof or from direct or indirect contributions from the general public.

Congress created IRC section 170(b)(1)(A)(iv) because, in many instances, state law prevents
state-owned colleges or universities from receiving certain gifts or bequests. Many states
require that gifts made directly to a state institution be placed in the general state treasury from
which funds are appropriated by the legislature for state institutions. Therefore, in order to
encourage gift giving for the use of state colleges and universities, the deduction benefit
available to donors to private colleges and universities was extended to certain funds organized

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


Form 886A Department of the Treasury Internal Revenue Service Schedule No. or

Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

and operated for state universities and colleges [S. Rep. No. 585, 87th Cong., 1st Sess. 4
(1961).

Section 1.170A-9(b)(2) of the Income Tax Regulations provides that an organization is
described in section 170(b)(1)(A)(iv) of the Code if it normally receives a substantial part of its
support from the United States or any state or political subdivision thereof or from direct or
indirect contributions from the general public, or from a combination of two or more of these
sources.

Section 501(c)(6) of the Code provides for the exemption from federal income tax of business
leagues not organized for profit and no part of the net earnings of which inures to the benefit of
any private shareholder or individual.

Section 1.501(c)(6)-1 of the Income Tax Regulations defines a business league as an
association of persons having a common business interest, the purpose of which is to promote
such common interest and not to engage in a regular business of a kind ordinarily carried on for
profit.

Revenue Ruling 71-504, 1971-2 CB 231 (January 1, 1971) discusses a city medical society,
exempt under Code section 501(c)(6), that primarily directs its activities to the promotion of the
common business purposes of its members may not be reclassified as an educational or
charitable organization under Codes section 501(c)(3).

Revenue Ruling 71-505, 1971-2 CB 232 (January 1, 1971) discusses a city bar association,
exempt under Code section 501(c)(6), that primarily directs its activities to the promotion and
protection of the practice of law may not be reclassified as an educational or charitable
organization exempt under Code section 501(c)(3).

Revenue Ruling 71-506, 1971-2 CB 232 (January 1, 1971) discusses an engineering society
formed to engage in scientific research in the areas of heating, ventilating, and air conditioning
for the benefit of the general public qualifies for exemption under Code section 501(c)(3).

Revenue Ruling 73-567, 1973-2 CB 178 (January 01, 1973) discusses a board formed by
members of the medical profession to improve the quality of medical care available to the public
and to establish and maintain high standards of excellence in a particular medical specialty. By
examining and certifying physicians under the circumstances described, the board promotes
high professional standards. Although some public benefit may be derived from promoting high
professional standards in a particular medical specialty, the activities of the board are directed
primarily to serving the interest of the medical profession. Under these circumstances, the
board is not organized and operated exclusively for charitable purposes. See Rev. Rul. 71-504,
1971-2 C.B. 231. On the other hand, since the activities of the board consist of certifying
physicians who are thereafter authorized to hold themselves out to the public as specialists, its
purpose is to promote the common business interest of the physicians.

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -5-


Schedule No. or

Form 886A Department of the Treasury Internal Revenue Service Exhibit
Explanation of Items
Name of Taxpayer EIN Year/Period Ended

December 31, 20XX

Revenue Ruling 80-287, 1980-2 CB 185 (January 1, 1980) discusses a nonprofit lawyer referral
service that arranges at the request of any member of the public an initial half-hour appointment
for a nominal charge with a lawyer whose name is on an approved list maintained by the
organization. Any further contact between the lawyer and the client is arranged without the
involvement of the organization. The referral service is not exempt under section 501(c)(3) of
the Code, but is exempt as a business league under Code section 501(c)(6).

Revenue Procedure 80-27, 1980-1 CB 677 (January 1, 1980) sets forth procedures under
which recognition of exemption from federal income tax under section 501(c) of the Internal
Revenue Code may be obtained on a group basis for subordinate organizations affiliated with
and under the general supervision or control of a central organization.

Section 7.01(2) of Revenue Procedure 80-27 states if the central organization does not
continue to qualify for exemption under section 501(c) of the Code, the group exemption letter
will cease to have effect.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), Ct.
D. 1650, 1945 C.B. 375, the Supreme Court held that the presence of a single non-exempt
purpose, if substantial in nature, will destroy a claim for exemption regardless of the number or
importance of truly exempt purposes.

In Spokane Motorcycle Club v. U.S., 222 F. Supp. 151 (E.D. Wash. 1963), the court held that
even a small amount of private inurement is fatal to a Section 501(c)(3) exemption.

Internal Revenue Code section 7805(b)(8) states the Secretary may prescribe the extent, if any,
to which any ruling (including any judicial decision or any administrative determination other
than by regulation) relating to the internal revenue laws shall be applied without retroactive
effect.

Treasury Regulation section 301.7805-1(b) states the Commissioner, with the approval of the
Secretary, may prescribe the extent, if any, to which any regulation or Treasury decision
relating to the internal revenue laws shall be applied without retroactive effect. The
Commissioner may prescribe the extent, if any, to which any ruling relating to the internal
revenue laws, issued by or pursuant to authorization from him, shall be applied without
retroactive effect.

Revenue Procedure 2017-5, 2017-1, IRB 230 section 1 provides procedures (in relevant part)
to revocation or modification of determination letters. This revenue procedure provides
guidance on the exhaustion of administrative remedies for purposes of declaratory judgment
under § 7428.

Section 12.04 provides that in certain cases an organization may seek relief from retroactive
revocation or modification of a determination letter under § 7805(b).

Page: -6-


Form 886A Department of the Treasury Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

TAXPAYER'S POSITION
See attached Exhibit 1 (49 pages) dated 04/14/20XX for complete Taxpayer's Position. Below is
Taxpayer's Position summary excerpt from pages 2-3:

A. Summary
" was incorporated on June 19, 19XX as a not-for-profit corporation.

was recognized by the Service as exempt under Code section 501(c)(3), and at all times since
being established has qualified as a publicly supported organization under Code section
509(a)(2).¹ The Service granted a group exemption for its subordinate organizations
under Code section 501(c)(3), issued on September 27, 19XX. At all times since

formation, it has operated in accordance with the provisions of Code section 501(c)(3) and
corresponding Treasury Regulations.

Since its inception, has provided educational services to individuals who are involved in
providing to higher education institutions. has prepared and presented
seminars and lectures and has hosted conferences, all of which are open to the public, that
primarily focus on improving and developing the capabilities of professionals.
has also published a quarterly magazine that contains exclusively educational articles, including
items of interest and assistance to its members.

Substantially all of activities were conducted, and continue to be conducted, in
furtherance of educational purposes. To the extent that may have engaged in
activities for purposes other than those recognized in Code section 501(c)(3) (e.g., certification,
advertising), those activities are insubstantial.

The Report contends that exempt status should be revoked, effective as of January
1, 20XX, based on the argument that substantially all of activities do not further
exempt purposes set forth in Code section 501(c)(3) but rather are primarily directed towards
the "promotion of the profession and the common business purposes of [

) members."

As discussed below, the facts demonstrate that (i) is currently an organization
recognized as exempt under Code section 501(c)(3); (ii) substantially all of activities
are in furtherance of exempt educational purposes pursuant to Code section 501(c)(3); (iii)

has been, and continues to be, recognized as exempt under Code section 501(c)(3) for the tax
period that ended December 31, 20XX; and, accordingly (iv) tax-exempt status should
not be revoked effective January 1, 20XX."

* * * *

1 The Service's Form 886-A (p. 1) characterizes as having public charity status under Code sections
509(a)(1) and 170(b)(1)(A)(iv). determination letter and its 20XX Form 990 each describe as
having public charity status pursuant to Code section 509(a)(2).

2 Form 886-A at p. 7

Page: -7-


Form 886A Department of the Treasury Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31. 20XX

GOVERNMENT'S POSITION

170(b)(1)(A)(iv)

Organizations described in IRC section 170(b)(1)(A)(iv) are endowment funds organized and
operated in connection with state and municipal colleges and universities.

Among other requirements, section 170(b)(1)(A)(iv) organizations:

1) Must be organized and operated exclusively to receive, hold, invest, and administer
property

2) Must make expenditures to or for the benefit of a college or university which is an
educational organization which normally maintains a regular faculty and curriculum and
normally has a regularly enrolled body of pupils or students in attendance at the place
where its educational activities are carried on, and

3) Must be an agency or instrumentality, of a State or political subdivision thereof, or must
be owned or operated by a State or political subdivision thereof or by an agency or
instrumentality of one or more States or political subdivisions.

Thus, the only organizations qualifying under section 170(b)(1)(A)(iv) of the Code are those with
narrow powers to make expenditures on behalf of tax-exempt educational organizations and
which are controlled by governmental entities. Neither your organizing document nor your
activities qualify you as an organization described in Code section 170(b)(1)(A)(iv).

501(c)(3)

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

In construing the meaning of the phrase "exclusively for educational purposes" in Better
Business Bureau v. U.S., 326 U.S. 279 (1945), Ct. D. 1650, C.B. 1945, 375, the Supreme Court
of the United States said, "This plainly means that the presence of a single non-educational
purpose, if substantial in nature, will destroy exemption regardless of the number or importance
of truly educational purposes." This rationale applies equally to any category of charitable
purpose under section 501(c)(3) of the Code.

Also see Spokane Motorcycle Club v. U.S., 222 F. Supp. 151 (E.D. Wash. 1963), where the
court held that even a small amount of private inurement is fatal to a Section 501(c)(3)
exemption.

You pass the organizational test per you Articles of Incorporation, however you are not
operating exclusively for one or more exempt purposes under section 501(c)(3). While some of
your activities are charitable or educational, substantially all your activities are directed primarily

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -8-


Schedule No. or
Form 886A Department of the Treasury Internal Revenue Service
Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
December 31, 20XX

at the promotion of the profession and thus further the common business
purposes of your members. As such you may qualify under Code section 501(c)(6).

You are like the organizations in Revenue Rulings 71-504 and 71-505 which primarily direct
their activities at the promotion of the common business interests of their members and are
exempt under Code section 501(c)(6). Unlike the organization described in Revenue Ruling 71-
506 that is exempt under Code section 501(c)(3) you are not engaged in activities for the
benefit of the general public.

You are like the organization in Revenue Ruling 73-567 which discusses a board formed by
members of the medical profession to improve the quality of medical care available to the public
and to establish and maintain high standards of excellence in a particular medical specialty.
Although some public benefit may be derived from promoting high professional standards in a
particular medical specialty, the activities of the board are directed primarily to serving the
interest of the medical profession. The board is not organized and operated exclusively for
charitable purposes, however, since the activities of the board consist of certifying physicians
who are thereafter authorized to hold themselves out to the public as specialists, its purpose is
to promote the common business interest of the physicians.

You are also like the organization in Revenue Ruling 80-287, a nonprofit lawyer referral service
that arranges initial appointments with lawyers on an approved list. The referral service is not
exempt under section 501(c)(3) of the Code, but is exempt as a business league under Code
section 501(c)(6).

See Revenue Procedure 80-27 which states that if a central organization no longer qualifies for
exemption under Code section 501(c)(3) the group exemption letter will cease to have effect.

GOVERNMENT'S RESPONSE TO TAXPAYER'S POSITION DATED 04/14/20XX

Your position is that substantially all of the organization's activities are conducted in furtherance
of educational purposes, and to the extent has engaged in activities outside the scope
of IRC section 501(c)(3), those activities are insubstantial.

You say you are similar to the organization in Revenue Ruling 68-504, 1968-2 CB 211 which
furnishes classrooms and employs professors to teach courses for university credit. You also
compare yourself to the organization in Revenue Ruling 65-298, 1965-2 CB 163 which
describes a non-membership organization engaged in research, investigation, analysis, and
studies related to the human body and develops scientific methods of treatment to share with
physicians and the public. The Service disagrees with this comparison.

While some of your activities are educational, substantially all your activities are directed
primarily at the promotion of the profession and thus further the common
business purposes of your members.

Your website (copyright 20XX) describes you as:

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -9-

Schedule No. or
Form 886A Department of the Treasury Internal Revenue Service
Explanation of Items Exhibit

Name of Taxpayer EIN Year/Period Ended
‘| December 31, 20XX

"Founded in 19XX as the :

Members must abide by a code of ethics you have developed. You have a goal of instituting
and enforcing industry standards. You provide the only industry recognized certification in the

field. Your members have access to networking websites and professional
development opportunities on-line. You have established an on-line career center for

jobs. You advocate for equal compensation in equivalent jobs across the industry. You

establish an online "Buyer's Guide" to assist members in procuring products and services. You
offer direct-mail solicitation services in publications. You recognize outstanding
achievements in the industry through National and Regional awards.

You are more similar to the organizations described in Revenue Rulings 71-504, 1971-2 CB
231; 761-505, 1971-2 CB 232; 73-567, 1973-2 CB 178; and 80-287, 1980-2 CB 185. While
some public benefit is derived from your activities the organization is directed at primarily
serving the promotion of the common business interest of its members and does not qualify
under Code section 501(c)(3).

application for exemption did not misstate or omit any material information. The
application accurately described the anticipated activities would undertake and at all
times since being granted exemption has operated as such. qualifies for relief
under Code section 7805(b).

CONCLUSION

1. no longer qualifies for

exemption under Code section 501(c)(3).

2. group ruling determination ceases to be in effect.
3. qualifies for relief under IRC section 7805(b).
Revocation of is effective January 1, 20XX with relief under Code section

7805(b) granted for all taxable years up until the issuance of a letter revoking its exempt
status under Code section 501(c)(3).

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -10-