Young-professionals group failed the charitable organization tests

Plain-English summary

A membership organization for young nonprofit professionals applied for exemption under section 501(c)(3). It offered professional development, networking, social events, and advocacy intended to make nonprofit work a viable career path. The IRS found that its articles did not limit its purposes to section 501(c)(3) purposes, so it failed the organizational test. It also failed the operational test because networking and social events represented 40 percent of its time and effort, a substantial non-exempt purpose. The IRS denied exemption, and the determination became final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Was the organization both organized and operated exclusively for exempt purposes under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 68-504; Rev. Rul. 77-366; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

P.O. Box 2508
Cincinnati, OH 45201

Date:

May 6, 2019

Employer ID number:
Number: 201931012 Contact person/ID number:
Release Date: 8/2/2019 Contact telephone number:

Form you must file:

Tax years:

UIL: 501.00-00, 501.03-30

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

Because you don’t qualify as a tax-exempt organization under Section 501(c)(3) of the Code, donors can’t
deduct contributions to you under Section 170 of the Code. You must file federal income tax returns for the tax
years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of
this letter unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) after deleting certain identifying information.
Please read the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

We’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under Section 6104(c) of the Code). You should contact your state
officials if you have questions about how this determination will affect your state responsibilities and
requirements.

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date:

March 12, 2019
Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:

C = Date 501.00-00
D = State 501.03-30
Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

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

Facts

You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code. You attested on Form 1023-EZ that you are organized and operated exclusively to
further charitable and educational purposes. You also attested that you have not conducted and will not conduct
prohibited activities under Section 501(c)(3) of the Code.

The description of your activities provided in your application states that you were formed to activate a diverse
and collaborative group of nonprofit leaders, and to develop them into effective changemakers to connect and
advance the local community.

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.

You are a corporation formed on C. We obtained, and shared with you, a filed copy of your organizing
document from the D Secretary of State’s website. Your organizing document, Articles of Incorporation, does
not limit your purposes to one or more exempt purposes within the meaning of Section 501(c)(3) of the Code
and does not prohibit you from engaging in activities that are not in furtherance of one or more exempt
purposes.

Your Articles of Incorporation states that you are formed to support the development of young professionals
working in the public sector in particular geographic region of D. The activities you conduct in furtherance of
these purposes include professional development training, networking and social events, and non-partisan
advocacy.


2

You are a membership organization. Your members primarily consist of young, nonprofit professionals who
have five years or less experience in the nonprofit sector. However, you state your activities are open to the
public. No membership fees are currently charged.

Your professional development will include training to improve skill sets necessary for individuals developing
their career trajectories in nonprofit sectors and to help advance the careers of your members, such as assistance
with resumes and skill training presentations. You describe your networking and social events as informational
meetings and social gatherings set to foster connections among your members of all different types of
backgrounds. Your professional and social networking activities generally occur at least once per month.

Your non-partisan advocacy activities are geared toward ensuring that working in the nonprofit sector is a
viable career path for your current and potential members.

You have indicated that percent of your total time will be spent on your members’ professional development,
percent will be spent on networking and social events, and percent will be spent on advocacy.

Law
Section 501(c)(3) of the Code provides for the exemption from federal income tax of organizations organized

and operated exclusively for educational purposes.

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

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization will be regarded as “organized
exclusively” for one or more exempt purposes only if its articles of organization limit the purposes of such
organization to one or more exempt purposes and do not expressly empower the organization to engage,
otherwise that as an insubstantial part of its activities, in activities which in themselves are not in furtherance of
one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(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 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.

In Revenue Ruling 68-504, 1968-2 CB 211, a nonprofit organization formed and operated to conduct an
educational program for bank employees in an urban area qualifies for exemption under Section 501(c)(3) of the
Code. It also publishes a professional magazine containing items of interest and assistance to the members and
conducts occasional social affairs to stimulate interest in its educational program. The social affairs involve an
insubstantial part of the organization's activities.

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

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K


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

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

Application of law

Section 501(c)(3) of the Code and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests to qualify for
exempt status. An organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3). You have failed to meet both requirements, as explained below.

Your Articles of Incorporation do not limit your purposes to exclusively Section 501(c)(3) purposes. As a result,
you have not satisfied the organizational test required by Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).

You indicated that you will spend percent of your time planning and hosting networking and social events.
Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides an organization will not be regarded as exempt under Section
501(c)(3) or “operated exclusively” for one or more exempt purposes if more than an insubstantial part of its
activities is not in furtherance of an exempt purpose. Your social events are a substantial part of your overall
activities. Therefore, you have not satisfied the operational test.

You are distinguishable from the organization described in Rev. Rul. 68-504 because your social and
networking activities are a substantial part of your overall activities. While you do appear to be providing some
form of instruction to your members, your social activities are substantial. Therefore, despite any educational
purpose you may plan to achieve, your operations do not exclusively further Section 501(c)(3) purposes.

You are similar to the organization described in Rev. Rul. 77-366. Like this organization, while you may
conduct some educational activities, you have extensive social and networking activities that are not consistent
with the purposes described under Section 501(c)(3) of the Code.

As with the case of the Better Business Bureau of Washington D.C.., Inc., the furtherance of substantial non-
exempt purposes preclude exemption under Section 501(c)(3) of the Code. Your social and networking
activities account for 40 percent of your time and efforts. Because of these substantial non-exempt activities,
you are precluded you from qualifying for exemption under Section 501(c)(3) of the Code.

Conclusion

Based on the information provided, you do not qualify for exemption because you are neither organized nor
operated for exclusively for exempt purposes described in Section 501(c)(3) of the Code. Your organizing
document does not satisfy the organizational test. While you may conduct some educational activities, your
networking and social events represent substantial, non-exempt activities. Therefore, you do not qualify for
exemption under Section 501(c)(3).

If you agree
If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from
you within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

your income tax filing requirements.

If you don't agree
You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

5

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get 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 listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

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 if 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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K