Advocacy group denied exemption after failing to detail political activity

Plain-English summary

An advocacy organization proposed educating voters, facilitating dialogue, identifying common ground, influencing elected officials, and supporting or opposing officials based on their response. The IRS repeatedly asked for detailed descriptions of the organization's programs and estimates of the time and resources devoted to supporting or opposing candidates. The organization provided only general statements, said it could not estimate allocations before beginning operations, and did not answer the final information request. Without enough detail, the IRS could not determine whether political campaign activity would remain secondary to promoting social welfare. It denied section 501(c)(4) exemption, and the denial became final when the organization did not protest within 30 days.

Ruling snapshot

• Question: Did the organization establish that it would operate primarily for social welfare rather than political campaign activity?
• Outcome: Denied.
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1; Rev. Proc. 2019-5.

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

P.O. Box 2508
IRS Cincinnati, OH 45201

Date:

September 25, 2019
Number: 201951013 Employer ID number:
Release Date: 12/20/2019 Contact person/ID number:

Contact telephone number:
Form you must file:

Tax years:

UIL: 501.04-03

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(4) 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.

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.

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.

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4034, Proposed Adverse Determination under IRC Section 501(a) Other Than 501(c)(3)
Redacted Letter 4040, Final Adverse Determination under IRC Section 501(a) Other Than 501 (c)(3) - No
Protest

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

Department of the Treasury
Internal Revenue Service
IRS P.O. Box 2508
Cincinnati, OH 45201
Date:
July 25, 2019

Employer ID number:
Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
501.04-03

V = Formation date

W = State

X = Letter 1 date

Y = Letter 2 date

Z = Letter 3 date

Dear

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(4) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(4) of the Code? No, for the reasons stated below.
Facts

You were incorporated on V in the State of W. In your application you stated that you educate the electorate,
facilitate and encourage dialogue, find common ground, and then use that common ground to influence elected
officials; and that you will not support elective officials who ignore and do not legislate the “common ground,”
but will endorse and support elective officials who work to enact the “common ground.”

In letters dated X, Y, and Z we requested that you provide a detailed description of your programs, and
specifically that you project the percentage of your time and resources that you would spend on supporting and
opposing candidates for public office. You responded only to the Y letter, but did not provide the detailed
information we requested, either as regards your activities in general, or with specific reference to the extent of
your interventions in political campaigns. In the response you represented the “main purpose” of your mission
is not solely to engage in endorsing elected officials who may align with our mission and values or those of our
members and participants, though this might be a byproduct or outcome. You described your “main purpose” in
very general terms: you engage in citizen advocacy and facilitated dialogue regardless of participants’ party
affiliation or political views, with the intent of finding common ground and compromise and taking action,
based on the concepts uncovered through your facilitated process. If possible solutions to these common

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ground problems are identified, participants may deliver these solutions to their respective elected officials. It is
entirely up to the citizens who developed the solutions to choose to support or endorse their elected officials
based on how they handle or respond to the solutions. You did not project the percentage of your time and
resources that you would spend on supporting and opposing candidates for public office, or any other activities,
as requested. Your reason for not so doing was that, as you have yet to commence business operations, you have
no basis for estimates of future time or resource allocations to specific activities. Because your remarks about
the main purpose of your mission suggested that your activities may primarily promote social welfare, we sent
you the Z letter, seeking specific information about your activities that would establish that they were. You did
not respond.

Consequently, we are unable to ascertain whether you are operated exclusively for the promotion of social
welfare.

Law

Section 501(c)(4) of the Code provides for the exemption from federal income tax of organizations not
organized for profit but operated exclusively for the promotion of social welfare.

Treasury Regulation Section 1.501(c)(4)-1(a)(1) states a civic league or organization may be exempt as an
organization described in Section 501(c)(4) of the Code if it is not organized or operated for profit and it is
operated exclusively for the promotion of social welfare.

Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i) provides that an organization is operated exclusively for the promotion
of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of
the people of the community. An organization embraced within Section 501(c)(4) of the Code is one that is
operated primarily for the purpose of bringing about civic betterments and social improvements.

Treas. Reg. Section 1.501(c)(4)-1(a)(2)(ii) provides that the promotion of social welfare does not include
participation in political campaigns on behalf of or in opposition to any political candidate. An exempt IRC
501(c)(4) organization may intervene in political campaigns as long as its primary activity is the promotion of
social welfare.

Revenue Procedure 2019-5, 2019-1 I.R.B. 249, Section 6 (and its predecessors) provides that a favorable
determination letter or ruling will be issued to an organization only if its application and supporting documents
establish that it meets the particular requirements of the section under which exemption from federal income tax
is claimed. Section 3 states that a determination letter or ruling on exempt status is issued based solely upon the
facts and representations contained in the administrative record. The applicant is responsible for the accuracy of
any factual representations contained in the application.

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

Pius XII Academy v. Commissioner, T.C. Memo. 1982-97 provides that an organization must establish through
the administrative record that it operates as an exempt organization. Denial of exemption may be based solely
upon failure to provide information describing in adequate detail how the operational test will be met.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

3

In La Verdad v. Commissioner, 82 T.C. 215 (1984), the administrative record did not demonstrate that the
organization would operate exclusively in furtherance of an exempt purpose. Therefore, denial of organization’s
request for tax-exempt status was reasonable.

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that
the actual purposes displayed in the administrative record supported the Service’s denial, stated “It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant.” The court noted that if the petitioner had evidence that contradicted these findings, it should have
submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

Ohio Disability Association v. Commissioner, T.C. Memo 2009-261 states denial is justified because responses
to requests for additional information failed to supplement the initial application or clarify purposes and
activities, and generalizations did not provide sufficient detail to determine that the organization would be
operated exclusively for exempt purposes.

Application of law

Given repeated opportunities, you failed to respond to requests about your activities in sufficient detail to
warrant the conclusion that you are primarily engaged in activities that promote in some way the common good
and general welfare of the people of the community, as required by Treas. Reg. Section 1.501(c)(4)-1(a)(2)(i),
rather than activities that do not do so, such as participation in political campaigns on behalf of or in opposition
to political candidates described in Treas. Reg. Section 1.501(c)(4)-1(a)(2)(ii). You have failed to establish that
you are organized and operated exclusively for exempt purposes within the meaning of Section 501(c)(4) of the
Code and Treas. Reg. Section 1.501(c)(4)-1(a)(1) .

A ruling on exempt status is based solely on facts and representations in the administrative file. You did not
provide sufficient facts in your application and the additional information you provided did not establish that
you are entitled to exempt status. You stated that you were unable to identify your specific business operations
or estimate time spent on operations until you receive final approval from the IRS. The facts and representations
you have furnished are insufficient to establish that you meet the requirements of Section 501(c)(4) as required
by Revenue Procedure 2019-5. As in Universal, you have the burden of establishing that you qualify for tax
exemption.

In Pius, La Verdad, and New Dynamics, it was established that an organization must establish, through its
administrative record, that it meets the requirements for exemption. Because you failed to provide sufficient
details in your initial application and the additional information you provided did not meet the statutory and
regulatory requirements for exemption, you have not established that you meet the requirements for exemption
under Section 501(c)(4) of the Code. As provided in New Dynamics, any gaps in the administrative record will
be resolved against the applicant. Similarly, in Ohio Disability Association, the court found that even when
additional information was provided, but it contained generalizations and failed to clarify purposes, denial is
justified. You did not provide supplemental information; therefore, we are unable to determine that you qualify
for exemption.

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

Conclusion

Based on the information submitted, you have failed to establish that you are organized and operated
exclusively for exempt purposes within the meaning of Section 501(c)(4) of the Code and the related income
tax regulations. Therefore, based on the administrative record, you fail to qualify for exemption under Section
501(c)(4) of the Code.

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

• Your name, address, employer identification number (EIN), and a daytime phone
number

• A copy of this letter highlighting the findings you disagree with
• An explanation of why you disagree, including any supporting documents
• The law or authority, if any, you are relying on

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

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I examined this protest statement, including

accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

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

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

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K

5

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

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

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

EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

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

If you agree

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

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If
you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K