Fundraiser for one person's medical and burial expenses denied exemption

Plain-English summary

An unincorporated association applied for section 501(c)(3) status to raise funds for the medical costs and burial of one named person. The IRS concluded that paying a preselected individual's expenses served a substantial private purpose and benefited both that person and those responsible for the expenses. Because the organization served private rather than public interests, it failed the operational test and did not qualify for exemption.

Ruling snapshot

• Question: Does an organization formed to raise funds for one person's medical and burial expenses qualify under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner

Full text (IRS public release)

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

Date: January 6, 2020

Release Number: 202014016 Employer ID number:
Release Date: 4/3/2020
UIL Number: 501.03-00, 501.03-31 Contact person/ID number:

Contact telephone number:
Form you must file:

Tax years

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: October 31, 2019

Employer ID number:
Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend: UIL:

W = Date
X = State 501.03-00
Y = Date 501.03-31
Z = Name

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, on date W.

You attest that you were formed as an unincorporated association in X on Y. You attest that you have the
necessary organizing document, that your organizing document limits your purposes to one or more exempt
purposes within the meaning of Section 501(c)(3) of the Code, that your organizing document does not
expressly empower you to engage in activities, other than an insubstantial part, that are not in furtherance of one
or more exempt purposes, and that your organizing document contains the dissolution provision required under
Section 501(c)(3) of the Code. You also attest that you are organized and operated exclusively to further
charitable purposes. Specifically, you attest you will:

• Refrain from supporting or opposing candidates in political campaigns in any way;
• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
individuals;

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

2

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
insubstantially;
• Not be organized or operated for the primary purpose of conducting a trade or business that is not related
to your exempt purpose(s);
• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations
outlined in Section 501(h);
• Not provide commercial-type insurance as a substantial part of your activities.

In addition, the description of the mission or most significant activities on your Form 1023EZ application
is to raise funds for the medical costs and burial of Z.

Law

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

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

Treas. Reg. Section 1.501(c)(3)-1(c)(1) states 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) of the Code. An organization will not be so regarded if
more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not operated exclusively for one or
more exempt purposes unless it serves a public rather than a private interest. It must not be operated for the
benefit of designated individuals or the persons who created it.

In Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner, T.C. Memo. 1986-348, the tax court
upheld the Service's position that a foundation formed to aid coma victims, including a family member of the
founders, was not entitled to recognition of exemption. Approximately 30% of the organization's net income
was expected to be distributed to aid the family coma victim. The distribution of funds from the foundation
were for the medical and rehabilitative care of Wendy Parker, and this was to relieve the Parker family of the
economic burden of providing such care.

Application of law

You are not operated exclusively for one or more exempt purposes under Section 501(c)(3) of the Code as
described in Treas. Reg. Section 1.501(c)(3)-1(a)(1) because you fail the operational test.

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(c)(1). You are operated to provide funding
for Z’s medical and burial expenses which serves a substantial nonexempt private purpose. This precludes
exemption under Section 501(c)(3) of the Code.

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

3

You are not described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you are operating for the private
interests of Z rather than public interests as evidenced by the fact you are operated to provide funding for Z’s
medical and burial expenses.

You are similar to the organization described in the court case Wendy L. Parker Rehabilitation Foundation,
because you were formed to pay the medical and burial expenses for a preselected individual. Like this
organization, you are serving the private benefit of an individual and those responsible for their expenses by
paying their medical and burial expenses. Furthermore, you are relieving the responsible parties of their
financial obligation by providing such funding. This precludes exemption under Section 501(c)(3) of the Code.

Conclusion

Based on the information submitted, we conclude that you are not an organization described in Section
501(c)(3) of the Code because you are operated for the substantial private benefit of one individual and those
responsible for their care.

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.

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

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

4

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:

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