Recreational golf league denied charitable exemption

Plain-English summary

An unincorporated association organized a recreational league and social activities for a corporation's members, their spouses, and guests. It held events three days each week as well as luncheons, holiday parties, and other gatherings. Its bylaws neither limited its purposes to section 501(c)(3) purposes nor permanently dedicated its assets to those purposes. The IRS found that the association failed the organizational test and that substantially all of its activities served its members' private recreational interests, so it also failed the operational test. The IRS denied charitable exemption, and the determination became final when the association did not protest.

Ruling snapshot

• Question: Does a member-focused recreational golf and social league qualify for exemption under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 64-275; Rev. Rul. 69-175; Rev. Rul. 70-4; Rev. Rul. 77-365; Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945)

Full text (IRS public release)

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

Date:
January 23, 2020

Employer ID number:

Contact person/ID number:

Release Number: 202016021
Release Date: 4/17/2020

Contact telephone number:

UIL Number: 501.03-00, 501.33-00

Form you must file:

Tax years:

Dear                 :

This letter is our final determination that you don’t qualify for tax-exempt status under Internal Revenue Code
(IRC) Section 501(c)(3). 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 IRC Section 501(c)(3), donors can’t deduct
contributions to you under IRC Section 170. 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 IRC Section 6110) 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 IRC Section 6104(c)). 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
P.O. Box 2508
Cincinnati, OH 45201

Date:
November 14, 2019

Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend:                                     UIL:

B = Date                                    501.03-00
C = Date                                    501.33-00
M = State

X = Corporation

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 IRC Section 501(c)(3)? 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 B. 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 IRC Section 501(c)(3).

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
You were formed as an unincorporated association on C in the State of M and were established for the
recreation and enjoyment of your members and their guests. Your organizing document, By-Laws, does not
limit your purposes to one or more exempt purposes within the meaning of IRC Section 501(c)(3) or
permanently dedicate your assets for Section 501(c)(3) purposes.

You stated that you organize, coordinate, and run the                  league at X. You also plan, organize, and run
unspecified recreational activities within X. Participants in your activities include X’s members and the guests
and spouses of those members.

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

2

You hold             events every Monday, Wednesday, and Friday. You also conduct luncheons, holiday parties, and
other miscellaneous gatherings throughout the year.

Law
IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that, for an organization to be exempt under IRC
Section 501(c)(3), it 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 or 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(b)(4) provides that an organization is not organized exclusively for one or
more exempt purposes unless its assets are dedicated to an exempt purpose.

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 IRC 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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized and operated
exclusively for charitable purposes unless it serves a public rather than a private interest.

Revenue Ruling 64-275, 1964-2 C.B. 142, describes an organization that was created for the purpose of
providing advance training to suitable candidates in the techniques of racing small sailboats in national and
international competition through classroom lectures, seminars and practical training sessions and improving
the caliber of the candidates for preparation of the recognized game competitions and other international racing
events. The purpose of its activities is to improve the individual student's capability for sailing and racing and
increase the number of qualified candidates for possible Olympic participation. The organization was
recognized as an organization described in IRC Section 501(c)(3).

Revenue Ruling 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils
attending a private school to provide bus transportation to and from the school for those children whose parents
belong to the organization. The organization did not qualify for exemption under IRC Section 501(c)(3)
because it served a private rather than public interest.

Revenue Ruling 70-4, 1970-1 C.B. 126, describes an organization engaged in promoting and regulating a sport
for amateurs. The organization's stated purposes were to promote the health of the general public by
encouraging all persons to improve their physical condition and fostering public interest in a particular sport. Its
activities were directed toward promoting sport tournaments, exhibitions, and instructive clinics. The
organization did not qualify for exemption under IRC Section 501(c)(3).

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

3

Rev. Rul. 77-365, 1977-2 C.B. 192, describes an organization that was organize and operated to instruct and
educate individuals of all ages and skill levels in a particular sport. It conducts clinics, workshops, lessons, and
seminars. The organization was recognized as an educational organization described in IRC Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court
determined the activities of that organization were aimed at promoting the prosperity and standing of the
business community and therefore, served a substantial private purpose. It concluded that the presence of a
single nonexempt purpose, if substantial in nature, will preclude exemption regardless of the number or
importance of statutorily exempt purposes.

In Hutchinson Baseball Enters., Inc. v. Commissioner, 696 F.2d 757 (1982), the court held that an organization
that promoted recreational and amateur sports was exempt as a charitable organization under IRC Section
501(c)(3). The organization undertook numerous activities to promote the sport of baseball; and the court found
that the purpose of promoting sports predominated over subsidiary purposes, such as members' recreational or
social benefit.

In The Media Sports League, Inc. v. Commissioner, T.C. Memo 1986-568, the court ruled that an organization
that sponsored sports competitions for adults in the community was not exempt under IRC Section 501(c)(3).
The court found that the organization had the substantial nonexempt purpose of promoting the social and
recreational interests of its members.

In Wayne Baseball, Inc. v. Commissioner, T.C. Memo. 1999-304, the court held that the organization's
nonexempt social and recreational activities were substantial in comparison to the organization's promotion of
baseball in the community. The Court found that the only activity sponsored by the organization was the
operation of an adult amateur baseball team and that the primary beneficiaries of the organization were the
individual team participants.

Application of law
IRC Section 501(c)(3) 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 By-Laws do not limit your purposes or dedicate your assets to exclusively IRC Section 501(c)(3)
purposes. As a result, you do not meet the requirements of Treas. Reg. Sections 1.501(c)(3)-1(b)(1)(i) and
1.501(c)(3)-1(b)(4). Therefore, you have not satisfied the organizational test.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will not be regarded as exempt under IRC
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. Substantially all the activities you conduct are
recreational and for the benefit of your members. Therefore, you have not satisfied the operational test.

You are not operated exclusively for exempt purposes under Treas. Reg. Sec. 1.501(c)(3)-1(d)(1)(ii) because,
like the organization described in Revenue Ruling 69-175, substantially all your activities further the private
interests of your members.

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

4

You are not like the organization described in Revenue Ruling 64-275 because your activities are devoted to
organizing recreational                  and social events for your members. Therefore, your activities are not exclusively
charitable or educational.

Like the organization described in Rev. Rul. 70-4, you do not engage primarily in activities that accomplish one
or more of exempt purposes specified in IRC Section 501(c)(3).

You are not like the organization described in Revenue Ruling 77-365. You do not instruct individuals of all
skill levels in a particular sport through clinics, workshops, or lessons. Rather, you organize recreational
and social events for your members.

Substantially all your activities are devoted to organizing recreational golf and social events for your members.
According to the court in Better Business Bureau of Washington, D.C., Inc, such a single non-exempt purpose,
if substantial in nature, will preclude exemption, regardless of the number or importance of exempt purposes the
organization serves.

Unlike the organization described in Hutchinson Baseball Enters., Inc., you do not undertake numerous
activities to promote a sport. Instead, you organize recreational             events for your members.

Like the organizations described in The Media Sports League, Inc. and Wayne Baseball, Inc., your recreational
sports activities also further the substantial nonexempt purpose of serving the private interests of your members

Conclusion
Based on the above facts and analysis, you do not qualify for exemption under IRC Section 501(c)(3) because
you are not operated exclusively for exempt purposes within the meaning of Section 501(c)(3). You have the
substantial non-exempt purpose of organizing recreational and social events for your members, which furthers
private interests. Accordingly, 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
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

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

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• 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:

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.

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

6

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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