Fundraiser for one family denied charitable exemption

Plain-English summary

An organization raised money through annual fundraisers to help a named person and his family pay medical expenses related to cancer treatment. Family and friends organized the events, donated goods or services, and distributed all profits to the family. The organization did not provide its organizing document to the IRS. The IRS concluded that it failed the organizational test and also served the private interests of a preselected individual and family rather than a public charitable class. It denied exemption, and the determination became final when the organization did not protest within 30 days.

Ruling snapshot

• Question: Does an organization formed solely to raise medical-expense funds for one named person and family qualify under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367; Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (1945)

Full text (IRS public release)

          Department of the Treasury
          Internal Revenue Service
          P.O. Box 2508
          Cincinnati, OH 45201
                                                                               Date:
                                                                               January 21, 2020
     Release Number: 202016024
     Release Date: 4/17/2020                                                   Employer ID number:
     UIL Number: 501.03-30, 501.33-00
                                                                               Contact person/ID number:

                                                                               Contact telephone number:

                                                                               Form you must file:

                                                                               Tax years:




Dear Applicant:

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 21, 2019
                                                                               Employer ID number:


                                                                               Contact person/ID number:


                                                                               Contact telephone number:


                                                                               Contact fax number:




Legend:                                                                       UIL:
B = Date                                                                      501.03-30
C = Name                                                                      501.33-00

Dear Applicant:


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 the above
attestations. We requested a detailed description of your past, present, and future activities along with a copy of
your organizing document.

You raise funds to help C and his family pay for medical expenses related to C’s cancer treatment. You
organize annual fundraisers conducted by C’s family and friends that will feature donated goods or services. All
your profits are distributed to C’s family to offset medical expenses incurred.

You did not submit a copy of your organizing document.

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. No part of the net
earnings may inure to the benefit of any private shareholder or individual.
                                                                                         Letter 4034 (Rev. 11-2018)
                                                                                          Catalog Number 47628K

                                                        2


Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in IRC Section 501(c)(3), 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 is organized exclusively for one or
more exempt purposes only if its articles of organization:

     (a) Limit the purposes of such organization to one or more exempt purposes; and
     (b) Do not expressly empower the organization engage, otherwise than as an insubstantial part of its
         activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) holds that an organization is not organized exclusively for one or more
exempt purposes unless its assets are dedicated to an exempt purpose. An organization’s assets will be
considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization’s articles or operation of law, be distributed for 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 which 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.

Rev. Rul. 67-367, 1967-2 C.B. 188, describes a nonprofit organization whose sole activity was the operation of
a 'scholarship' plan for making payments to pre-selected, specifically named individuals. The organization did
not qualify for exemption from federal income tax under IRC Section 501(c)(3) because it was serving private
rather than public or charitable interests.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (1945), 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.

Application of law
A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided supporting documentation to establish you meet the requirements of IRC Section 501(c)(3). Section
501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg. 1.501(c)(3)-
1(a)(1), an organization must be both organized and operated exclusively for purposes described in Section
501(c)(3). You did not submit your organizing document. As a result, you have not satisfied the organizational
test described in Treas. Reg. Sections 1.501(c)(3)-1(b)(1)(i) and 1.501(c)(3)-1(b)(4).

You do not meet the operational test under IRC Section 501(c)(3) because you are not operating exclusively for
charitable purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). You raise funds for the benefit of
a pre-selected individual and his family. As provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2), you have not
established that your operations accomplish exclusively charitable purposes.




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

                                                          3

You are like the organization described in Revenue Ruling 67-367 because you serve private interests rather
than public or charitable interests. You were formed to benefit C, a pre-selected individual, and his family.

Like the organization in Better Business Bureau of Washington, D.C., Inc. v. United States, you have a
substantial non-exempt purpose. You raise funds for the benefit of a pre-selected individual and his family.

Conclusion
You do not qualify for tax exemption under IRC Section 501(c)(3) because you are neither organized nor
operated exclusively for purposes described in Section 501(c)(3).

You do not meet the organizational test outlined in Treas. Reg. Sections 1.501(c)(3)-1(b)(1)(i) and 1.501(c)(3)-
1(b)(4) because you have not established that your organizing document limits your purposes to one or more
exempt purposes or permanently dedicates your assets for Section 501(c)(3) purposes.

Further, the facts show that you do not meet the operational test outlined in Treas. Reg. Section 1.501(c)(3)-
1(c)(1) because your sole activity is to raise funds for the benefit of a pre-selected individual and his family.

Accordingly, you do not qualify for exemption as an organization described in 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

   • 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.




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

                                                         4

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

5

    Sincerely,




    Stephen A. Martin
    Director, Exempt Organizations
    Rulings and Agreements




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