202034012: IRS denies 501(c)(7) social-club status because the applicant never adequately described its activities

Plain-English summary

An organization applied to be recognized as a tax-exempt social club under IRC § 501(c)(7). Its application was largely blank: no narrative of activities, no contact person, no financial data, and an incomplete Schedule D. The IRS twice asked for the missing details, but the responses still described the activities only vaguely (as "helping people who one needed") and left out required information. Because exemption is decided solely on the administrative record and the applicant carries the burden of proof, the IRS could not tell whether the group operates primarily for pleasure and recreation as a social club requires. Gaps in the record are resolved against the applicant. The IRS issued a proposed adverse determination, and with no protest filed within 30 days it became final: the organization does not qualify and must file income tax returns.

Ruling snapshot

• Question: Did the applicant establish, on the administrative record, that it qualifies as a 501(c)(7) social club?
• Outcome: Denied (final adverse determination, no protest filed)
• Key authorities: IRC § 501(c)(7); Treas. Reg. § 1.501(c)(7)-1(a); Rev. Proc. 2019-5; Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974); Pius XII Academy, Inc. v. Commissioner; La Verdad v. Commissioner; New Dynamics Foundation v. United States; Ohio Disability Association v. Commissioner

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
Po Box 2508
Cincinnati, OH 45201

Number: 202034012
Release Date: 8/21/2020
Date:
UIL: 501.00-00, 501.07-00

Form you must file:
Tax years:
Person to contact:
Name:
ID number:
Telephone:

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax
under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section
501(c)(7). 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 the federal income tax forms for the tax years shown above within 30 days from
the date of this letter unless you request an extension of time to file. For further instructions,
forms, and information, visit www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter
available for public inspection after deleting certain identifying information, as required by IRC
Section 6110. 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 call the contact person shown above. If you have
questions about your federal income tax status and responsibilities, call our customer service
number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for
businesses at 800-829-4933.

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

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

March 5, 2020
Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:
B = state 501.00-00
C = date 501.07-00

D = organization

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)(7).
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)(7)? No, for the reasons stated below.

Facts

You were incorporated in the state of B as a non-profit corporation on C. Your Articles of Incorporation state
that you are organized for purposes of cultural, educational, charitable, athletic and other non-profit, non-
political social and economic activities with the scope of D.

Your application did not include a narrative description of your activities, a name and telephone number of a
contact person, financial data or a completed schedule D. Additionally, most questions on the form were left
unanswered. In our first letter we asked you to provide a narrative of your activities, a name and telephone
number of a contact person and to provide a completed Schedule D of the 1024 application. Your response to
our first letter included page 2 of form 1024 and a completed Schedule D. The statement written on page 2 of
the 1024 application described your activities as "helping people who one needed". However, you did not
provide a name and number of a contact person. Since we were not able to fully discern the nature of the
organization's activities from its response, a second letter was sent. In our second letter we asked you to
provide additional details regarding your activities, a name and telephone number of a contact person, and
financial data. Your response to our second letter included page 2 of the 1024 application which described
your activities as "helping people who one needed" with additional materials that were provided with your
initial application. You also indicated you were "organized for purposes of cultural, educational, charitable,
athletic and other non-profit, non-political social and economic activities within the scope of D". Again, you did

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

2

not provide a name and telephone number of a contact person or the financial data requested, or sufficiently
describe your activities.

Law
IRC Section 501(c)(7) exempts from federal income tax, clubs organized for pleasure, recreation, and other

nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net
earnings of which inures to the benefit of any private shareholder.

Treasury Regulation Section 1.501(c)(7)-1(a) states that in general, this exemption extends to social and
recreation clubs which are supported solely by membership fees, dues and assessments.

Revenue Procedure 2019-5, 2019-1 I.R.B. 233, 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. 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.

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, Inc. v. Commissioner, T.C. Memo. 1982-97, affd. 711 F.2d 1058 (6th Cir. 1983), 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.

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 (2009), 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
Based on the information submitted, you have failed to establish that you are organized and operated
exclusively for exempt purposes within the meaning of IRC Section 501 (c)(7) and the related income tax

regulations. As such, we are unable to determine you are primarily organized for pleasure, recreation, and other
non-profitable purposes under Treas. Reg. Section 1.501(c)(7)-1(a).

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 since you did not provide a detailed narrative of your activities. Therefore,
you did not provide sufficient documentation to establish that you meet the requirements of IRC Section
501(c)(7) as required by Revenue Procedure 2019-5. As in Universal Life Church, you have the burden of
establishing that you qualify for tax exemption.

In Pius XII Academy, Inc., La Verdad, and New Dynamics Foundation, 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 IRC Section 501(c)(7). As provided in New Dynamics Foundation, 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.

Conclusion
Based on the information submitted, we conclude that you are not described in IRC Section 501(c)(7). You did

not establish that you are primarily organized for pleasure, recreation, or other non-profitable purposes.
Therefore, you do not qualify for exemption under Section 501(c)(7).

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:

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

4

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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