Medical fundraiser for one person denied exemption

Plain-English summary

An organization was formed to raise money for one named person's cancer-treatment expenses through benefit dinners, community donations, and crowdfunding. Its receipts and disbursements served that individual and family, and the individual was represented on the organization's board. The IRS concluded that the organization failed the Section 501(c)(3) operational test because it served private rather than public interests and its funds inured to the designated person and family. After the organization did not protest within 30 days, the denial became final.

Ruling snapshot

• Question: Did the organization operate exclusively for exempt purposes rather than for a named individual's private benefit?
• Outcome: Denied. The organization failed the operational test and did not qualify for Section 501(c)(3) exemption.
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367; Wendy Parker Rehabilitation Foundation, Inc. v. Commissioner

Full text (IRS public release)

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

Number: 202113009
Release Date: 4/2/2021

Date: January 5, 2021
Employer ID number:
Form you must file:
Tax years:
Person to contact:

UIL Number: 501.00-00, 501.32-00

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)(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
generally can’t deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c),
by sending them a copy of this final letter along with the proposed determination letter.

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: October 27, 2020
Employer ID number:
Contact person/ID number:
Contact telephone number:
Contact fax number:

Legend: UIL:
B = State 501.00-00
C = Date 501.32-00
D = 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 IRC Section 501(c)(3)? No, for the reasons stated below.

Facts

You were incorporated in the State of B on C. Your Articles of Incorporation state you are organized
exclusively for charitable, educational, religious, or scientific purposes within the meaning of IRC Section
501(c)(3). In addition, they state you will fundraise for medical expenses associated with cancer treatment.

Your Form 1023 shows that your only activity is to raise funds to offset medical expenses for D. Funding comes
from dinners held to benefit D, donations from community members, and a crowdfunding website.

Your financial information shows receipts from donations and fundraising activities and disbursements for the
benefit of members and fundraising expenses.

You are governed by a [redacted]-person board of directors including D, [redacted]
will oversee donations and medical expenses.

Law

IRC Section 501(c)(3) provides for the exemption from federal income tax of organizations 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 qualify under 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 or operational test, it is not exempt.

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(c)(2) states that an organization is not operated exclusively for one or
more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or

individuals.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively
for 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.

Revenue Ruling 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. U.S., 326 U.S. 279 (1945), the court held that the

presence of a single non-exempt purpose, if substantial in nature, will preclude exemption, regardless of the
number or importance of statutorily exempt purposes.

In Wendy Parker Rehabilitation Foundation, Inc. v. Commissioner, T.C. Memo 1986-348 (1986), the
organization was created by the Parker family to aid an open-ended class of “victims of coma.” However, the
organization stated that it anticipated spending 30 percent of its income for the benefit of Wendy Parker,
significant contributions were made to the organization by the Parker family, and the Parker family controlled
the organization. Wendy Parker’s selection as a substantial recipient of funds substantially benefited the Parker
family by assisting with the economic burden of caring for her. The benefit did not flow primarily to the general
public as required under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Therefore, the Foundation was not exempt
from federal income tax under IRC Section 501(c)(3).

Application of law

You are not described in IRC Section 501(c)(3) because you fail the operational test as described in Treas. Reg.
Section 1.501(c)(3)-1(a)(1). As described in Treas. Reg. Section 1.501(c)(3)-1(c)(1), you are not operating
exclusively for exempt purposes because your funds inure to D and his family. When funds inure to the benefit
of private individuals, an organization is not operating exclusively for an exempt purpose. Treas. Reg. Section

1.501(c)(3)-1(c)(2).

Likewise, you are not described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you operate for private
rather than public interests. You were formed and operate for the sole benefit of a designated individual and his

family.

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

3

You are like the organization described in Rev. Rul. 67-367 because you were formed to benefit one pre-
selected, designated individual and are, thus, serving a private rather than a public interest.

You are also similar to the organization described in Better Business Bureau because you are not operated
exclusively for exempt purposes. Your sole purpose is to further the private interests of D and his family by
raising and paying funds to offset D’s medical expenses.

Finally, you are very similar to the organization described in Wendy Parker because you were formed by D’s
family to pay his medical expenses, thus relieving them of their economic burden. Like this organization, your

payments inure to D and his family.

Conclusion:
Based on the information submitted, you are not operated exclusively for exempt purposes. You are operating
for the private interests of D and his family. Thus, you do not qualify for exemption under IRC 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.

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.

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

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:
Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
P.O. Box 2508
Cincinnati, OH 45201

Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

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