Cultural organization denied Section 501(c)(3) exemption

Plain-English summary

An organization applied for recognition as a Section 501(c)(3) charity to support a particular cultural community. Its stated activities included cultural exchange, traditions, language classes, workshops, conferences, sports, and holiday celebrations open to the public. The IRS found that the organization did not provide enough detail to show that it operated exclusively for charitable or educational purposes. Its events primarily promoted fellowship and served substantial social and recreational purposes, which prevented exemption under the operational test. The organization did not protest the proposed denial within 30 days, so the IRS made the denial final.

Ruling snapshot

• Question: Did the cultural and community organization operate exclusively for exempt purposes under Section 501(c)(3)?
• Outcome: Denied.
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1); Rev. Rul. 77-366; Better Business Bureau v. United States; Harding Hospital, Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service Date: February 2, 2021
Tax Exempt and Government Entities Employer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Form you must file:
Tax years:
Number: 202117017
Release Date: 4/30/2021 Person to contact:
Name:
ID number:
Telephone:

UIL: 501.03-00, 501.03-30

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201
Date: December 2, 2020

Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend:
B = Date
C = State
D = Nationality
E = Ethnicity
F = Name

UIL:
501.03-00
501.03-30

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.

Issue
Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts
You were incorporated on B in C. Your corporate purposes include advising D individuals in the community;
keeping traditions; social and community work; language classes; workshops; conferences; support; and
entrepreneurship. You later attested that you amended your Articles to include the required Section 501(c)(3)
language; however, to date there is no evidence of such an amendment on C’s Secretary of State website.

Per the Form 1023, your activities will promote:

• The integration of the D and E community in F County;

• Community cultural exchange;

• Personal growth activities through integration activities such as conferences, seminars, workshops,
lectures, etc.;

• The solidarity and tolerance between the different foreign communities that live in the local
community;

• Art, music, traditions, and sports.

We subsequently requested detailed information about your activities as well as the percentage of time devoted
to each activity. In your response, you stated your purpose is to carry out the sport, traditions, the music and
customs of D culture. You also indicated that [redacted] of your activities were devoted to conducting events for
various holidays and celebrations including D and E Day, and [redacted]. These events operated by
volunteers are held at various venues such as community centers, public libraries, and churches and will be
open to the general public. You promote these events on social media.

We then requested additional details concerning your activities. You provided essentially the same information
that was previously submitted. Finally, you indicated that you are supported by gifts, grants and contributions
and have a volunteer board.

Law

IRC Section 501(c)(3) of the Code 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.

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) of the Code, 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(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.

Revenue Ruling 77-366, 1977-2 C.B. 192 describes an organization that was formed to arrange and conduct
cruises during which activities to further religious and educational purposes are provided. However, it was
found that an extensive amount of time and resources were spent devoted to the conduct of social and
recreational activities, and the facts and circumstances indicated these activities served substantial independent
purposes of a non-charitable nature. Therefore, this organization did not qualify for exemption under IRC
Section 501(c)(3) because it was not operated exclusively for exempt purposes.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (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.

In Harding Hospital, Inc. v. United States, 505 F.2d 1068, 1071 (6th Cir. 1974), the court held that an
organization has the burden of proving that it satisfies the requirements of the particular exemption statute. The
court noted that whether an organization has satisfied the operational test is a question of fact.

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 IRC Section
501(c)(3). You have failed to meet the operational test as explained below.

You are not operating in accordance with Treas. Reg. Section 1.501(c)(3)-1(c)(1) because you are not primarily
engaged in activities that accomplish exempt purposes specified in IRC Section 501(c)(3). Your primary
activities of conducting events for holidays and hosting other celebrations for members of the community
focusing on D individuals serve substantial social and recreational purposes. Therefore, you are precluded from
exemption under IRC Section 501(c)(3).

You are similar to the organization described in Rev. Rul. 77-366. While certain aspects of your activities
may further charitable and educational purposes, a primary goal of your events is to promote fellowship and
social welfare among the community especially those of D heritage, which serves a substantial nonexempt
purpose. As provided in Better Business Bureau v. United States the presence of substantial non-exempt
purposes precluded exemption under IRC Section 501(c)(3).

Your position

You wrote that you will promote community cultural exchange with the D and E community as well as host
events open to the community including sports, conferences, and activities. Your activities are related to your
purpose in that they are mainly aimed at the community, giving them the opportunity to participate with the
goal of providing social welfare to all members of the community. Your mission is to strengthen the general
population and support other foundations and social organizations with innovative, sustainable, and impactful
actions, through strategic, technological, social, and communication alliances for social transformation,
contributing to the human and social development of the community. You are integrating and empowering the
different actors in society in favor of social transformation and seeking to influence social transformation
through love, respect, and solidarity.

Our response to your position

You have not provided any additional information from which it can be concluded that your activities
exclusively further or advance a purpose described in IRC Section 501(c)(3). As previously described, you are
operating for substantial nonexempt social purposes. Similar to the organization in Harding Hospital, Inc. v.
United States, you have failed to provide sufficient information to prove to us that you are operating exclusively
for purposes described in Section 501(c)(3).

Conclusion
Based on the information submitted, you are not operated exclusively for exempt purposes within the meaning
of IRC Section 501(c)(3) of the Code. You are not operating exclusively for exempt purposes because your
events appear to be community social and recreational gatherings. Accordingly, we conclude 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.

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