Professional networking group denied Section 501(c)(3) status

Plain-English summary

A membership organization sought recognition as a Section 501(c)(3) charity
for activities that included professional networking events, promoting other
nonprofits, and connecting professionals with volunteer opportunities. Its
events occurred in restaurants, bars, clubs, hotels, and similar venues, and a
major percentage of its time was devoted to social events. The IRS found that
this substantial social purpose prevented the organization from satisfying the
operational test for exemption. It also found that the articles of
incorporation neither limited the organization to exempt purposes nor properly
dedicated its assets to exempt purposes upon dissolution. The IRS therefore
denied Section 501(c)(3) status, and explained that donors generally could not
deduct contributions under Section 170.

Ruling snapshot

• Question: Did the professional networking and social-events organization satisfy the organizational and operational tests for exemption under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(a) and § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), and (c); Rev. Rul. 68-504; Rev. Rul. 77-366; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

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

Date: July 20, 2021

Employer ID number:

Form you must file:

Tax years:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202141029
Release Date: 10/15/2021
UIL: 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

Letter 4038 (Rev. 1-2021)
Catalog Number 47632S

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

Letter 4038 (Rev. 1-2021)
Catalog Number 47632S

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

Date: April 5, 2021

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:
A = Date
B = State
C = City

UIL: 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 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) of the Code? No, for the reasons stated below.

Facts

You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption Under IRC Section
501(c)(3) of the Internal Revenue Code. 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) of the Code.

The description of your activities provided in your application states that you were formed to create networking
events, promote other non-profits, and connects volunteering opportunities among professionals in the city of C.
During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.

You are a corporation formed on A. We obtained, and shared with you, a filed copy of your organizing
document from the B Secretary of State’s website. Your organizing document, Articles of Incorporation, does
not limit your purposes to one or more exempt purposes within the meaning of Section 501(c)(3) of the Code
and does not prohibit you from engaging in activities that are not in furtherance of one or more exempt
purposes.

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

2

Furthermore, your Articles do not have a proper dissolution clause that limits your transfer of assets, upon
dissolution, to those organizations with an exempt purpose or to a Federal, State or local government, for a
public purpose.

The description of your activities provided in your application states that you were formed to [redacted].
These events grant members and guests the opportunity to network with each
other as well as learn about volunteer efforts and philanthropy partners. Attendees are given color-coded name
tags identifying their field of occupation for networking purposes.

You are a membership organization. Your membership is open to [redacted] living in B. However,
you state your activities are open to the public. Membership fees are currently charged annually.

Your activities take place in restaurants, bars, clubs, hotels and other similar venues around the city of C. Your
activities are carried on [redacted], while the [redacted].

You have indicated that a major percent of your total time will be spent on your social events.

Law

Section 501(c)(3) of the Code provides for the exemption from federal income tax of organizations organized
and operated exclusively for educational purposes.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that to be exempt as an organization described in 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. Sec. 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. Sec. 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 that accomplish one or more of such
exempt purposes specified in 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.

In Revenue Ruling 68-504, 1968-2 CB 211, a nonprofit organization formed and operated to conduct an
educational program for bank employees in an urban area qualifies for exemption under Section 501(c)(3) of the
Code. It also publishes a professional magazine containing items of interest and assistance to the members and

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

3

conducts occasional social affairs to stimulate interest in its educational program. The social affairs involve an
insubstantial part of the organization’s activities.

Rev. Rul. 77-366, 1977-2 CB 192, provides that a nonprofit organization that arranges and conducts wintertime
ocean cruises during which activities to further religious and educational purposes are provided in addition to
extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify
for exemption under Section 501(c)(3) of the Code. In addition to the usual cruise activities, the programs
conducted on each cruise include a schedule of lectures, discussion groups, and special interest workshops on
religious topics, at which attendance is not required. The organization accomplished both charitable and non-
charitable purposes through its cruises.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), states that the
presence of a single non exempt purpose, if substantial in nature, will destroy the exemption regardless of the
number and importance of truly exempt purposes.

Application of law Based on the information in the administrative record, we hold that you do not meet the
operational requirements for recognition of tax exemption under Section 501(c)(3) of the Code. You fail the
operational test as indicated in Treas. Reg. Section 1.501(c)(3)-1(a)(1) and Treas. Reg. Section 1.501(c)(3)-
1(c)(1). In addition, you fail the organizational test under Treas. Reg. Sec. 1.501(c)(3)-1(b).

You are not operated exclusively for one or more exempt purposes because more than an insubstantial part of
your activities is not in furtherance of an exempt purpose as provided under Treas. Reg. Section 1.501(c)(3)-
1(c)(1). 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. Better Business Bureau of
Washington D.C., Inc. v. United States, supra. Your social activities, as described in your application and your
additional correspondence, constitute a substantial part of your activities; thereby precluding exemption under
IRC Section 501(c)(3).

You are not similar to the organization described in Rev. Rul. 68-504 because that organization’s social
activities were an insignificant part of its overall activities. In comparison, your activities consist of a
substantial amount of your overall activities.

You are similar to the organization described in Rev. Rul. 77-366 which conducted extensive social activities in
addition to some educational and religious activities on its wintertime ocean cruises. These social activities were
substantial in nature, and precluded exemption under IRC Section 501(c)(3).

Conclusion

We have determined that you do not meet the requirements for tax exemption under IRC Section 501(c)(3) of
the Code. You are not operated exclusively for exempt purposes. You do not qualify for recognition of tax
exemption because more than an insubstantial part of your activities is not in furtherance of exempt purposes.
You do not meet the operational test as stated in Treas. Reg. Section 1.501(c)(3)-1(c)(1). And the organizational
defects in your Articles of Incorporation do not meet the requirements of Treas. Reg. Secs. 1.501(c)(3)-
1(b)(1)(i) and 1.501(c)(3)-1(b)(4).

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

4

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:

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

5

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

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