501(c)(3) exemption denied to a legal-profession networking group operated for substantial non-exempt purposes

Plain-English summary

An organization for members of the legal profession (its members include judges, professors, prosecutors, and private and in-house attorneys) applied for tax-exempt charity status under § 501(c)(3) using the streamlined Form 1023-EZ. Its stated purposes were to build community, provide support and networking, and advance members professionally. The IRS denied the application on two independent grounds. First, it failed the organizational test because its formation document limited its purposes to activities described in § 501(c)(6) (a business-league category), not to exempt § 501(c)(3) purposes. Second, it failed the operational test because a substantial part of what it does (social events, professional networking, relationship-building, and career advancement for its members) serves a non-exempt purpose. Citing Better Business Bureau v. United States, the IRS explained that a single substantial non-exempt purpose defeats exemption no matter how many genuinely exempt activities also exist. The proposed adverse determination became final because the applicant did not protest within 30 days. Without § 501(c)(3) status, donations are generally not deductible under § 170.

Ruling snapshot

• Question: Does a professional networking and support organization for the legal community qualify for exemption under § 501(c)(3)?
• Outcome: Denied (fails both the organizational and operational tests; substantial non-exempt purpose)
• Key authorities: IRC §§ 501(c)(3), 170, 7428(b)(2); Treas. Reg. §§ 1.501(c)(3)-1(a)(1), (b)(1), (c)(1), (d)(2), (d)(3)(i); Rev. Rul. 71-504; Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945)

Full text (IRS public release)

This document is a scanned image; the text below is from OCR of the official
IRS release. Repeated page furniture (the "Letter 4038/4034 (Rev. ...)" and
"Catalog Number" footers and bare page numbers) was removed and obvious OCR
misreads in the standard letter text were corrected. The body wording is
reproduced verbatim; genuinely unreadable spots are marked [illegible].

Department of the Treasury Date:

Internal Revenue Service February 8, 2022
Tax Exempt and Government Entities
PO Box 2508

Cincinnati, OH 45201

Employer ID number:

Form you must file:

Tax years:
Number: 202218026 Person to contact:
Release Date: 5/6/2022 Name:
ID number:
Telephone:

501.00-00, 501.03-00, 501.03-30, 501.35-00

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 Letter 437, Notice of Intention to Disclose Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 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:

Letter 437

Redacted Letter 4034
Redacted Letter 4038

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: December 14, 2021

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
Ls — Date 501.00-00
C = State 501.03-00
D = City 501.03-30
x dollars = amount * 501.35-00

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

You attest that you were incorporated on B in C. You also attest that you are organized and operated exclusively
to further charitable and educational purposes and that you have not conducted and will not conduct prohibited
activities under Section 501(c){3).

Your mission as slated on the Form 1023-EZ is, “To create a sense of community, togetherness and education
for members to exist and thrive as n the legal profession; to provide freedom, support
and resources to overcome unique issues in both personally and professionally”.

Your Certificate of Formation states that your purpose is to perform one or more activities within the meaning
of IRC Section 501(c)(6). Specifically, 1) Sanctuary - to create a sense of community and togetherness for
members to simply be themselves without judgement or indictment, to pro vide freedom to honestly deal with
issues in our members nersonal and professional lives and 2) -to enrich
the quality of life for through encouragement and mentorsnip; to uplift our

members both spiritually, mentally and emotionally; to empower our members to better manage their personal
and professional lives.

During review of your Form 1023-EZ, we sent a request for information regarding your activities to supplement
the above information.

You responded that you “provide refuge for who face nuanced challenges in the legal
environment, career opportunities and a forum for professional networking, and a platform for professional
development, mentorship, and sponsorship”. Your members include local judges, law professors, district
attorneys, city attorneys, in-house counsel, outside counsel, solo practitioners, diversity and inclusion
practitioners, legal consultants, and governmental attorneys.

Your activities include providing professional and leadership development programming, networking events,
mentorship and sponsorship, and career advancement opportunities. You conduct approximatoly 10 25 events
per year throughout the greater D area. Funds are raised via individual donations, law firm sponsorships, and
membership dues (which are x dollars annually). Your website lists various luncheons and other networking
events attended by members.

In a later response, you provided the following breakdown of your activities:
e Fundraising: 30% of your time is spent on fundraising for the organization through individual donors,
corporate organizations and law firms, and membership dues.
e Education: 40% of your time is spent on providing professional development through educational
programs, initiatives, and workshops.
e Social: 40% of your time is spent planning and executing social events for networking, relationship
building, and organizational development purposes.

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.

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)-I(b)()(@i)_ provides that an organization is 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 than as an
insubstantial part of its activities, in activities which in themselves are not in furtherance of 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 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(d)(2) provides the term “charitable” is used in IRC Section 501 {c)(3) in its
generally accepted legal sense and includes relieving the poor and distressed or the underprivileged, combating
community deterioration, lessening neighborhood tensions, and eliminating prejudice and discrimination.

Treas. Reg. Section |.501(c)(3)-1(d)(3)(i) provides that the term “educational,” as used in IRC Section
501(c)(3), relates to the instruction or training of the individual for the purpose of improving or developing his
capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community.

In Revenue Ruling 71-504, 1971-2 C.B. 231, a city medical society exempt under IRC Section 501(c)(6), that
primarily directs its activities to the promotion of the common business purposes of its members may not be
reclassified as an educational or charitable organization under Section 501(c)(3). The society was created for the
purpose of promoting the art of medicine, the betterment of public health, and the unity, harmony, and welfare
of members of the medical profession. Membership is open to all doctors in the community. Activities included
presentations on new procedures and clinical care, an extensive library of medical books for use by members, a
monthly medical journal, supporting medical education and local health programs, a patient referral service for
members, meetings concerned with matters affecting the promotion and practice of medicine and enhancing and
improving the public image of the medical profession. While some of the society’s activities are charitable or
educational, several are instead directed primarily at the promotion of the medical profession and thus further
the common business purposes of its members.

In Better Business Bureau of Washington. D.C., Inc v. United States, 326 U.S. 279 (1945), the Supreme Court
of the United States interpreted the requirement in IRC Section 501 (c)(3) that an organization be “operated
exclusively” by indicating that an organization must be devoted to exempt purposes exclusively. The presence
of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of
the number and importance of truly exempt purposes.

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. Per Treas. Reg. Section

1.501(c)(3)-1{a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501 (c)(3).

Your organizing document states that your purpose is to perform one or more activities within the meaning of
IRC Section 501(c)(6). As explained in Treas. Reg. Section 1.501 (c)(3)-I(b)()(i), you do not meet the

organizational test because your articles do not limit your purposes to one or more exempt purposes under IRC
Section 501 (c)(3).

You do not meet the operational test of Treas. Reg. Section 1.501(c)(3)-1(a)(1). You are not operating
“exclusively” for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1). Furthering the
interests of yout meimbets in the legal profession and providing social events for member networking,
relationship-building, and career advancement constitute a substantial, non-exempt purpose. These purposes and
activities are not charitable per Treas. Reg. Section 1.501(c)(3)-1(d)(2) or educational per Treas. Reg. Section

1.501(c)(3)-1(d)(3)(i).

Like the organization in Rev. Rul. 71-504, some of your activities may be educational or charitable. However,
several such as your social, networking, relationship-building, and career advancement activities, do not further

“exclusively” exempt purposes. Thus, like the organization in Better Business Bureau, you have a substantial

non-exempt purpose that destroys exemption regardless of the number and importance of truly exempt
purposes.

Conclusion

Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3). You do not
meet the organizational test because your articles do not limit your purposes to one or more exempt purposes.
You do not mect the operational test because you are operated for a substantial non-exempt purpose.

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 Refore the
IRS and Power of Atloiney.

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 Determination 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

PO 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