Member fishing club denied section 501(c)(3) status

Plain-English summary

An organization applied for section 501(c)(3) status for activities centered on fishing meetings, member tournaments, and discussions of fishing and outdoor topics. It also held some events involving veterans, children, elderly people, or people with disabilities, but most participants were members or other people interested in fishing. The IRS found that the organization's fishing instruction and charitable events were insubstantial compared with its social and recreational activities. Because a substantial nonexempt recreational purpose prevents section 501(c)(3) qualification, the IRS denied exemption under the operational test. The proposed denial became final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Does a membership fishing club with tournaments, social meetings, and limited charitable or educational events qualify under section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. §§ 1.501(c)(3)-1(a), (c), and (d); Rev. Rul. 77-365; Better Business Bureau of Washington, D.C. 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

Number: 202314016
Release Date: 4/7/2023

Date:
01/11/2023

Employer ID number:

Person to contact:

UIL: 501.03-00, 501.03-05, 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 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.

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

                       Sincerely,


                       Stephen A. Martin
                       Director, Exempt Organizations
                       Rulings and Agreements
Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038




                                                   Letter 4038 (Rev. 11-2021)
                                                   Catalog Number 47632S
           Department of the Treasury
           Internal Revenue Service
           PO Box 2508
           Cincinnati, OH 45201
                                                                              Date:
                                                                              November 7, 2022
                                                                              Employer ID number:


                                                                              Person to contact:
                                                                               Name:
                                                                               ID number:
                                                                               Telephone:




Legend:                                                                      UIL:
X = date                                                                     501.03-00
Y = state                                                                    501.03-05
z dollars = amount                                                           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.

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

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

You attest that you were incorporated on X, in Y. You attest that you have the necessary organizing document,
that your organizing document limits your purposes to one or more exempt purposes within the meaning of the
IRC Section 501(c)(3), that your organizing document does not expressly empower you to engage in activities,
other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and that your
organizing document contains the dissolution provision required under Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you
have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you
attest you will:

   •   Refrain from supporting or opposing candidates in political campaigns in any way
   •   Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
       individuals
   •   Not further non-exempt purposes (such as purposes that benefit private interests) more than
       insubstantially
                                                                                       Letter 4034 (Rev. 01-2021)
                                                                                       Catalog Number 47628K
                                                          2

   •   Not be organized or operated for the primary purpose of conducting a trade or business that is not related
       to your exempt purpose(s)
   •   Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
       made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations
       outlined in Section 501(h)
   •   Not provide commercial-type insurance as a substantial part of your activities

You disclosed your mission or most significant activity is fishing events and that you are a club that meets to go
fishing, hold fishing tournaments, discuss fishing information, and hold charitable events to take veterans and
children fishing.

Detailed information was subsequently requested. You conduct meetings where you discuss            fishing tips
and tactics. You share information about places you have fished and discuss general outdoor topics. You
conduct fishing tournaments for members where fish are caught and weighed. Your members are the main
participants of your activities and pay an annual membership fee of z dollars. Around % of your members are
individuals who are elderly, youth or those with disabilities – the remainder are individuals from the general
public interested in your activities. You spend around      of your time and resources on fishing tournaments
and social meetings.

Law
IRC Section 501(c)(3) 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)-l(a)(l) states that, to be exempt as an organization described in 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 test or the
operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-l(c)(l) 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.

Treas. Reg. Section 1.501(c)(3)-l(d)(3)(i) defines the term educational as the instruction or training of the
individual to improve or develop his/her capabilities or the instruction of the public on subjects useful to the
individual and beneficial to the community.

Revenue Ruling 77-365 held that an organization formed to conduct clinics, workshops, lessons, and seminars
at municipal parks and recreational areas to instruct and educate individuals in a sport may qualify for
exemption under IRC Section 501(c)(3). The organization does not establish rules, set standards for equipment,
or sponsor league competition for the sport in which it provides instruction.

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.


                                                                                        Letter 4034 (Rev. 01-2021)
                                                                                        Catalog Number 47628K
                                                         3

Intl. Postgraduate Med. Found. v. Comm., 56 T.C.M. 1140 (1989), the Tax Court held an organization
conducting substantial activities that further recreational endeavors will be denied exemption under IRC Section
501(c)(3). Since its inception, petitioner has organized, sponsored and co-sponsored seminars and symposia in
the medical field. Its stated purpose is to provide continuing medical education to physicians. Here the
organization did not establish recreational sightseeing activities were insubstantial or only incidental to
petitioner's educational purposes and activities are directed at providing opportunities for recreational
endeavors.

Application of law
Your activities are to hold social and recreational events for your members. Although you provide some
activities to children, veterans and the elderly, this is not exclusive, and the majority of your activities are
serving members socially. Your activities do not exclusively serve a charitable class described in IRC Section
501(c)(3). Therefore, you are not operating exclusively for an exempt purpose described in Treas. Reg. Sections
1.501(c)(3)-1(a)(1) and 1.501(c)(3)-1(c)(1).

Portions of your activities involve the discussion of fishing tips and tactics, locations and general outdoors
topics. Although these discussions may be educational in nature, these are insubstantial when compared to other
social and recreational activities. To be exemption under IRC Section 501(c)(3) activities must be serving
exclusive purposes; as these are only a portion of your activities, and social and recreational activities are also
conducted, you are serving both exempt and non-exempt purposes. As your non-exempt purposes are more than
insubstantial you are not described as exclusively educational per Treas. Reg. Section 1.501(c)(3)-l(d)(3)(i).

While you conduct some instruction in the sport of fishing you are primarily a social club for your members.
You are formed to give a place for members to discuss fishing, host fishing tournaments and socially inteact.
Your activities mostly benefit your members rather than the general public. For this reason, you are dissimilar
to the organization described in Rev. Rul. 77-365.

Despite providing education in fishing, your mission or most significant activity is fishing events; you have not
established social or recreational activities tied to these events are insubstantial or incidental (see Intl
Postgraduate Med). As in Better Business Bureau of Washington D.C., the presence of your substantial
recreational purpose precludes exemption under IRC Section 501(c)(3).

Conclusion
You operate primarily for social and recreational purposes. Therefore, you do not qualify for tax-exemption
under IRC Section 501(c)(3) because you fail the operational test.

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


                                                                                       Letter 4034 (Rev. 01-2021)
                                                                                      Catalog Number 47628K
                                                         4

   • 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 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




                                                                                        Letter 4034 (Rev. 01-2021)
                                                                                       Catalog Number 47628K
                                                      5

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. 01-2021)
                                                                                   Catalog Number 47628K