IRS denies 501(c)(3) status to a recreational soccer club

Plain-English summary

A recreational soccer club applied for tax-exempt charitable status under Section 501(c)(3) using the streamlined Form 1023-EZ. After the IRS asked for more detail, the facts showed the club exists mainly so its members (mostly adults) and the public can play soccer for recreation and exercise; it enters local recreational competitions and pays for members' lodging and travel to games. The IRS denied the exemption. Playing sport recreationally is a social and recreational purpose, not a charitable one, and a single substantial non-exempt purpose defeats exemption. The club also did not qualify under the special rule (Section 501(j)) for amateur sports organizations, because it does not foster or develop athletes for national or international competition and is not affiliated with any organized amateur sports body. The IRS distinguished a revenue ruling that allows exemption for groups that only instruct the public in a sport, noting this club is primarily a members' club that competes rather than a pure instructional organization. This is the final adverse determination; it became final because no protest was filed within 30 days. It reproduces both the final letter (Letter 4038) and the proposed adverse letter (Letter 4034).

Ruling snapshot

• Question: Does a recreational soccer club that competes and covers members' travel qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (final adverse determination; fails the operational test; not a qualified amateur sports organization under § 501(j)).
• Key authorities: IRC §§ 501(c)(3), 501(j); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1); Rev. Rul. 77-365; Better Business Bureau v. United States, 326 U.S. 279; Intl. Postgraduate Med. Found. v. Comm., 56 T.C.M. 1140

Full text (IRS public release)

Internal Revenue Service 01/23/2023

. Tax Exempt and Government Entities Employer ID number:
I PO Box 2508

. Cincinnati, OH 45201

Fay Department of the Treasury Date:

Tax years:

Person to contact:

Number: 202316010
Release Date: 4/21/2023

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
IRS Cincinnati, OH 45201

Date:
December 5, 2022

Employer ID number:

Person to contact:

Name:

ID number:

Telephone:
Legend: UIL:
B = date 1 501.03-00
C = state 501.03-05
D = date 2 501.03-30
E = day
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 IRC Section
501(c)(3).

You attest that you were incorporated on B, in C. 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

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

2

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
insubstantially

• 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

Your stated mission or most significant activities are to administer and promote the sports of soccer, and the
welfare of its members and the public.

Detailed information was subsequently requested. Your Articles of Incorporation shows you were incorporated
on D. You are a recreational soccer club where your members and the public play soccer for recreational
purposes. percent of your members are adults. The public participates in your soccer team solely for
an exercise purpose. You participate in local recreational soccer competitions and are founded by donations and
membership fees. You pay for lodging and transportation for members to participate in soccer events.

You are not part of any US Olympic or Pan-American games and not affiliated with any international sport.
None of your members or the public who participate contend for the Olympics or Pan-American games. There
is no required level of talent for your members and the public participants. You only offer training every E
morning. You do not improve the performance of a group of elite athletes but improve the health of the
members and public though exercise.

Law

Internal Revenue Code 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.

Internal Revenue Code Section 501(j)(1) describes that an organization which fosters national or international
amateur sports competition, but whose activities also involve the provision of athletic facilities or equipment,
may still qualify for exemption under section 501(c)(3) if the organization meets the requirements under section
501(j) and is considered a "qualified amateur sports organization" under section 501(j)(2). Qualified amateur
sports organizations will qualify for tax-exempt status whether or not they provide facilities or equipment to
their members, and whether or not their membership is local or regional in nature.

Internal Revenue Code Section 501(j)(2) A "qualified amateur sports organization" is any organization
organized exclusively to foster national or international amateur sports competition if it is also organized and
operated primarily to conduct national or international competition in sports or to support and develop amateur
athletes for national or international competition in sports.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) 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.

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

3

Treasury Regulation 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 77-365 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.

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

You are not described in IRC Section 501(c)(3) because you operate for more than insubstantial social and
recreational purposes. Your activities are recreational in nature, primarily for your members. Therefore you are
not operating exclusively for an exempt purpose described in IRC Section 501(c)(3).

While certain organizations involved in the promotion of advancement of sports for adults may qualify under
IRC Section 501(j)(1) you are not an organization which fosters national or international amateur sports
competition. To qualify under 501(j)(1) and 501(j)(2) an organization must be developing amateur athletes for
participation in national or international sports. While you have individuals participating in soccer you are not
part of nor affiliated with any organized bodies. Your members are playing recreationally, and anyone may
participate.

You fail the operational test described in Treas. Reg. Section 1.501(c)(3)-1(a)(1) because you are not operating
exclusively for an exempt purpose under IRC Section 501(c)(3). You are not as described in Treas. Reg. Section
1.501(c)(3)-1(c)(1) because more than a substantial part of your activities are recreational.

While you are conducting instruction in the sport of soccer you are primarily a soccer club for your members.
You are formed to participate in soccer competitions, paying for members to travel to and play in these events,
rather than just instructing the public in the sport of soccer. For this reason, you are dissimilar to the
organization in Revenue Ruling 77-365.

Despite providing education in the sport of soccer, you are primarily a recreational soccer club where your
members and the public play soccer for recreational purposes. Similar to Intl Postgraduate Medical, you have
not established social or recreational activities tied to these events are insubstantial or incidental. Also, as in

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

4

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
• 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:

Letter 4034 (Rev. 01-2021)
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

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

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