IRS revokes a 501(c)(4) civic group that mainly ran a bar and gaming room for a related veterans post

Plain-English summary

The IRS revoked the 501(c)(4) social-welfare exemption of a civic organization whose main activity was running a bar and a gaming room (pull-tabs and lottery-type games) for the members of a related veterans organization that is exempt under 501(c)(19). The group also rented out its hall, ran a bar and restaurant with paid employees open to the public, and operated gaming open to the public. To qualify as a 501(c)(4), an organization must be operated exclusively to promote social welfare, and the regulations say a group is not doing that if its primary activity is running a social club for its members' recreation or carrying on a business with the general public the way a for-profit would. The examiner found that nearly all of the organization's income came from bar and lottery sales, and that it produced no board minutes, publications, or disbursements showing any activity that promoted the common good of the community. Because it was not operated primarily for social-welfare purposes, the IRS revoked the exemption, and the organization must file Form 1120 corporate returns going forward. The lesson: a social-welfare nonprofit that functions mostly as a members' bar and gaming operation can lose its 501(c)(4) status.

Ruling snapshot

• Question: Does an organization qualify for exemption under IRC § 501(c)(4) when its primary activity is operating a members' bar and gaming room and doing business with the public like a for-profit?
• Outcome: Revoked (final determination; 90 days to seek declaratory judgment under IRC § 7428); Form 1120 required going forward
• Key authorities: IRC § 501(c)(4); Treas. Reg. § 1.501(c)(4)-1(a)(2)(ii); IRC §§ 6001, 6033; Treas. Reg. §§ 1.6001-1, 1.6033-2(h)(2)

Full text (IRS public release)

(Scanned document; OCR-proofread. Obvious scan misreads were corrected; wording is preserved verbatim. This release combines the final adverse determination (Letter 6337), the proposed revocation (Letter 3618), and the audit report (Form 886-A). Blanks where identifying details, amounts, and dates were redacted appear as gaps in the original.)

Internal Revenue Service
Tax Exempt and Government Entities            Taxpayer ID number (last 4 digits):
IRS Tax Exempt and Government Entities

Department of the Treasury                    Date: March 3, 2023

                                             Form:
Release Number: 202321009                    Tax periods ended:
Release Date: 5/26/2023                       Person to contact:
UIL Code: 501.03-00                           Name:
                                             ID number:
                                             Telephone:
                                             Fax:

Last day to file petition with United States
Tax Court:

CERTIFIED MAIL - Return Receipt Requested
Dear :

Why we are sending you this letter

This is a 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)(4), for the tax
periods above. Your determination letter dated , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: IRC 501(c)(4) provides
for exemption of civic leagues or organizations not organized for profit but operated exclusively for the
promotion of social welfare. Your primary activities involve operating a bar and gaming for members of a
related organization, which is exempt under IRC Section 501(c)(19). In addition, you regularly carried on
business with the general public in a manner similar to organizations operated for profit. Thus, you did not
exclusively promote social welfare.

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was

mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Internal Revenue Service

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above.
Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time
to file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for
more comprehensive information.

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.

Enclosures:
Publication 1
Publication 594
Publication 892

cc:
[illegible] Examinations

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E


Department of the Treasury                    Date: December 2, 2022
Internal Revenue Service                      Taxpayer ID number:
IRS Tax Exempt and Government Entities

                                             Form:
                                             Tax periods ended:

                                             Person to contact:
                                             Name:
                                             ID number:
                                             Telephone:
                                             Fax:

                                             Manager's contact information:
                                             Name:
                                             ID number:
                                             Telephone:
                                             Fax:

                                             Response due date:
                                             January 2, 2023

CERTIFIED MAIL - Return Receipt Requested
Dear

Why you're receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue Code
(IRC) Section 501(c)(4)

If you agree

If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(4) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
   letter.
2. Send any information you want us to consider.
3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
   send additional information as stated in 1 and 2, above, you'll still be able to file a protest
   with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F


sign a consent to extend the period of limitations for assessing tax. This is to allow the
IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn't apply now that we've issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
   Government Entities) if you feel the issue hasn't been addressed in published precedent
   or has been treated inconsistently by the IRS.

If you're considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal to
the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll
issue a final adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

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 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.

For additional information
You can get any of 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).

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F


If you have questions, you can contact the person shown at the top of this letter.

Sincerely,

Acting Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018
Publication 892
Publication 3498

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F


Department of the Treasury - Internal Revenue Service   Schedule number or exhibit
Form 886-A   Explanation of Items
(May 2017)

Name of taxpayer    Tax Identification Number (last 4 digits)    Year/Period ended

ISSUE:
Whether ( ) meets the requirements for exemption under
Internal Revenue Code IRC Section 501(c)(4).

FACTS:

was incorporated in the state of on . The stated purpose is
promoting the principles and policies as set forth in the constitutions of the

filed an application for tax exemption under IRC Section 501(a) on , using the
name " ", and the employer identification number ("EIN")
. was determined to be exempt from Federal income tax as an organization
described in IRC Section 501(c)(4) with an effective date of . IRS records
indicate that the name that is currently assigned to the EIN ending in is, '

Subsequently, related organization filed an application for tax exemption under IRC Section
501(a) on , using the name " " and the
EIN . The related organization was determined to be exempt from Federal income tax
as an organization described in IRC Section 501(c)(19) with an effective date of

The organization's narrative description on Form 1024, Part II, Activities and Operational
Information states the following: "

Form 990 for the year ended , was selected for examination.

Per an interview with representatives, is composed of a board of trustees who control
the property and licenses of their related 501(c)(19) organization. The board of trustees report
monthly to the 501(c)(19) regarding the activity of . All revenue and expenditures related to
the ownership and operation of the building located at .

was rented to the public, operated a bar and restaurant with paid employees
open to the public, and operated gaming activities open to the public during the year under
examination.

Per book and records and Form 990, the organization reported income in the following
amounts.

Bar Income
( )
Pull Tab
(ATM Residual)
Hall Rental Income
Parking Lot Rental Income
Payback For Bad Checks & Fees
Misc. Income
Donation Income
Unknown Income
Income — Other
Total Income

was requested to provide board meeting minutes, publications, disbursements, and/or other
documentation to determine the organization's activities, and whether these activities promote the
common good and general welfare of the community. only provided a statement that
community groups regularly met at the location during the period of examination.

LAW:

IRC Section 501(c)(4) describes a tax-exempt organization as, "Civic leagues or organizations not
organized for profit but operated exclusively for the promotion of social welfare, or local
associations of employees, the membership of which is limited to the employees of a designated
person or persons in a particular municipality, and the net earnings of which are devoted
exclusively to charitable, educational, or recreational purposes."

IRC section 6001 provides that every person liable for any tax imposed by Title 26, or for the
collection thereof, shall keep such records, render such statements, make such returns, and
comply with such rules and Regulations as the Secretary or his delegate may from time to time
prescribe.

IRC section 6033 provides, in general, that every organization exempt under IRC section 501(a)
shall file an annual return, stating specifically the items or gross income, receipts, and
disbursements, and such other information for the purpose of carrying out the Internal Revenue
laws as the Secretary may by forms or Regulation prescribe, and shall keep such records, render
under oath such statements, make such other returns, and comply with such rules and
Regulations as the Secretary may from time to time prescribe, unless it meets at least one of
several exceptions.

Treasury Regulations section 1.6001-1(a) provides, in general, that any person subject to tax
under subtitle A of the Code or any person required to file an information return with respect to
income shall keep such permanent books of account or records, including inventories, as are
sufficient to establish the amount of gross income, deductions, credits, or other matters required to
be shown by such person in any return of such tax or information.

Treasury Regulations section 1.6001-1(c) provides that for exempt organizations, in addition to
such permanent books and records required by section 1.6001-1(a) with respect to the tax
imposed by section 511 on the unrelated business income of certain exempt organizations, every
organization exempt from tax under section 501(a) shall keep such permanent books of account
or records, including inventories, as are sufficient to show specifically the items of gross income,
receipts and disbursements.

Treasury Regulations section 1.6001-1(e) provides that the books or records required by this
section shall be kept at all times available for inspection by authorized internal revenue officers or
employees, and shall be retained as long as the contents thereof may be material in the
administration of any internal revenue law.

Treasury Regulations section 1.6033-2(h)(2) holds that an organization which is exempt from tax,
whether or not it is required to file an annual information return, shall submit such additional
information as may be required by the Internal Revenue service for the purpose of inquiring into its
exempt status.

Treasury Regulation 1.501(c)(4)-1(a)(2)(ii) provides, "The promotion of social welfare does not
include direct or indirect participation or intervention in political campaigns on behalf of or in
opposition to any candidate for public office. Nor is an organization operated primarily for the
promotion of social welfare if its primary activity is operating a social club for the benefit, pleasure,
or recreation of its members, or is carrying on a business with the general public in a manner
similar to organizations which are operated for profit."

TAXPAYER'S POSITION:
The taxpayer's position is unknown at this time.

GOVERNMENT'S POSITION:

During the examination for the period ended , it was determined that the primary
activity of was the operation of a bar and game room for the members of
(the related 501(c)(19) and that it carried on a business with the public in a
manner similar to organizations which are operated for profit. also operated
machines that were used by the public. Nearly ___ percent of total income for the tax
year ending , was derived from bar and lottery sales.

No documentation to determine the existence of exempt activities was provided during
examination. No board meeting minutes were maintained, no publications were provided and
there were no disbursements detected in the organizations books and records that indicated
activity which promoted the common good and general welfare of the community.

does not qualify for exemption under IRC Section 501(c)(4) because it is not operated
exclusively for the promotion of social welfare, or local associations of employees, the
membership of which is limited to the employees of a designated person or persons in a particular
municipality, and the net earnings of which are devoted exclusively to charitable, educational, or
recreational purposes.

CONCLUSION:

As a result of the examination, the Service has determined that is not operating for exempt
purposes as an IRC Section 501(c)(4) organization, primarily operated a bar and game room.
They have not provided any significant information to the Service substantiating for exempt
activities. Since failed to operate primarily for exempt purposes, their tax-exempt status is
revoked effective . Should this revocation be upheld, Form 1120 must be filed
starting with tax periods ending

Catalog Number 20810W    Page 4    www.irs.gov    Form 886-A (Rev. 5-2017)