Fundraising for one person's medical bills served a private interest

Plain-English summary

An organization applied for Section 501(c)(3) status with the stated purpose of raising money to pay one named person's breast cancer treatment expenses. Its planned activities were a local benefit and social-media fundraising, with payments going to medical providers or reimbursing bills the individual had already paid. The individual appeared to be related to the organization's secretary-treasurer, and she was the only intended recipient of the funds. The IRS concluded that the organization served that person's private interests rather than a public charitable class, similar to the organizations in Revenue Ruling 67-367 and the Wendy L. Parker Rehabilitation Foundation case. The IRS also found no evidence that the broadly worded articles had been amended to contain the required Section 501(c)(3) limitations. Because the organization failed both the organizational and operational tests, the IRS denied exemption.

Ruling snapshot

• Question: Did an organization formed to pay one individual's cancer-treatment bills qualify under Section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367; Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 04/12/2023
Tax Exempt and Government Entities Employer ID number:

IRS PO Box 2508
Cincinnati, OH 45201

Form you must file:

Tax years:

Release Number: 202327019 Person to contact:
Release Date: 7/7/2023

UIL Code: 501.00-00,

501.03-00, 501.33-00

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.

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
IRS PO Box 2508
Cincinnati, OH 45201
Date: February 13, 2023

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = Date ‘ 501.00-00
C = State 501.03-00
E = Name 501.33-00

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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code.

You attest that you were incorporated on B, in the state of 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 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 IRC 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

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• 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

The mission or most significant activity on your Form 1023 EZ states your sole purpose is to
help with medical expenses associated with breast cancer treatment for E.

During review of your Form 1023-EZ, detailed information was requested supplemental to the above
attestations. The submitted information shows you are raising money in order to pay the medical bills for E’s
cancer treatments who is the only recipient of these funds. Your fundraising activities will consist of putting on
a benefit at a local venue as well as conducting social media fundraisers on various platforms. You will
distribute funds directly to the hospital or doctor where each bill comes from. E had been paying the medical
bills and if possible, will be reimbursed for the ones that have been paid thus far. Your president and
secretary/treasurer conduct the activities. Your secretary/treasurer and E also share the same last name.

Further, you submitted Articles of Incorporation filed on B in C, which state you were formed for the purpose
of engaging in any lawful activity for which corporations may be formed under C’s nonprofit statutes. You
attested that you amended your Articles to include the required Section 501(c)(3) language; however, to date
there is no evidence of such an amendment on C’s Secretary of State website.

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)-1(a)(1) states that, in order 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)-1(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and

(b) Do not expressly empower the organization engage, otherwise than as an insubstantial part of its activities,
in activities that 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 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.

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


3

Treas. Reg. Section 1.501 (c)(3)-1 (d)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more of the purposes specified in subdivision (i) of this subparagraph unless it serves a
public rather than private interest, Thus to meet the requirement of this subdivision, it is necessary for an
organization to establish that it is not organized or operated for the benefit of private interests such as
designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly
or indirectly, by such private interests.

Rev. Rul. 67-367 1967-2 C.B. 188 held that an organization formed to award scholarships to pre-selected,
specifically named individuals doesn’t qualify for exemption under IRC Section 501(c)(3) because it was
serving the private interests of its subscribers rather than public or charitable interests.

In Wendy L. Parker Rehabilitation Foundation, Inc., Petitioner v. Commissioner, T.C. Memo. 1986-348, the tax
court upheld the Service's position that a foundation formed to aid coma victims, including a family member of

the founders, wasn’t entitled to recognition of exemption. Approximately 30% of the organization's net income
was expected to be distributed to aid the family coma victim. The court found that the family coma victim was a
substantial beneficiary of the foundation's activities which benefited the Parker family by assisting them with
the economic burden of caring for her. The benefit did not flow primarily to the general public as required under
Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Therefore, it was not exempt from federal income tax under Section
501(c)(3).

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3). You fail both the organizational and operational tests.

You fail the organizational test because there is no evidence that you filed an amendment with your state
limiting your purposes to those described in IRC Section 501(c)(3) as required by Treas. Reg. Section

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

You fail the operational test because you are not operated exclusively for charitable purposes as required under
Treas. Reg. Section 1.501(c)(3)-1(c)(1). You have a substantial nonexempt private purpose. You are serving the
private interests of E by raising money to pay for her medical bills. In addition, you do not meet the provisions
under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you are operated for private interests rather than
public interests.

You also explained that you are conducting fundraisers on E’s behalf and that E is receiving all the funds you
are raising. This illustrates that you are like the organization described in Rev. Rul. 67-367 because you serve
private rather than public interests.

In Wendy L. Parker Rehabilitation Foundation Inc, the court found that the family coma victim was a
substantial beneficiary of the foundation’s activities. You are similar to this organization because you are
raising funds for one individual who appears to be related to your secretary/treasurer. Therefore, you do not
qualify for exemption under IRC Section 501(c)(3).

Conclusion

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


4

We have determined that you do not meet the requirements for tax exemption under IRC Section 501(c)(3)
because you fail both the organizational and operational tests. There is no evidence on C’s Secretary of State’s
website that you filed an amendment to meet the organizational test for Section 501(c)(3). You are also not
operated exclusively for exempt purposes as set forth in Section 501(c)(3). You are operated to further the
private interests of E and are operating 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 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