Cat café denied agricultural organization exemption

Plain-English summary

A limited liability company operating a cat café and caring for adoptable rescue cats applied for exemption as an agricultural organization under section 501(c)(5). Its principal revenue came from entry fees, with smaller amounts from food, beverages, and consignment jewelry. The IRS concluded that caring for domestic cats and educating the public about homeless pets did not involve cultivating land, harvesting crops or aquatic resources, raising livestock, or improving the conditions of people engaged in agriculture. Revenue Ruling 73-520 similarly treats animals not used as farm animals as outside the agricultural meaning of section 501(c)(5). The application was denied because the organization was neither agricultural nor a labor or horticultural organization.

Ruling snapshot

• Question: Did a cat café and rescue operation qualify as an agricultural organization under section 501(c)(5)?
• Outcome: Denied
• Key authorities: IRC §§ 501(c)(5), 501(g); Treas. Reg. § 1.501(c)(5)-1; Rev. Rul. 73-520

Full text (IRS public release)

Department of the Treasury                                      Date: 08/14/2023
Internal Revenue Service
Tax Exempt and Government Entities                              Employer ID number:
PO Box 2508

Telephone: :

Release Number: 202345010
Release Date: 11/10/2023
UIL Code: 501.05-00,
501.05-01

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)(5). 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.

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

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

Department of the Treasury
Internal Revenue Service
IRS PO Box 2508
Cincinnati, OH 45201
Date: 6/20/2023

Employer ID number:

Person to contact:

Name:

ID number:

Telephone:
Legend: UIL:
B = formation date 501.05-00
C = state of formation 501.05-01

x percent = food and beverage sales

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)(5).
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)(5)? No, for the reasons stated below.

Facts

You were formed on B in the state of C as a Limited Liability Company. You applied on Form 1024 for
exemption under IRC Section 501(c)(5), as an agricultural organization. You state that you house and care for
rescued cats that come from a local non-profit animal shelter. As part of your operations, you also operate a cat
café, where you provide food and beverage sales, which constitute a small percentage of your income. In
addition, you sell jewelry on consignment in your café. You charge entry fees that enable you to feed, house,
and care for the cats until they get adopted. These fees are your main source of revenue. Your state recognizes
you as an animal shelter facility.

In your response to our letter requesting additional information, you state that you are a non-member
organization, though considering offering membership. You clarify that the food and beverage sales are x
percent or less of your total revenue, and prices are similar to what people could find in other retail
establishments.

At your café, people can visit with your adoptable cats in a relaxed and fun environment. They may choose to
adopt a cat, or just come for the therapeutic benefit of spending quality time with cats. Your main concern is
providing care for the cats that improves their well-being and educating the public about the ongoing homeless

pet problem.

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

Law
IRC Section 501(c)(5) provides for exemption of labor, agricultural, or horticultural organizations.

Section 501(g) states that for purposes of Section 501(c)(5), agricultural refers to the art or science of
cultivating land, harvesting crops or aquatic resources, or raising livestock.

Treasury Regulation Section 1.501(c)(5)-1 provides that the organizations contemplated by IRC Section
501(c)(5) as entitled to exemption from income taxation are those which (1) have no net earnings inuring to the
benefit of any member, and (2) have as their objects the betterment of the conditions of those engaged in such
pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency
in their respective occupations.

Revenue Ruling 73-520, 1973-2 C.B. 180, describes an organization formed to promote and protect a particular
breed of dog. The organization's members do not raise or use the dogs as farm animals. Using the dictionary
definitions of "agriculture" as the art or science of cultivating the ground, including preparing the soil, planting
seeds, raising crops, and rearing, feeding, and managing livestock, which is a definition consistent with IRC
Section 501(g), and of "livestock" as "the horses, cattle, sheep, and other useful animals kept or raised on a
farm or ranch,” it reasons that "Since the dogs are not used as farm animals, they cannot be

considered livestock." It concludes that, by promoting and protecting this particular breed of dog, the
organization does not have as its object the betterment of conditions of persons engaged in agriculture and
therefore is not exempt from federal income tax under Section 501(c)(5).

Application of law
You are not an organization described in IRC Section 501(c)(5) and Treas. Reg. 1.501(c)(5)-1 because your
objective is not the betterment of conditions of persons engaged in agriculture as Section 501(g) defines that
word, the improvement of the grade of their products, or the development of a higher degree of efficiency in
their respective occupations. Your stated purpose is to care for homeless cats in the hopes of having them
adopted and to educate the public about the homeless cat problem, while allowing the public to visit the cats
through your cat cafe.

You are similar to the organization described in Rev. Rul. 73-520 in that your cats are not raised as farm
animals. The ruling emphasizes that “livestock” refers to animals typically considered to be farm animals. Since
dogs are not used as farm animals, then in the same sense domestic cats would also not be considered farm
animals. If cats are not farm animals, then they cannot be considered livestock, thus your activity is not
agricultural in nature. You also do not fit other definitions of agricultural, including the art or science of
cultivating land or harvesting crops or aquatic resources.

Though the public does benefit from the educational and humanitarian aspects of the cat care and adoption
activity, none of your activities have, as a purpose, the betterment of the conditions of persons engaged in the
raising or improvement of livestock, or the development of a higher degree of efficiency in their raising of
livestock. Your activity is therefore not agricultural in nature.

Conclusion

Based on the facts above, we conclude that you are not operated as an organization described in IRC Section
501(c)(5) of the Code. Your activity is not agricultural, nor are you a labor or horticultural organization.
Therefore, you do not qualify for exemption under IRC Section 501(c)(5).

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

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:

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

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

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