Cook-off fundraising group denied charitable exemption

Plain-English summary

A group sought section 501(c)(3) status for raising money through cooking competitions and related fundraising. Donations and sponsorships paid entry fees, food, beverages, cooking supplies, and event equipment, while sponsors received promotion, free food, and sometimes admission tickets. The group said event sponsors directed entry fees to charitable causes, but it did not identify the recipients or amounts and could not explain several listed donations. It also raised money for a specifically named person's medical care and discussed scholarships for particular students. The IRS found that contest entry fees tied to benefits were not charitable contributions and that the group served private rather than public interests. Because the record did not show an exclusively exempt operation, the IRS denied exemption.

Ruling snapshot

• Question: Did a cook-off team that solicited sponsorships and donations for competition costs, scholarships, and individual aid operate exclusively for charitable purposes?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Ruls. 67-246, 67-367; Universal Life Church; Wendy L. Parker Rehabilitation Foundation

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 11/06/2023
Tax Exempt and Government Entities

PO Box 2508

Cincinnati, OH 45201

Employer ID number:

Person to contact:

Release Number: 202405006
Release Date: 2/2/2024

UIL Code: 501.03-30,
501.33-00, 501.35-00

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

PO Box 2508
Cincinnati, OH 45201

Date: September 13, 2023

Employer ID number:

Person to contact:

Legend: UIL:

B = Date 501.03-30, 501.33-00
C = State Name

d percent = percentage amount 501.35-00

x dollars = dollar amount

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 were incorporated on B, in the state of C. Your organizing document limits your purposes to one or more
exempt purposes within the meaning of the IRC Section 501(c)(3), it 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.

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)
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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

Your mission, as stated on your Form 1023-EZ, is exclusively for charitable, religious, educational, and
scientific purposes including distributions to organizations that qualify as exempt under IRC Section 501(c)(3).
Detailed information was subsequently requested.

You stated that your sole activities are to participate in cook-offs with the purpose of raising funds to support
scholarships for children, raise funds for educational purposes, and raise funds for community development.

You participate in these competitions two to three times a year, which are held at various community facilities
in the area. You do not charge any fees, but the sponsors of these events charge an admission fee to the public.

Teams that participate in the competitions are charged an entry fee. You solicit donations to assist in paying
your entry fees and the cost of supplies to participate in the competitions. You indicated that the entry fees you
pay are then donated by the event sponsor to charitable causes.

In addition to the cook-offs, you indicated you participate in general fundraising to give back to the community.
These activities constitute d percent of your time and resources. We requested additional information, regarding
the amount donated to charitable causes by the event sponsors, the names of the charitable causes funded, and
the amount donated to each.

You stated you have participated in multiple cook offs, and that by entering the cook off you are providing
funds for those organizations to support students in higher education development. You provided the names of
events you attended, and fees paid. The events also listed dollar amounts that were either “donated to auction”,
listed as “donation”, or listed as “no donation.” Your plan is to build the support of your donors to work towards
providing an x dollar annual scholarship to local qualified students.

You did not provide the names of the charitable causes donated to, or the amount donated to each. You offered
no explanation for the funds you listed as “donated to auction”, “donation”, or “no donation”. Thus, we
requested additional information via a third letter.

You indicated in your response that “donations” are entry fees for the cook-off. The entry fees could be used
directly for a stand-alone contribution, or part of a much larger event or organization fund raising opportunity.
You can also donate additional funds, if available, towards a student scholarship or other charitable cause. You
did not provide the amount donated to each charitable cause, nor did you explain the process behind your funds
listed as “donations” and “donations to auctions”.

You stated that you have also held your own events to fundraise for various causes like cancer patients, or a
death in the family. You included in your response promotional materials for a cooking event you participated
in that . For this event you sold

and accepted donations, the funds to be used for the present and future medical care.

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

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You also included other promotional materials for the various events you have attended. Information in these
materials stated you have sponsors with different levels of membership. We requested additional information
regarding your financial data, sponsors, and “donations” and “donations to auction” via a fourth letter.

Your revenue is reported as gifts, grants, and contributions. The majority of your expenditures are reported as
fundraising expenses with the remainder being allocated to contributions paid out for charitable causes and
occupancy expenses.

You have listed different levels of sponsorship for your donors depending on the amounts of money the donor
remits to you. Sponsorship funding made to you by donors is used for entry fees, food, and beverages (for
public consumption), supplies needed for cooking, portable bathrooms and hand washing station rentals.
Sponsors are entitled to promotion at your cooking station and free food. At some levels of sponsorship, gate
tickets (waiving the entrance fee) are also included.

When asked for details on the charitable contributions, you stated the funds you receive by donations are used
to pay the entry fees to the cook-offs, food and beverages for public consumption, supplies needed for cooking,
and porta can and hand washing station rentals. Your entry fee is what goes towards student scholarships. Some
of the events you participate in are set to provide a specific student with a scholarship. You also stated that you
accept donations which you contribute directly to charitable causes. In the future, you wish to offer your own
scholarship program.

You also stated that the benefit you participated in for a specific individual was to solicit donations and raise
funds to pay the medical bills of this individual. You stated that because you were there as volunteers, you
were unaware of the amount of money that was raised, or where it was allocated.

We subsequently requested you confirm your prior statements were accurate via a fifth letter. You stated that all
was accurate, and while you have not donated to a specific student at this time, you wish to raise enough funds
to do so. You are working to donate to specific students on an annual timeline. You do not have an application
at this time but will have one prior to soliciting applicants.

Law

Section 501(c)(3) of the Code provides for exemption from federal income tax of organizations organized and
operated exclusively for educational or charitable purposes, no part of the net earnings of which inures to the
benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that in order to qualify under Section 501(c)(3) of the
Code, 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 or operational test, it is not
exempt. .

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 Section 501(c)(3) of the Code. 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)-1(d)(1)(ii) states that an organization is not operated exclusively for one or

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

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more exempt purposes unless it serves a public rather than a private interest. It must not be operated for the
benefit of designated individuals or the persons who created it.

Rev. Rul. 67-246; 1967-2 C.B. 104, held that where consideration in the form of admissions or other privileges
or benefits is received in connection with payments by patrons of fund-raising affairs of the type in question, the
presumption is that the payments are not gifts. In such case, therefore, if a charitable contribution deduction is
claimed with respect to the payment, the burden is on the taxpayer to establish that the amount paid is not the
purchase price of the privileges or benefits and that part of the payment, in fact, does qualify as a gift. Amounts
paid for chances to participate in raffles, lotteries, or similar drawings or to participate in puzzle or other
contests for valuable prizes are not gifts in such circumstances, and therefore, do not qualify as deductible
charitable contributions.

Rev. Rul. 67-367, 1967-2 C.B. 188, states a nonprofit organization whose sole activity is the operation of a
scholarship plan for making payments to pre-selected, specifically named individuals does not qualify for
exemption from federal income tax under Section 501(c)(3) of the Code.

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

In Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner. T.C. Memo 1986-348 (1986), the
organization was created by the Parker family to aid an open-ended class of “victims of coma.” However, the
organization stated that it anticipated spending 30 percent of its income for the benefit of Wendy Parker,
significant contributions were made to the organization by the Parker family. and the Parker family controlled
the organization. Wendy Parker's selection as a substantial recipient of funds substantially benefited the Parker
family by assisting 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, the Foundation 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 of exempt status. As stated in Treas. Reg.

Section 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 do not meet the provisions in Treas. Reg. Section 1.501(c)(3)-1(a)(1) and Section 1.501(c)(3)-1(c)(1).
Specifically, you are operated to participate in cooking competitions for which you pay a fee to enter. You
solicit donations to pay for your entry fees and cooking supplies to compete in the cooking events, which serves
a private benefit rather than a public interest. Furthermore, you stated the entry fee is what goes toward student
scholarships. However, your solicitations also cover food and beverages you provide for public consumption,
supplies needed for cooking, and porta can and hand washing station rentals. Therefore, you are not operated
exclusively for an exempt purpose and do not meet the standards of exemption under IRC Section 501(c)(3).

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Specifically, you participated in
at least one event that was held to benefit a specific person. Although the person was one in need, charities
cannot be recognized under IRC Section 501(c)(3) if they are set up to support specifically named persons.

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

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You stated the entry fees you pay to participate in the cooking contests are donated to a charitable cause.
However, this does not make the entry fee a charitable contribution.

As noted in Rev. Rul. 67-246, amounts paid for chances to participate in contests for prizes are not gifts, and
therefore, do not qualify as deductible charitable contributions. Although the entry fee may be solicited as a
“contribution” and dedicated as such, no part of the entry fee is deductible as a charitable contribution. Amounts
paid for chances to participate in raffles, lotteries, or similar drawings or to participate in puzzle or other
contests for valuable prizes are not gifts in such circumstances, and therefore, do not qualify as deductible
charitable contributions.

Rev. Rul. 67-367, 1967-2 C.B. 188, held that a nonprofit organization whose sole activity is the operation of a
scholarship plan for making payments to pre-selected, specifically named individuals does not qualify for
exemption from federal income tax under Section 501(c)(3) of the Code. Similarly, you stated that some of the
events you participated in were set to provide a specific student with a scholarship. You also stated that you
wish to offer your own scholarship program, and while you have not donated to a specific student at this time,
you wish to raise enough funds to do so.

Like the case Universal Life Church v. United States, you have the burden of establishing your right to a tax-exempt status. However, you have shown no direct correlation between donations you receive to participate in
the cooking events and the charitable causes promoted by the events. You also did not provide the amount
donated to each charitable cause. You provided minimal information on your plan to start a scholarship fund,
and you have not provided sufficient details on how this would be operated in an exempt manner.

You are also similar to the case Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner in that you
offered contributions to a specifically named individual. The funds you raised provided an economic benefit to
the individual by paying for medical care. The benefit does not flow primarily to the general public as required
under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

Conclusion

Based on the facts above, you are not operated exclusively for exempt purposes as set forth in IRC Section
501(c)(3). Specifically, you solicit donations to pay entry fees and cover associated expenses at cooking
competitions you participate in. The entry fee, which is donated to a charitable cause, does not qualify as a
charitable contribution. In addition, funds you raised for the community are dedicated to specifically named
individuals and do not flow to the general public. Therefore, you do not qualify for exemption from federal
income tax as an organization described in IRC Section 501(c)(3).

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)
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• 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

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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