Member bereavement fund was denied charitable exemption

Plain-English summary

An organization applied for Section 501(c)(3) status to organize contributions and provide financial, emotional, spiritual, and social support when members or their families experienced a death. Its bylaws set payment ranges, and members contributed toward funeral, burial, and travel expenses for other members and their families. Although the organization said it also planned to assist needy members of the broader community, its board selected recipients and its primary program directly benefited members and their families. The IRS concluded that this substantial private-benefit purpose prevented the organization from operating exclusively for charitable purposes and denied exemption.

Ruling snapshot

• Question: Did the member-funded bereavement assistance organization operate for public charitable purposes rather than the private interests of its members and their families?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Ruls. 67-367, 69-175; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury Internal                  Date:
Revenue Service                                      02/26/2024
Tax Exempt and Government Entities

IRS PO Box 2508                                      Employer ID number:
Cincinnati, OH 45201

                                                     Tax years:
                                                     All

                                                     Person to contact:

Release Number: 202421009
Release Date: 5/24/2024
UIL Code: 501.03-00,
          501.33-00

Dear [redacted]:

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:
January 3, 2024

Employer ID number:

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

Legend:                                      UIL:
X = date                                     501.03-00
Y = state                                    501.33-00
Z = continent
q dollars = amount 1
r dollars = amount 2
s dollars = amount 3

Dear [redacted]:

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 X in Y. 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 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
* 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 an IRC 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

Form 1023-EZ states that your mission or most significant activities are to unite and organize other members to
contribute when a member is hit by death of a close family member.

During review of your Form 1023-EZ, detailed information was requested supplemental to the above
attestations.

Your response states that your activities can be classified into the following major groups:

* Providing support to bereaved families
* Fundraising programs
* Other key activities

Providing support to bereaved families entails supporting the bereaved families and uniting and organizing
other members to contribute when a member is hit by death of a close family member. You attend to families
within the community who are bereaved to comfort, pray, and support them financially. You visit them in their
homes, churches, and social gatherings for comfort. If a bereaved member wants to travel to Z for the funeral of
a loved one, you step in to help with airfare and other travel expenses to ease the pain to the member. You state
this program will soon be opened to the public under strict restrictions and will only be extended to needy cases.

You state, as per your bylaws, once there is death in the community all members step in and contribute
financially and give to the bereaved family to offset the high costs of funeral and subsequent expenses arising
from burial services. You state your bylaws have a cap limit of q dollars to r dollars per occurrence given to the
family member. All members participate financially to support the bereaved family. Each member contributes s
dollars which may total r dollars depending on the number of people contributing.

You indicated your fundraising programs include soliciting financial contributions from business management
or owners, or any private individuals who may have the authority to commit funding for your purposes. All
funds you receive will be used exclusively to conduct your programs and help you stay active and functioning.

You state your other key activities include public relations and administrative activities.

You state all members and their family members are eligible for financial, emotional, spiritual, and social
support in times of loss. You also extend services to disadvantaged members of your community within your
churches, social settings, and the public at large. Your board of directors determines who gets help, who needs
help, and when and how you give out help.

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

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable, educational 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, 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(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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively
for exempt purposes unless it serves a public rather than a private interest. To meet this requirement, it is
necessary for an organization to establish that it is not organized or operated for the benefit of private interests.

Revenue Ruling 67-367. 1967-2 C.B. 188. describes an organization whose sole activity was the operation or a
"scholarship plan" for making payments to pre-selected, specifically named individuals. The organization did
not 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.

Rev. Rul. 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils attending
a private school. The organization provided bus transportation to and from the school for those children whose
parents belong to the organization. The organization did not qualify for exemption under IRC Section 501(c)(3)
because it served a private rather than public interest.

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.

Application of law

You are not described in IRC Section 501(c)(3) because you don't meet the operational test outlined in Treas.
Reg. Section 1.501(c)(3)-1(a)(1).

You conduct an activity that provides direct benefits to members and their family members that is more than
insubstantial in nature. For this reason, you are not operating exclusively for exempt purposes as described in
Treas. Reg. Section 1.501(c)(3)-1(c)(1).

You are similar to the organization described in Revenue Ruling 67-367. Like that organization, your activities
primarily serve to benefit your members and their families rather than benefit the public; although, your aid to
the public may be charitable. For example, you are providing financial support during bereavement to help
cover funeral and burial costs. There is no charitable intent to the payments. The payment of these types of
benefits to pre-selected, specifically named individuals serves a private interest rather than a public interest.
Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not operated exclusively for one or more
exempt purposes unless it serves a public rather than a private interest.

The group of parents in Rev. Rul. 69-175 provided a cooperative service for themselves and thus served their
own private interests. Like that organization, you were formed to provide benefits to your members. In your
case, you are primarily providing financial assistance for the funeral and burial expenses of members and their
families. The payments serve a private rather than a public interest. Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii)
states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public
rather than a private interest.

As explained in Better Business Bureau of Washington, D.C., Inc., a single, substantial non-exempt
purpose is sufficient to prevent exemption. Despite an overall intent of charity to bereaving family members, the
provision of financial assistance to members for funeral and burial expenses is a substantial non-exempt
purpose, which prevents you from qualifying for exemption under IRC Section 501(c)(3).

Conclusion

You do not qualify for tax exemption under IRC Section 501(c)(3) because you are not operated exclusively for
exempt purposes. You further the private interests of your members and are operating for substantial non-
exempt purposes. Therefore, you do not qualify for exemption under 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
* 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.

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

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
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