Anti-censorship web-tunneling developer denied 501(c)(3) status

Plain-English summary

An organization that writes software to defeat internet censorship applied for 501(c)(3) charitable status. Its technology lets users reach websites blocked in certain countries through a secure tunnel, without a VPN. The IRS denied exemption on several grounds. First, its Articles of Incorporation list broad, non-exclusive purposes (defeating censorship, "promoting vaccination and democratic values," and more), so it fails the organizational test that requires purposes limited to exempt ones. Second, it never described its activities in enough detail to show they exclusively serve educational or charitable purposes; it does not create content or analysis and could not identify the specific "causes" it furthers, so it fails the operational test. Third, its president controls the organization and also works for two for-profit companies whose servers and services it uses, so the IRS found it had not shown it serves public rather than private interests. Because the applicant carries the burden of proof and left gaps in the record, the denial was justified. This is the final adverse determination (Letter 4038), issued after no protest was filed within 30 days.

Ruling snapshot

• Question: Does a software organization providing censorship-circumventing internet access qualify for exemption under IRC § 501(c)(3)?
• Outcome: denied (final adverse determination)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), (d); Rev. Proc. 2023-5 § 6.07; Harding Hospital, Inc. v. United States; Ohio Disability Association v. Commissioner

Full text (IRS public release)

        Department of the Treasury                      Date:
        Internal Revenue Service                        04/25/2024
Tax Exempt and Government Entities                      Employer ID number:

IRS

Form you must file:

Tax years:
Release Number: 202429017
Release Date: 7/19/2024                                 Person to contact:
UIL Code: 501.03-15,
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

Date: February 20, 2024

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend:                          UIL:
B = Date                         501.03-15
C = Date                         501.35-00
D = State
E = Website
F = Name
G = Website
H = Name
J = Country
K = Name
M = Region
N = Regions
P = Name
Q = Website

v percent = number
w percent = number
x dollars = Amount
y dollars = 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 incorporated as a nonprofit corporation under the laws of D on B. You filed Form 1023, Application for
Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on C.

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

2

Your Articles of Incorporation state that you are organized to develop, promote, and operate technologies and
services to defeat censorship anywhere in the world while promoting vaccination and democratic values like
free elections, human rights, the rule of law, free trade, and freedom of speech. Additionally, your Articles of
Incorporation provide that "the president appoints and fires directors." Upon dissolution, your assets shall be
distributed for one or more exempt purposes within the meaning of IRC Section 501(c)(3), or corresponding
section of any future federal tax code, or shall be distributed to the federal government, or to a state or local
government, for a public purpose.

Your Form 1023 also states that you develop, promote, and operate technologies and services to defeat
censorship anywhere in the world while promoting vaccination and democratic values like free elections,
human rights, the rule of law, free trade, and freedom of speech. You stated that you have developed technology
to allow websites banned in several countries to be available without a VPN, by using a secure digital tunnel
available on the website Q. You provided no other information about how you will promote vaccination and
democratic values like free elections, human rights, the rule of law, free trade, and freedom of speech.

You explained that you will provide a so-far a new, non-existing, service where people can access information
from countries that block western websites. This free flow of information will help to advance the causes that
you choose to further.

You further stated that you plan to hire management and host services such as F, a very large provider of
internet and bare metal server hosting services because this is how everybody operates in the high-tech.

When asked to provide more details on your proposed activities, financials, and any relationships, you stated
that:

* You write software and                            that are necessary to allow
                    , without the use of VPNs, which is an older
technology that is                    and
                    . You spend v percent of your time on this
activity, and you do not charge for your services.
* You are operated by your president who also works for F who you previously defined as the hosting
company.
* The service you provide is continuous.
* The service you provide is a new, non-existing service where people can access information
                    . The free flow of information helps to advance the causes that you
choose to further.

You subsequently stated:

* You are a software developer and a data center operator.

* You have developed new software technology where you access a website with a random domain and, you
are tunneled into E, so the user

* You provide sort of a side door to any website quickly.

* The
                    Your technology renders these measures ineffective.

* You need to obtain tax-exempt status so you may get financial support from public and government
resources.

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

* You are already providing the service without any financial support, using private donors who prefer to
remain anonymous.

You then stated:

* You expect to raise x dollars in the first year, w percent of which is in kind such as server time and
internet bandwidth.

* You expect to spend y dollars on research and development and technical support.

* You are using servers belonging to G.

* You have no written agreement with G because your president is also the CIO of G and that due to such
direct relationship, it's unusual to sign such a deal.

* Your efforts are similar to H which broadcasts to J from D.

* You further indicate that you are similar to K which is funded by P and reports news and information to
the countries of M and N.
* You need to obtain exemption so several donors may fund you immediately.

Finally, you define your technology as unique but not secret and that it creates a side door to any website, a live
passage in real time.

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(d)(1)(ii) states that: "An organization is not organized and operated
exclusively for one or more of the purposes specified unless it serves a public rather than a private interest.
Thus, to meet the requirements, 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."

Revenue Procedure 2023-5, Section 6.07, 2023-1, I.R.B. 285, provides that exempt status may be recognized in
advance of the organization's operations if the proposed activities are described in sufficient detail to permit a
conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the
section of the Code under which exemption is claimed.

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

4

(1) A mere restatement of exempt purposes or a statement that proposed activities will be in furtherance of such
purposes will not satisfy this requirement.

(2) The organization must fully describe all of the activities in which it expects to engage, including the
standards, criteria, procedures, or other means adopted or planned for carrying out the activities, the
anticipated sources of receipts, and the nature of contemplated expenditures.

(3) Where the organization cannot demonstrate to the satisfaction of the Service that it qualifies for exemption
pursuant to the section of the Code under which exemption is claimed, the Service will generally issue a
proposed adverse determination letter or ruling.

In Harding Hospital, Inc. v. United States, 505 F.2d 1068, 1071 (6th Cir. 1974), the court held that an
organization has the burden of proving that it satisfies the requirements of the particular exemption statute. The
court noted that whether an organization has satisfied the operational test is a question of fact.

Ohio Disability Association v. Commissioner, T.C. Memo 2009-261 (2009), states denial is justified because
responses to requests for additional information failed to supplement the initial application or clarify purposes
and activities, and generalizations did not provide sufficient detail to determine that the organization would be
operated exclusively for exempt purposes.

Application of law
You are not operated exclusively for one or more exempt purposes under IRC Section 501(c)(3) as described in
Treas. Reg. Section 1.501(c)(3)-1(a)(1) because you fail both the operational and organizational tests.

The purpose in your Articles of Incorporation states you develop, promote, and operate technologies and
services to defeat censorship anywhere in the world while promoting vaccination and democratic values like
free elections, human rights, the rule of law, free trade, and freedom of speech. Because your Articles of
Incorporation do not limit your purposes to exclusively exempt purposes, you fail the organizational test in
Section 501(c)(3). See Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).

An organization may be recognized as tax-exempt prior to beginning operations. However, as stated in Rev.
Proc. 2023-5, Section 6.07, 2023-1 I.R.B. 285, the organization must describe its proposed activities in
sufficient detail to permit the conclusion that the organization will clearly meet the requirements for exemption
pursuant to IRC Section 501(c)(3). Specifically, an organization seeking tax exempt status under Section
501(c)(3) must demonstrate that it is organized and will be operated exclusively for charitable or other exempt
purposes with no part of its net earnings inuring to the benefit of any private shareholder or individual. As
provided in Harding Hospital, Inc. v. United States, any gaps in the administrative record will be resolved
against the applicant. Similarly, in Ohio Disability Association v. Commissioner, the court found that even
when additional information was provided, but it contained generalizations and failed to clarify purposes, denial
is justified.

You have claimed that you will further educational purposes. However, you have not established that your
operations accomplish exclusively educational purposes. You have not provided any specific details on any
educational activities. Your Articles of Incorporation only state in very general terms that you will develop,
promote, and operate technologies and services to
                    and democratic values like free elections, human rights, the rule of law, free trade, and freedom of

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

speech. You claim that you are like H and K. However, you have not established that you will create any
content, nor provide any sort of analysis of information to educate those using your service. You do not appear
to create any educational content, nor do you adequately explain how your provision of internet access
exclusively furthers an educational purpose. You did not provide sufficient information to establish that your
activities exclusively further educational purposes.

Further, you have not demonstrated that your provision of access to                    will further an
exempt purpose. You have not established that you will be providing internet access to a charitable class; nor
have you demonstrated that providing access to                    will further a charitable or other
exempt purpose. When asked how your activities further an exempt purpose, you stated that you provide a so-
far a new, non-existing, service where people can
                    . This free flow of information helps to advance the causes that you choose to further. However, you
have not clearly articulated what specific causes you will further, and have not established, therefore, that
furthering such causes will further exempt purposes. Thus, you don't qualify for exemption under IRC Section
501(c)(3).

Treasury Regulation Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more exempt purposes unless it serves a public rather than a private purpose. 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. Your Articles of Incorporation give your president control over your affairs. Your president is
also an employee and/or officer of F and G, two for-profit, commercial entities whose services and/or
infrastructure you state you will use. You have failed to establish that you are not organized or operated to serve
the private interests of F and G.

Conclusion

Based on the facts and information submitted, you are not organized and operated exclusively for exempt
purposes described in IRC Section 501(c)(3). You failed to provide sufficient detail to establish that you meet
the organizational and operational tests. More specifically, you failed to demonstrate how your activity of
providing access to websites that are blocked in certain foreign jurisdictions furthers educational or charitable
purposes. Therefore, you fail to qualify for tax 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:

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

6

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
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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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