Event organization lost exemption after failing the educational and recordkeeping tests

Plain-English summary

An organization recognized under Section 501(c)(3) primarily ran two annual public events, including one focused on commercial participants, and funded itself with admission revenue. It also described a leadership seminar and a planned scholarship, but the scholarship had not been established. The IRS found that these activities did not support the organization’s claimed educational exemption and instead resembled a business league promoting commercial participants. The organization also had gross receipts above the Form 990-N threshold, filed the wrong annual return, and repeatedly failed to provide requested financial and operational records. The IRS revoked exemption effective January 1, 2018, while recommending that the organization consider applying under Section 501(c)(6).

Ruling snapshot

• Question: Did the organization continue to qualify under IRC § 501(c)(3) despite its event-focused operations and failure to provide records?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(3), 501(c)(6), 6001, 6033; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, 1.6033-1; Rev. Ruls. 59-95, 76-400, 80-287; Rameses School of San Antonio v. Commissioner

Full text (IRS public release)

| Department of the Treasury Date:
y *),, internal Revenue Service April 30, 2024
is?" Tax Exempt and Government Entities

IRS

Taxpayer iD number (last 4 digits):
Form:

Release Number: 202430008 Tax periods ended:

Release Date: 7/26/2024 Person to contact:
UIL CODE: 501.03-00 Name:
ID number:
Telephone:
Fax:

Last day to file petition with United States
Tax Court:
July 29, 2024

CERTIFIED MAIL - Return Receipt Requested
Dear

Why we are sending you this letter

This is a 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). effective
January 1, 2018. Your determination letter dated is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You did not produce
documents to establish that you are organized and operated exclusively for exempt purposes within the meaning
of IRC Section 501(c)(3), and that no part of your net earnings inure to the benefit of private shareholders or
individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to
examine your records regarding your receipts, expenditures, or activities, as required by IRC Sections 6001 and
6033(a)(1) and Revenue Ruling 59-95, 1959-1 C.B, 627. As such, you failed to meet the requirements of IRC
Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(a), in that you have not established that you
were organized and operated exclusively for exempt purposes and that no part of your earnings inured to the
benefit of private shareholders or individuals.

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.
Contributions to your organization are no longer deductible under IRC Section 170.
What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was
mailed to you to file a petition or complaint in one of the three federal courts listed below.
How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

* The United States Tax Court,

* The United States Court of Federal Claims, or

* The United States District Court for the District of Columbia

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E.

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court

400 Second Street, NW

Washington, DC 20217

ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims

717 Madison Place, NW

Washington, DC 20439

uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001

dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can’t resolve your tax problem with the IRS or if you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Visit TaxpayerAdvocate.IRS.gov/contact-us or call 877-777-4778 (TTY/TDD 800-829-4059)
to find the location and phone number of your local advocate. Learn more about TAS and your rights under the
Taxpayer Bill of Rights at TaxpayerAdvocate.IRS.gov. Do not send your Tax Court petition to TAS, Use the
Tax Court address provided earlier in the letter. Contacting TAS does not extend the time to file a petition.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for

more comprehensive information.

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

Keep the original letter for your records.

Enclosures:
Publication 1
Publication 594
Publication 892

Sincerely,

i, forms yale fh ok

if Sy . 7 \
Lynn A. Brinkley ¥

Director, Exempt Organizations Examinations

Letter 6337 (Rev. 3-2024)
Catalog Number 74808E

, Department of the Treasury Date:

_ Internal Revenue Service May 02, 2022
I =, |ax Exempt and Government Entities Taxpayer 1D number:
Form:

Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:

Fax:
Address:

Manager's contact information:
Name:
ID number:
Telephone:

Response due date:
June 01, 2022

CERTIFIED MAIL — Return Receipt Requested

Dear

Why you’re receiving this letter
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke
your tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3).

If you agree
If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the

contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an
organization described in IRC Section 501(c)(3) for the periods above.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional
information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after
the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes
informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of
limitations for assessing tax. This is to allow the IRS Appeals Office enough time to consider your case.
For your protest to be valid, it must contain certain specific information, including a statement of the
facts, applicable law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn’t
apply now that we’ve issued this letter.

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities)
if you feel the issue hasn’t been addressed in published precedent or has been treated inconsistently by the
IRS.

If you’re considering requesting technical advice, contact the person shown at the top of this letter. If you
disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as
explained above. A decision made in a technical advice memorandum, however, generally is final and
binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we’ll issue a final

adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right
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 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.

Additional information
You can get any of 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 shown at the top of this letter.

Sincerely,

LaTrinaw Fieldy AGM 7952 for
Lynn Brinkley

Director, Exempt Organizations Examinations

Enclosures:
Form 886-A, Form 6018, Form 4621-A
Pub 892, Pub 3498

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
ISSUE(S) :

1. Whether qualifies for tax-exempt status
under Section 501(c)(3) of the Internal Revenue Code due to the
failure to meet the statutory requirements as a 501(c)(3)?
2. Whether should file exemption under
501(c)(6)?
FACTS:
has been in existence since . They were
incorporated under the Laws of the State of on 1
The purpose of the exempt organization (hence forth called,
“EO”), is to

. Additionally, is to
Per initial interview conducted with (hence
forth called “treasurer”) advised EO’s mission statement is

. This is mission
statement is also organization’s website.

Per interview with treasurer, the EO was started in by
, names unknown. The later included friends for help
with the business. The EO was initially granted exemption in
. In , they established their board of directors. The board
members, excluding the treasurer and secretary, are switched every
years.

The EO was auto revoked on , due to a lack of filing
compliance. The EO used Form 1023EZ, to apply for exemption as an
organization described in IRC Section 501(c)(3) under educational
purposes. The EO was reinstated on . The treasurer
stated, ™“

.” The Form 1023EZ is an easy

form and did not require a mission statement to be included.

The EO has annually that is open to the public to
try their . At the s the members of the
public have an opportunity meet the , build relationships, and
support the . of the is for commercial

, and the other is for . Both events are
Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)

Page: -1-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
events; the public attendee is able to take at each
set up at with no limitation and then cast a vote.
The for commercial draws a attendance
and is held during the week, in the week of
The have less of an attendance and their
event takes place the week in
Each hosts competitions and provides awards to various
winners on diffe c les. e each style and
category have a ' , and . categories
receive a xr e: . However, the largest
goes to the commercial for the “ “", On
the other hand, the receive for of
the Year. Additionally, the big goes to “* ",
There are no monetary rewards for the competitions. Instead, the
winners are awarded . They display the or
they’ve

The HO does not collect donations or any fees. The EO is solely
financially maintained by the admission tickets collected between the

annual s. The commercial event
revenues than the event. The revenue for the commercial
event is collected by . also
provides and for the . The revenues for
the event are collected through :

While the past activities of the EO have been primarily the
s. The EO also conducts a leadership seminar at
The seminar is held all day. Similarly, the board member -

that is not an officer attends meetings and teaches them
how to . The EO’s website mentions that they plan
to create a scholarship . This scholarship
is described on the EO’s website as the

in of the commercial who died in . The
recipients would attend . They would have
to study under the program that

During the examination the RA determined that the EO gross receipts
exceeded $50,000. As a result, EO should have filed Form 990-EZ,
instead of postcard 990-N per forms instructions. , the
primary activities of the EO does not support the reason for exemption
under IRC 501(c)(3) for educational purposes. The scholarship was

only proposed in ; it is still not established, although the EO
has been around since . Finally, throughout the course of the
Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)

Page: -2-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No or
(May 2017) Explanation of Items Exhibit

Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

examination, the EO failed to provide all documentation requested in
Information Document Request, such as, checks to verify expenses;
financial statements; and explanation of large deposit of over $

in the month of . After initial interview, the RA tried to
make contact on ; ; ;

, ' '
unsuccessfully. The EO requested three extensions - dates include

; 7; and -— to provide
information with extensive time in between requests. Information

requested to date is still not all provided. As a result, the
majority of the EO’s expenses could not be determined. Additionally,
RA was unable to have follow-up interview for clarification.

LAW:

Internal Revenue Code

IRC 501(c)(3) states that corporations, and any community chest, fund,
or foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary, or
educational purposes, or to foster national or international amateur
sports competition (but only if no part of its activities involve the
provision of athletic facilities or equipment), or for the prevention
of cruelty to children or animals, no part of the net earnings of
which inures to the benefit of any private shareholder or individual,
no substantial part of the activities of which is carrying on
propaganda, or otherwise attempting, to influence legislation (except
as otherwise provided in subsection (h)), and which does not
participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or
in opposition to) any candidate for public office.

IRC § 6001 provides that every person liable for any tax imposed by
the IRC, or for the collection thereof, shall keep adequate records as
the Secretary of the Treasury or his delegate may from time to time
prescribe.

IRC § 6033(a)(1) provides, except as provided in IRC § 6033(a)(2),
every organization exempt from tax under § 501(a) shall file an annual
return, stating specifically the items of gross income, receipts and
disbursements, and such other information for the purposes of carrying
out the internal revenue laws. The Secretary may also prescribe by
forms or regulations the requirement of every organization to keep
such records, render under oath such statements, make such other

Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)
Page: -3-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

returns, and comply with such rules and regulations as the Secretary
may from time to time prescribe.

Internal Revenue Code Section 501(c)(6) states that business leagues,
chambers of commerce, real-estate boards, boards of trade, or
professional foot leagues (whether or not administering a pension
fund for foot players) not organized for profit and no part of the
net earnings of which inures to the benefit of any private shareholder
or individual.

Treasury Regulations

Treas. Reg. §1.501(c)(3)-1 states that organizations organized and

operated for religious, charitable, scientific, testing for public

safety, literary, or educational purposes, or for the prevention of
cruelty to children or animals

(a) Organizational and operational tests

(1) In order to be exempt as an organization described in 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.

(2) The term “exempt purpose or purposes”, as used in this section,
means any purpose or purposes specified in section 501(c)(3), as
defined and elaborated in paragraph (d) of this section.

(b) Organizational test
(1) In general

(i) An organization is organized exclusively for one or more exempt
purposes only if its articles of organization (referred to in this
section as its “articles”) as defined in subparagraph (2) of this
paragraph:

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

(b) Do not expressly empower the organization to engage, otherwise
than as an insubstantial part of its activities, in activities which
in themselves are not in furtherance of one or more exempt purposes.

Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)
Page: -4-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

(ii) In meeting the organizational test, the organization's purposes,
as stated in its articles, may be as broad as, or more specific than,
the purposes stated in section 501(c)(3). Therefore, an organization
which, by the terms of its articles, is formed ‘for literary and
scientific purposes within the meaning of section 501(c)(3) of the
Code shall, if it otherwise meets the requirements in this paragraph,
be considered to have met the organizational test. Similarly, articles
stating that the organization is created solely “to receive
contributions and pay them over to organizations which are described
in section 501(c)(3) and exempt from taxation under section 501(a)”
are sufficient for purposes of the organizational test. Moreover, it
is sufficient if the articles set forth the purpose of the
organization to be the operation of a school for adult education and
describe in detail the manner of the operation of such school. In
addition, if the articles state that the organization is formed for
“charitable purposes”, such articles ordinarily shall be sufficient
for purposes of the organizational test (see subparagraph (5) of this
paragraph for rules relating to construction of terms).

(iii) An organization is not organized exclusively for one or more
exempt purposes if its articles expressly empower it to carry on,
otherwise than as an insubstantial part of its activities, activities
which are not in furtherance of one or more exempt purposes, even
though such organization is, by the terms of such articles, created
for a purpose that is no broader than the purposes specified in
section 501(c)(3). Thus, an organization that is empowered by its
articles “to engage in a manufacturing business”, or “to engage in the
operation of a social club” does not meet the organizational test
regardless of the fact that its articles may state that such
organization is created “for charitable purposes within the meaning of
section 501(c)(3) of the Code.”

(iv) In no case shall an organization be considered to be organized
exclusively for one or more exempt purposes, if, by the terms of its
articles, the purposes for which such organization is created are
broader than the purposes specified in section 501(c)(3). The fact
that the actual operations of such an organization have been
exclusively in furtherance of one or more exempt purposes shall not be
sufficient to permit the organization to meet the organizational test.
Similarly, such an organization will not meet the organizational test
as a result of statements or other evidence that the members thereof
intend to operate only in furtherance of one or more exempt purposes.

Tax Reg. § 1.501(c)(3)-1(d)(i) states that an organization may be
exempt as an organization described in 501(c)(3) if it is organized
and operated exclusively for one or more of the following purposes:

Catalog Number 20810W www.irs.gov Form 886-A (rev. 5-2017)
Page: -5-

Form 886-A Department of the Treasury ~ Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

religious, charitable, scientific, testing for public safety,
literary, educational, or prevention of cruelty to children or
animals.

Tax Reg. § 1.501(c)(3)-1(a)(1) of the regulations provides that in
order to be exempt as an organization described in section 501(c)(3)
of the Code, the organization must be one that is both organized and
operated exclusively for one or more of the purposes specified in
that section.

Tax Reg. § 1.501(c)(3)-1(c)(1) of the regulations 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).

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c)
provides that every organization exempt from tax under IRC Section
501(a) and subject to tax imposed tax imposed by section 511 on
unrelated business income must keep such permanent books of account or
records, including inventories, as are sufficient to show specifically
the items of gross income, deduction, credits, receipts and
disbursements. Such organizations shall also keep such books and
records as are required to substantiate the information required by
section 6033

Treas. Reg. § 1.6001-1(c) states that in addition to such permanent
books and records as are required by paragraph (a) of this section
with respect to the tax imposed by section 511 on unrelated business
income of certain exempt organizations, every organization exempt from
tax under section 501(a) shall keep such permanent books of account or
records, including inventories, as are sufficient to show specifically
the items of gross income, receipts and disbursements. Such
organizations shall also keep such books and records as are required
to substantiate the information required by section 6033. See section
6033 and §§1.6033-1 through -3.

Treas. Reg. § 1.6001-1(e) states that the books or records required by
this section shall be kept at all times available for inspection by
authorized Internal Revenue Service officers or employees, and shall
be retained as long as the contents thereof may be material in the
administration of any Internal Revenue law.

In accordance with the above cited provisions of the Code and
Regulations under IRC § 6001 and 6033, organizations recognized as
exempt from federal income tax must meet certain reporting

Catalog Number 20810W www.irs.gov Form 886-A (rev. 5-2017)
Page: -6-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No or
(May 2017) Explanation of Items Exhibit

Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

requirements. These requirements relate to the filing of a complete
and accurate annual information (and other required federal tax forms)
and the retention of records sufficient to determine whether such
entity is operated for the purposes for which it was granted tax-
exempt status.

Treas. Reg. § 1.6033-1(h) (2) provides that every organization which has
established its right to exemption from tax, whether or not it is
required to file an annual return of information, shall submit such
additional information as may be required by the district director for
the purpose of enabling him to inquire further into its exempt status and
to administer the provisions of subchapter F (section 501 and the
following), chapter 1 of the Code and IRC § 6033.

Revenue Rulings

Revenue Ruling 58-617, Rulings and determinations letters granting
exemption from federal income tax to an organization described in section
501(a) of the Internal Revenue Code of 1954, to which contributions are
deductible by donors in computing their taxable income in the manner and
to the extent provided by section 170 of the Code, are effective only so
long as there are no material changes in the character of the
organization, the purposes for which it was organized, or its methods of
operation. Failure to comply with this requirement may result in serious
consequences to the organization for the reason that the ruling or
determination letter holding the organization exempt may be revoked
retroactively to the date of the changes affecting its exempt status,
depending upon the circumstances involved, and subject to the limitations
on retroactivity of revocation found in section 503 of the Code.

Revenue Ruling 59-95, An exempt organization that was requested to
produce a financial statement and statement of its operations for a
certain year. However, its records were so incomplete that the
organization was unable to furnish such statements. The Internal Revenue
Service held that the failure or inability to file the required
information return or otherwise to comply with the provisions of IRC §
6033 and the regulations which implement it, may result in the
termination of the exempt status of an organization previously held
exempt, on the grounds that the organization has not established that it
is observing the conditions required for the continuation of exempt
status.

In accordance with the above cited provisions of the Internal Revenue
Code and Treasury Regulations under IRC §§ 6001 and 6033, organizations

Catalog Number 20810W www.irs.gov Form 886-A (rev. 5-2017)
Page: -7-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

recognized as exempt from federal income tax must meet certain reporting
requirements. These requirements relate to the filing of a complete and
accurate annual information (and other required federal tax forms) and
the retention of records sufficient to determine whether such entity is
operated for the purposes for which it was granted tax-exempt status.

Revenue Ruling 80-287, A nonprofit lawyer referral service arranges at
the request of any member of the public an initial half-hour
appointment for a nominal charge with a lawyer whose name is on an
approved list maintained by the organization. Any further contact
between the lawyer and the client is arranged without the involvement
of the organization. The referral service is not exempt under section
501(c)(3) of the Code, but is exempt as a business league under
section 501(c)(6).

Revenue Ruling 76-400, A nonprofit membership organization of business
and professional women that promotes acceptance of women in business
and the professions qualifies for exemption under Code section

501(c)(6). The organization was formed as a membership organization
of business and professional women to promote the acceptance of women
in business and the professions.

Court Cases

Rameses School of San Antonio, Texas v. Commissioner of Internal
Revenue, T.C. Memo. 2007-85, 2007 WL 1061871 (U.S. Tax Ct. 2007) the
court held that IRS properly revoked the exempt status under section
501(c)(3) of the Code of a school on the grounds that its earnings
inured to the benefit of its founder, who also served as its executive
director, president, and CEO. The record showed that the founder, Ms.
Fennell, "issued numerous organization checks to herself and withdrew
cash from organization accounts for which the record showed no
documented business purpose. The record also contained thousands of
dollars of expenditures directed to retail stores, credit card
companies, financial institutions, Ms. Fennell's dentist, and other
businesses for which there was no evidence of a business purpose or
board authorization. Neither did the organization's records show that
there was any documented system for either loans to and repayments by
Ms. Fennell or for loans by Ms. Fennell and reimbursements from the
school. State officials had revoked the school's charter, after
finding that the school was being operated without a functioning board
of directors and that Ms. Fennell had unfettered discretion to direct
and manage the operation of the school and its financial affairs.

Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)
Page: -8-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit
Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

The IRS sought financial and governance records order to verify
information and to evaluate the records for possible instances of
private benefit and personal inurement. To that end only a limited
portion of the requested materials was provided, and

repeated ing Les, sed or del Ppo nment and

of cooperatic _the part of pet tly, additional
information sught. and obtain sources,

ine. pu rec The TRS school

to establish it was operated

in that it was operated for the be

rm

i

fa indicat

the founder oF unds, ursements; use of
ene none ys payment of salary or rent to the

accompany or analysis of the

> amounts; the purported loans to
showing a ready private source of credit. In the face of thes

factors, the organization had provided no credible information £oO
Support an exempt purpose for the expenditures. As it bore the burden
fied for exemption, failure to provide to meet

its burden caused it to fail to qualify.

GOVERNMENT’S POSITION:

Issue 1

As stated in the facts and law of this document earlier, the EO does
not meet the exempt purpose IRC § 501(c)(3) for educational purposes.
The organization failed to meet the requirements of an organization
described in IRC § 501(c)(3). The organization failed to meet the
organizational and the operational test described in Treasury
Regulation § 1.501(c)(3)-1. The organization is not organized or
operated exclusively for religious, charitable, scientific, testing
for public safety, literary, educational, or prevention of cruelty to
children or animals as described Treasury Regulation § 1.501(c)(3)-
1(d)(i).

Similarly, to the case Rameses School of San Antonio, Texas v.
Commissioner of Internal Revenue, T.C. Memo. 2007-85, 2007 WL 1061871
(U.S. Tax Ct. 2007) where it was determined the organization failed to
establish that it was operated exclusively for its exempt purpose.

Catalog Number 20810W www.irs.gov Form 886-A (Rev. 5-2017)
Page: -9-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
(May 2017) Explanation of Items Exhibit

Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended

Based on the activities discussed in initial interview, it was
determined the organization did not operate exclusively for its exempt

purpose. The primary activity of the organization is conducting

S per year: for the commercial and another for the

The is open to the public. The public judges

the that enters the for free by of
their . The receive and , which
they can to customers in their or where is

The organization’s source of revenue is from the public as an
entrance fee to - During the year under audit, the only

that accepted donations was the for the

This practice ended for all subsequent years.

The total gross receipts received by the organization was more than
$50,000. This was concluded with limited financial information given
by organization, which is not in accordance with Treasury Regulation §
1.6001-1(e). Additionally, Revenue Ruling 59-95, 1959 C.B. 627 reflects
an organization that lost exemption due to incomplete records
requested or being able to furnish them. The organization consistently
filed Form 990-N, instead of filing the proper Form 990-EZ in
accordance with value of gross receipts.

It is the government’s position that does not
meet the educational purposes in Treas. Reg. 1.501(c)(3) based on its
organization and the way it operates. All the income received from by
the organization is admission fee for , which
in return, the commercial and a

Hence, the organization does not qualify for exemption under
IRC § 501(c)(3) due not meeting operation and organizational tests to
retain exemption.

Issue 2

EO primary purpose represents a business league that promotes
commercial and to continue to cultivate their

. It was never shared that the organization participated in
helping other 501(c)(3) charitable classes. Similarly, as it was in

Revenue Ruling 76-400 their primary purpose was to
It was the organization’s

primary purpose of the organization to promote commercial
and who

Based on these facts and circumstances, the government’s position that
does not meet IRC § 501(c)(3), however, recommends

that the organization apply for exemptions under 501(c)(6). A

completed Form 1024 along with the appropriate fee can submitted

Catalog Number 20810W www.irs.gov Form 886-A (rev.5-2017)
Page: -10-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or

(May 2017) Explanation of Items Exhibit

Name of Taxpayer Tax Identification Number (last 4 digits) | Year/Period ended
online. As of , the IRS requires that Form 1024
applications for recognition of exemption be submitted electronically
online at - For further instructions see attached page 2 of

instructions “How to File”.

TAXPAYER’S POSITION:

The organization have not been responsive, as a result, at this
juncture their position is unknown to the government’s position for
revocation.

CONCLUSION:

does not qualify for exemption from federal
income tax under IRC § 501(c)(3) because it neither meets the
statutory requirements, organized, or operates as such an
organization. has never operated in a manner
consistent with operations as described on its application requesting
exemption, for which is recognized as an exempt organization. In
addition to this fact, the additional financial information requested
were not provided during the exam.

Therefore, the exempt status granted to should
be revoked effective

If revocation is sustained, is required to file
Forms 1120 for the tax years ending , and thereafter.
Catalog Number 20810W www.irs.gov Form 886-A (rev. 5-2017)

Page: -11-