Family private-banking organization denied exemption

Plain-English summary

An organization sought exemption under section 501(c)(3) for activities it described as processing family transactions and providing private banking to identify one family's birthright and heritage. Participation was limited to the ancestors and descendants of a named person, and no fee would be charged. The IRS concluded that the organization served the private interests of one family and therefore failed the operational test for charitable exemption. It compared the organization to a family genealogy association denied exemption in Callaway Family Association and to other organizations with substantial nonexempt purposes. The organization did not protest within 30 days, so the adverse determination became final.

Ruling snapshot

• Question: Does an organization providing private banking and heritage-related services to one family qualify under section 501(c)(3)?
• Outcome: Denied, because it operated for the private interests of an individual family
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 72-369; Callaway Family Association, Inc. v. Commissioner

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 05/21/2024

Tax Exempt and Government Entities Employer ID number:
IRS PO Box 2508

Cincinnati, OH 45201

Person to contact:

Release Number: 202433014
Release Date: 8/16/2024
UIL Code: 501.00-00,
501.03-00, 501.03-30

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
Letter 4038

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

Department of the Treasury
Internal Revenue Service
IRS PO Box 2508
Cincinnati, OH 45201
Date: 04/01/2024

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
X = Date 501-00.00
Y = State 501-03.00
Z = Name 501-03.30

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, Streamline Application for Recognition of Exemption Under Section 501(c)(3)

of the Internal Revenue Code on X.

You attest that you were incorporated on X, in the state of 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 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 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 not related to your
exempt purpose(s)

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

2

• 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 stated mission on the Form 1023-EZ is to process private unincorporated banking for holdings foreign and
domestic. You selected the National Taxonomy of Exempt Entities (NTEE) code R99 Civil Rights, Social
Action & Advocacy NEC.

Detailed information was subsequently requested. Your activities are to process family transaction foreign &
domestic and individual private banking of funds to find your family’s birth rite and heritage. The participants
will be all inherited ancestors and descendants of Z. No fee will be charged.

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 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 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 that 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 one or more exempt purposes unless it serves a public rather than a private interest.

Revenue Ruling 72-369, 1972-2 C.B. 245 held that an organization formed to provide managerial and
consulting services at cost for unrelated nonprofit organizations is not exempt under section 501(c)(3). An
organization is not exempt merely because its operations are not conducted for the purpose of producing a
profit. To satisfy the ‘operational test’ the organization's resources must be devoted to purposes that qualify as
exclusively charitable within the meaning of section 501(c)(3) and the applicable regulations.

In Better Business Bureau of Washington, D.C., Inc. v. U.S., 326 U.S. 279 (1945), the court held that the
presence of a single non-exempt purpose, if substantial in nature, will preclude exemption, regardless of the

number or importance of statutorily exempt purposes.

In Callaway Family Association, Inc. v. Commissioner of Internal Revenue, 71 T.C. 340 (1978), the court
sustained that an organization whose activities focused on the historical studies of the genealogy of their family,
was not exempt under section 501(c)(3). Albeit the organization conducted some “educational” activities as the

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

3

term is used in section 501(c)(3), taken as a whole, those activities are not “exclusively” dedicated to exempt
purposes, and rather they serve the private interests of the family members.

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 have failed to meet the operational test, as explained below.

You are not operated in accordance with Treas. Reg. Section 1.501(c)(3)-1(c)(1) because more than an
insubstantial part of your activities is devoted to a non-exempt purpose. You are operating for the benefit of an
individual family. Your sole purpose is to provide individual private banking to find one family’s birthright and
heritage. These facts also illustrate that you are operated to serve the private interests of one family in
contravention to Treas. Reg. Section 1.501(c)(3)-1(d)(ii).

As the organization in Rev. Rul. 72-369 that activities are not considered exclusively charitable and
therefore the organization does not qualify for exemption under section 501(c)(3), your providing private
banking to find your family’s birthright and heritage did not establish that you operate exclusively for the
purposes described in section 501(c)(3).

You are like the organization described in the Better Business Bureau. You are operated for substantial
nonexempt purposes even though you conduct some educational activities. The presence of these
nonexempt purposes prevent exemption under section 501(c)(3).

Your purpose of providing individual private banking to find your own family’s birthright and heritage did
not establish that you operate exclusively for the purposes described in IRC Section 501(c)(3). Like the
organization in Callaway Family Association, your primary purpose is to find your own family’s heritage.
Therefore, you do not meet the operational test of an organization exempt under IRC Section 501(c)(3).

Conclusion
Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3). You do not
meet the operational test because you operate for the private interest of an individual family.

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

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

• 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
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