Civil-rights and blockchain-art group denied 501(c)(3) exemption

Plain-English summary

A newly formed nonprofit applied for 501(c)(3) charitable status, describing a mission to defend citizens' constitutional and civil rights through legal, educational, and social activities, including selling digital art on a blockchain. The IRS denied the exemption and this document combines the proposed denial (Letter 4034) with the final adverse determination (Letter 4038), which became final after the organization did not protest within 30 days. The IRS found the group failed both the organizational test (its articles of incorporation did not limit it to exempt purposes and allowed substantial non-exempt activity) and the operational test (it did not show it would operate exclusively for charitable or educational purposes). The IRS also flagged possible private benefit and inurement, because the organization planned to fund its own CEO's legal defense, use the CEO's copyright, and enter joint ventures with businesses its directors own. Practically, this means donors cannot deduct contributions under section 170, and the group must file regular income tax returns.

Ruling snapshot

• Question: Does the applicant qualify for tax exemption under IRC § 501(c)(3)?
• Outcome: denied
• Key authorities: IRC §§ 501(c)(3), 170; Treas. Reg. § 1.501(c)(3)-1(a), (b), (c), (d)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 10/03/2024
IRS Tax Exempt and Government Entities Employer ID number:

Person to contact:

Release Number: 202452014
Release Date: 12/27/24
UIL Code: 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 476325

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 476328

Department of the Treasury
Internal Revenue Service

Date: 06/18/2024

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = Date 501.03-00
C = State 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, 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 Articles of Incorporation (AOI) state your purpose is to
work for equality by engaging in legal, educational, and social activities with the goal of defending and
protecting U.S. citizens' constitutional and civil rights. The activities will include inspiring, advocating, and
using digital art on blockchain.

Your application and AOI contain similar language about your purpose. Once you receive your exemption, you
will start to plan future activities. One of your future activities will be to provide legal funds to individuals to
defend violations of constitutional and civil rights which you hope your CEO will be the first of many you help.
The only activities now are brainstorming, defining purpose and vision, audience market research, revisiting
your CEO's copyright, and filing the required documents with your state.

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

2

You will have joint ventures and/or partnerships with organizations that your directors own and will make use
of your CEO's copyright. You do not have Bylaws or a conflict of interest policy.

You are currently funded by your directors. In the future, your goal is to not need funds from your directors, but
instead receive funds through grants and donations. You have three directors. of your directors are
and your director is a of the

Supplemental information was requested based on review of your Form 1023.

Your first response shows you amended your AOI to include a proper dissolution clause, and add the statement
"organized exclusively for charitable, educational, and scientific purposes, including for such purposes, the
making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the
Internal Revenue Code, or the corresponding section of any future federal tax code" to the purpose statement on
your original AOI. Additionally, your first response states that the only activities since incorporation are
brainstorming, defining vision, research, and interviewing potential team members. The directors are the
only people involved and you will adopt Bylaws. The response was incomplete. Thus, we requested additional
information.

Your second response provides additional information on some issues, but generally, the response is the same as
the first. A future planned activity is to create a website for education of constitutional rights, testimony of your
CEO's personal experience, resources, crowd funding, and information for art on a blockchain token. Future
activities will be defined and the process created when the Bylaws are created. The response was incomplete.
Thus, we requested additional information via a phone call and granted an extension to provide complete
information. Complete information was not submitted.

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.

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

3

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) of the regulations 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 private
interests.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term "charitable" also includes lessening of the burdens of government.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) defines the term educational as the instruction or training of the
individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects
useful to the individual and beneficial to the community.

Revenue Procedure 2023-5, 2023-1 IRB 265, Section 3 states that a determination letter or ruling on exempt
status is issued based solely upon the facts and representations contained in the administrative record. The
applicant is responsible for the accuracy of any factual representations or attestations contained in the
application. Section 6 (and its predecessors) provides that a favorable determination letter or ruling will be
issued to an organization only if its application and supporting documents establish that it meets the particular
requirements of the section under which exemption from federal income tax is claimed.

In Universal Life Church, Inc. 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."

Pius XII Academy, Inc. v. Commissioner, T.C. Memo. 1982-97, aff'd 711 F.2d 1058 (6th Cir. 1983), held that an
organization must establish through the administrative record that it operates as an exempt organization. Denial
of exemption may be based solely upon failure to provide information describing in adequate detail how the
operational test will be met.

In La Verdad v. Commissioner, 82 T.C. 215 (1984), held that the administrative record did not demonstrate that
the organization would operate exclusively in furtherance of an exempt purpose. Therefore, denial of
organization's request for tax-exempt status was reasonable.

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that
the actual purposes displayed in the administrative record supported the Service's denial, stated "It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant." The court noted that if the petitioner had evidence that contradicted these findings, it should have
submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

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


4

Ohio Disability Association v. Commissioner, T.C. Memo 2009-261 (2009), held that 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

A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided supporting documentation to establish you meet the requirements of IRC Section 501(c)(3). Section
501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg. 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 amended your AOI to include language for IRC Section 501(c)(3) purposes; However, your AOI still
contains language which does not limit you to one or more exempt purposes and empowers you to substantially
engage in activities that in themselves are not in furtherance of one or more exempt purposes. For example,
your AOI states you will engage in social activities, and inspire, advocate, and use digital art on blockchain. As
a result, you have not satisfied the organizational test described in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).

You state that your CEO, who you hope to be the first of many who will be helped and supported, would be a
beneficiary of funds raised to defend violations as a citizen of the United States. This statement has indications
of possible private rather than public interests being furthered or inurement. You did not provide sufficient
documentation to establish you are organized and operated for public rather than private interests as provided in
Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

You did not submit sufficient documentation establishing you are operated exclusively for IRC Section
501(c)(3) purposes. (See Universal Life Church, Pius XII Academy, Inc., La Verdad, New Dynamics
Foundation and Ohio Disability Association) You are solely funded by your directors. of your
directors are members and the director is a of the . You plan to provide
funds to your CEO for legal defense, have joint ventures and/or partnerships with organizations that your
directors own, and make use of your CEO's copyright. You did not provide sufficient documentation to
establish that no part of the net earnings may inure to the benefit of any private shareholder or individual.
Therefore, there is not sufficient documentation to establish that you are exempt from taxation as required by
Section 501(c)(3) and Rev. Proc. 2023-5. As in Universal Life Church, you have the burden of establishing that
you qualify for tax exemption.

You do not meet the operational test under IRC Section 501(c)(3) because you are not operating exclusively for
charitable or educational purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). While you do have
some charitable purposes as provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2), and some educational
purposes as provided in Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i), you did not provide sufficient
documentation to establish that your operations accomplish exclusively charitable or educational purposes.

In Pius XII Academy, Inc., La Verdad, and New Dynamics Foundation, it was established that an organization
must establish, through its administrative record, that it meets the requirements for exemption. Because you
failed to provide sufficient details in your initial application and subsequent responses provided, you have not
established that you meet the requirements for exemption under IRC Section 501(c)(3). As provided in New
Dynamics Foundation, any gaps in the administrative record will be resolved against the applicant. Similarly, in

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


5

Ohio Disability Association, the court found that even when additional information was provided, but it
contained generalizations and failed to clarify purposes, denial is justified. You did not provide detailed
supplemental information; therefore, we are unable to determine that you qualify for exemption.

Your position
You submitted an amended Articles of Incorporation,

You submitted new information on your activities. This information mentions you have never distributed funds
and goods to individuals and never will to anyone including the CEO. You hired additional directors for a
total of and of the have experience in finance, technology, and management. You will not participate
in any joint ventures, including partnerships or limited liability companies treated as partnerships, in which it
will share profits and losses with partners. You will not make use of your CEO's copyright.

Our response to your position

Your amended Articles of Incorporation still contains language which does not limit you to one or more exempt
purposes. It empowers you to substantially engage in activities that in themselves are not in furtherance of one
or more exempt purposes. For instance, the Articles of Incorporation states that you will engage in defending
human and civil right guaranteed by law — The Constitution of the United States. You will support litigation,
communications as well as public education programs. As a result, you have not satisfied the organizational test
as described in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i)

You changed some of your activities to address the private interest issue but did not fully explain the activities.
You did not explain how you use blockchain and provided no detailed information to explain the selling of art
for fundraising.

Conclusion

Based on the information submitted, you have failed to establish that you are organized and operated
exclusively for exempt purposes within the meaning of IRC Section 501(c)(3). Your AOI does not limit you to
one or more exempt purposes and empowers you to substantially engage in activities that in themselves are not
in furtherance of one or more exempt purposes. Moreover, you did not provide sufficient documentation to
establish that no part of the net earnings may inure to the benefit of any private shareholder or individual and
that you benefit public rather than a private interest. Therefore, based on the administrative record, you fail to
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

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


6

* 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
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