Membership association was denied charity status because its social activities served a substantial nonexempt purpose

Plain-English summary

An ethnic membership association sought recognition as a charity under IRC § 501(c)(3). Its bylaws focused on cultural ties, mutual assistance, friendly relations, social connection, and unification among people from a particular country who lived in a local metropolitan area. Its primary activities were members-only social and recreational functions, including holiday celebrations. It also conducted some clothing and food drives, funded a summer school program abroad, and supported a local parade, but those charitable activities represented only a redacted share of its work. The IRS concluded that the organization’s substantial social and recreational purposes caused it to fail the operational test, even though some activities furthered exempt purposes. Because the organization did not protest the proposed denial within 30 days, the IRS issued a final determination denying IRC § 501(c)(3) status.

Ruling snapshot

• Question: Did a members-only cultural and social association operate exclusively for charitable or educational purposes under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC §§ 501(a), 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 77-366; Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (1945)

Full text (IRS public release)

~ Internal Revenue Service
Department of the Treasury Date:
~BJ 01/14/2025
Tax Exempt and Government Entities Employer ID number:
IRS Box 2508
Cincinnati, OH 45201 Form you must file:
1120
Tax years:
Release Number: 202515016 All
Release Date: 4/11/2025 Person to contact,

    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 50l(a) as an organization described in IRC Section 50l(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 50l(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 ohime to file. For further instructions, forms, and information, visit
www.1rs.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 ofintention 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 43 7 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.

                                                     Sincerely,


                                                     Stephen A. Martin
                                                     Director, Exempt Organizations
                                                     Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Letter 4038 (Rev. 11-2021)
Catalog Number 47632S
~
Department of the Treasury
Internal Revenue Service
PO Box2508
IRS Cincinnati, OH 45201
Date: November 19, 2024

                                                                           Employer ID number:


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

Legend: UIL:
B = State 501.03-00
C = Date 501.03-30
D = Country
E = Individuals
F = Country
G = Individuals
H = Country
L =Name
j percent = Numbers

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 50l(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 are a corporation formed on C under the laws of the state of B. Your bylaws indicate the purpose for which
you were formed is for the unification of all E originally from D and residing in the local metropolitan area.
Your purposes in your bylaws also include:
• Advancing respect and love of culture of F among your members;
• Promoting mutual assistance amongst your members;
• Promoting the pursuit of friendly relations with your fellow G;
• Promoting the social connection of all members as well as establishing communication with those from
D;
• Supporting and participating in any effort toward the unification of all E in B and in H.

To become a member, an individual must be over the age of 18 and their origin must be from D.

                                                                                    Letter 4034 (Rev. 01-2021)
                                                                                    Catalog Number 47628K
                                                      2

Your activities primarily consist of providing for the social and recreational needs of your membership. You
primarily coordinate functions to celebrate holidays including religious holidays. Your activities are only open
to members. To become a member, an individual must be over the age of 18 and their origin must be from D.

Minimal fees are charged only for members to be able to vote in elections. Individuals who cannot pay the
membership fees on the first year have no right to vote in your elections or cannot be elected to your board.
After that if the member cannot pay the minimal fee than they will be ineligible for membership but may
become a friend of yours as provided in your bylaws.

Further, your members conduct clothing drives and food drives to help those in need in D. This accounts for in
the range of j percent of your total activities. Additionally, you fund a summer school program in Das well as
fund a local parade celebrating L.

You explained you provide no assistance to your membership.

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)(l) 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 l.501(c)(3)-l(c)(l) 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.

Rev. Rul. 77-366, 1977-2 C.B. 192, describes a nonprofit organization that arranged and conducted winter-time
ocean cruises during which activities to further religious and educational purposes were provided. In addition, there
were extensive social and recreational activities. Because the organization served substantial not exempt purposes,
it did not qualify for exemption under IRC Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (1945), the Supreme Court
held that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for
exemption regardless of the number or importance of truly exempt purposes.

Application of law
IRC Section 50l(c)(3) and Treas. Reg. Section 1.501(c)(3)-l(a)(l) set forth two main tests for an organization
to be recognized as exempt. An organization must be both organized and operated exclusively for purposes
described in Section 50l(c)(3). Based on the information you provided in your application and supporting
documentation, you fail the operational test.

                                                                                    Letter 4034 (Rev. 01-2021)
                                                                                    Catalog Number 47628K
                                                     3

The facts show you are not operated exclusively for charitable and educational purposes, but for the purpose of
conducting substantial social and recreational activities for your members. For example, you promote the social
connection of all members as well as establish communication with those from D. You organize social events
for your members. Like the organization in Rev. Rul. 77-366, although some of your activities may further
exempt purposes such as your clothing and food drives, your social and recreational activities serve substantial
independent purposes of a noncharitable nature. As noted in the court case, Better Business Bureau, the
presence of a substantial non-exempt purpose prevents exemption under IRC Section 501 (c)(3).

Conclusion
Based on the above facts and analysis, you do not meet the requirements for exemption for IRC Section
50l(c)(3). You do not meet the operational test because you are operating for substantial nonexempt purposes.
Accordingly, you do not qualify for exemption under Section 501(c)(3). Contributions to you are not tax
deductible.

If you agree
If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:
• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference
• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative
• The following declaration:
For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

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

                                                                                   Letter 4034 (Rev. 01-2021)
                                                                                   Catalog Number 47628K
                                                    4

law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

   U.S. mail:                                      Street address for delivery service:

   Internal Revenue Service                         Internal Revenue Service
   EO Determinations Quality Assurance              EO Determinations Quality Assurance
   Mail Stop 6403                                   550 Main Street, Mail Stop 6403
   PO Box 2508                                      Cincinnati, OH 45202
   Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

                                                        Sincerely,




                                                        Stephen A. Martin
                                                        Director, Exempt Organizations
                                                        Rulings and Agreements




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