Employee aid fund denied charity status for private benefit

Plain-English summary

The IRS denied IRC § 501(c)(3) recognition to a fund created to assist employees of one organization and its affiliates during disasters and other financial hardships. Only those employees and their families could receive food, school, medical, or catastrophe assistance. The organization's human-resources officer communicated requests, all directors were employees of the business, and contributors were typically employed or owner physicians there. The IRS concluded that the fund primarily served the private interests of a designated employee group rather than the public at large. It also found that the application and follow-up information did not provide enough detail to establish operation exclusively for exempt purposes. Any gaps in the administrative record were resolved against the applicant.

Ruling snapshot

• Question: Does an aid fund limited to one business's employees and their families operate exclusively for charitable purposes under IRC § 501(c)(3)?
• Outcome: Denied, because the program served a designated private group and the record did not establish exclusively exempt operations
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(c)(1), (d)(1)(ii); Rev. Rul. 67-367; Rev. Rul. 69-175; Rev. Rul. 72-147

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 05/30/2025
Tax Exempt and Government Entities
IRS PO Box 2508
Cincinnati, OH 45201

Employer ID number: [redacted]
Form you must file:
1120
Tax years:
All
Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]

Release Number: 202534009
Release Date: 8/22/2025
UIL Code: 501.03-00, 501.33-00, 501.35-00

Dear [redacted]:

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
PO Box 2508
Cincinnati, OH 45201

Date: 4/14/2025
Employer ID number: [redacted]
Person to contact:
Name: [redacted]
ID number: [redacted]
Telephone: [redacted]
Fax: [redacted]

Legend: UIL:
B = Date 501.03-00
C = State 501.33-00
D = Organization 501.35-00

Dear Applicant:

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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code.

You attest that you were incorporated on B, in the state of C. 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 the IRC Section 501(c)(3), that your organizing document does not expressly
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 Section501(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 that your net earnings do not inure in whole or in part to the benefit of private shareholders
  or individuals

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

2

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
  insubstantially

• Not to be organized or operated for the primary purpose of conducting a trade or business that is not
  related to your exempt purpose(s)

• Not devote more than an insubstantial part of the activities attempting to influence legislation or, if
  you made a Section(h) election, not normally make expenditures in excess of expenditure limitations
  outlined in Section(h)

• Not provide commercial-type insurance as a substantial part of your activities

You state you were formed to provide assistance to the employees of D and its affiliates during times of
crisis. You further state that you will distribute awards that will be made on a nondiscriminatory basis
based on a predetermined criteria developed by a board of independent directors.

You will provide an avenue wherein the staff of D can aid employees who have endured catastrophic events
like hurricanes, flooding, or fires. You will also assist employees of D who experience significant needs
like food assistance, back to school expense, and medical expenses. Only employees of D and their families
are eligible to receive aid. The contributors to the fund are typically employed and/or owner physicians at
D. Your directors are all employees of D.

Requests are communicated to your directors by the human resource officer of D. Your directors will
decide on the recipients and the amount awarded. Payments are managed by the Director of Accounting.
When possible, you make purchases on the recipient’s behalf in the cases of food, school supplies, etc.
Then not possible affidavits are collected from each recipient which acknowledges that the funds will be
used for the intended purposes and also define the purpose.

Law

IRC Section 501(c)(3) provides, in part, for the exemption from federal income tax of organizations organized
and operated exclusively for charitable, religious or educational purposes, no part of the net earnings of which
inures 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 the
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 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) 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, an organization must 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.

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

3

Revenue Ruling 67-367, 1967-2 C.B. 188, describes an organization whose sole activity was the operation of a
scholarship program for making payments to pre-selected, specifically named individuals. The organization did
not qualify for exemption under IRC Section 501(c)(3) because it was serving the private interests of its
subscribers rather than public charitable interests.

Rev. Rul. 68-14, 1968-1 C.B. 243, held that a nonprofit organization formed to promote and assist in city
beautification projects and to educate the public in the advantages of street planting is exempt. While the
organization may provide some benefit to the homes in which trees are planted, the overall effect of the
organization’s activities are to combat community deterioration.

Rev. Rul. 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils attending
a private school. The organization provided bus transportation to and from the school for those children whose
parents belong to the organization. The organization did not qualify for exemption under IRC Section 501(c)(3)
because it served a private rather than public interest.

Rev. Rul. 72-147, 1972-1 C.B. 147, held that an organization formed to provide low-income housing to families
but giving preference for housing to employees of a farm proprietorship operated by the individual who created
and controls the organization does not qualify for exemption under Section 501(c)(3).

Rev. Rul. 75-196, 1975-1 C.B. 155, held that an organization operating a law library whose rules limit access
and use to members of a locai bar association, composed of substantially all of the members of the legal
profession in the municipality and providing the library’s primary support, qualifies for exemption under
Section 501(c)(3).

In Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945), the Supreme Court
determined that the presence of a single non-exempt purpose, if substantial in nature, will destroy exemption

under IRC Section 501(c)(3) regardless of the number or importance of any other exempt purposes.

Pius XII Academy, Inc. v. Commissioner, T.C. Memo. 1982-97, affd. 711 F.2d 1058 (6th Cir. 1983), provides
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.

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.

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.

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

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) 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 501(c)(3). Based on the information provided, you fail the operational test.

You are not operating exclusively for exempt purposes as described in Treas. Reg. Section 1.501 (c)(3)-1(c)(1)
because you were formed primarily to provide aid to the employees of D and their family members. Operating
this employee aid fund serves the private interests of the employees of D as opposed to the interests of the
public at large as described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). .

Like the organizations described in Rev. Rul. 67-367 and Rev. Rul. 69-175, you were formed to provide
benefits to the employees of D. By operating this program, you are primarily serving the private interests of the
employees of D rather than the public interest.

You are unlike the organization described in Rev. Rul. 68-14, which was formed to promote and assist city
beautification projects. The overall effect of the organization’s activities provided a benefit to the community as
a whole. In contrast, your activities provide a benefit to the employees of D, and any benefit to the public is
incidental to the benefits to these private parties.

You are like the organization described in Rev. Rul. 72-147, which served the private interests of the creator of
the organization. By providing benefits solely to employees of D, you are formed to serve the private interests
of those individuals rather than a public interest.

While your employee aid program offers charitable assistance to the employees of D, the programs primary
purpose is to serve the private interests of those individuals. The presence of this substantial non-exempt
purpose, as described in Better Business Bureau, precludes exemption under Section 501(c)(3).

In Pius XII Academy, Inc. 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 the additional information you provided did not meet the
statutory and regulatory requirements for exemption, 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 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 supplemental information; therefore, we are unable to
determine that you qualify for exemption.

Conclusion

You are not operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3). You
operate for the substantial non-exempt purpose of serving the private interests of employees of D rather than a
public interest. Therefore, 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.

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

5

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
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.

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

6

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