IRS revokes a 501(c)(3) that operated like a social club (bar, gaming, member events)

Plain-English summary

The IRS revoked a nonprofit's recognition as a tax-exempt charity under section
501(c)(3). The group had been recognized as a public charity, but on audit the
IRS found it operated much like a private social club: it ran a full-service
kitchen and bar, conducted gaming (state lottery and Keno), tracked member and
nonmember attendance at a sign-in podium, offered billiards and pool tables, and
hosted member social events, tournaments, and banquets. Two independent problems
sank the exemption. First, it failed the organizational test, because its
articles of association did not limit its purposes to exempt ones and lacked the
required clause dedicating assets to a 501(c)(3) purpose on dissolution. Second,
it failed the operational test, because a substantial part of its activities was
social and recreational and served the private interests of its members rather
than the public. Citing the regulations and cases such as First Libertarian
Church, Church by Mail, and St. Louis Science Fiction, the IRS held that even a
single substantial nonexempt purpose defeats exemption. Because the exemption is
revoked, the organization must file federal income tax returns and may contest
the determination in court under section 7428.

Ruling snapshot

• Question: Should a charity keep its 501(c)(3) exemption when a substantial part of its activities is social and recreational and benefits its members?
• Outcome: revocation (final adverse determination; exemption revoked)
• Key authorities: IRC § 501(c)(3); IRC § 7428; Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 66-179; First Libertarian Church v. Commissioner; Church by Mail, Inc. v. Commissioner; St. Louis Science Fiction Ltd. v. Commissioner

Full text (IRS public release)

Transcriber's note: this is a scanned adverse-determination package, comprising a Letter 6337 final revocation letter, a Letter 3618 proposed-revocation letter, and a Form 886-A audit report ("Explanation of Items"). The repeating Form 886-A page-header furniture has been removed and each page replaced with a bracketed [Page N] marker; the cover letters keep their own footers. The report is heavily redacted, so many names, dates, dollar amounts, and percentages appear as blanks, and substantial OCR artifacts remain in that portion; wording is reproduced as scanned. Obvious OCR misreads have been corrected.

Department of the Treasury Date:
Internal Revenue Service
Tax Exempt and Government Entities

Taxpayer ID number (last 4 digits):

Form:

Tax periods ended:

ID number:
Release Number: 202629022 Telephone:

Release Date: 7/17/26 Last day to file petition with United States
UIL Code: 501.03-00 Tax Court:

CERTIFIED MAIL - Return Receipt Requested

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

. Your determination letter dated is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You have not
demonstrated that you are operated exclusively for exempt purposes within the meaning of section 501(c)(3).
Our review shows that you are structured to serve the private interests of your members, which fails to meet the
organizational requirements under § 501(c)(3). Federal tax law mandates that exempt organizations be
organized and operated exclusively for purposes described in Internal Revenue Code Section 501(c)(3).

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.

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

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.

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

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

ded.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.
Sincerely,

Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

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

Department of the Treasury Date:
Internal Revenue Service
Tax Exempt and Government Entities Taxpayer ID number:

Form:

Tax periods ended:

Person to contact:
Name:

ID number:
Telephone:
Fax:

Address:

ID number:
CERTIFIED MAIL — Return Receipt Requested Telephone:

Response due date:

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 | 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.

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.

Letter 3618 (Rev. 3-2024)
Catalog Number 34809F

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/fonns-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,

Lynn A. Brinkley
Director, Exempt Organizations Examination
Enclosures:
Form 6018

Form 886-A
Publication 1
Publication 892
Publication 3498

Letter 3618 (Rev. 3-2024)
Catalog Number 34809F

Form 886-A, Explanation of Items

ISSUE:

Was operated exclusively for exempt purposes

described within Internal Revenue Code § 501(c)(3)?

Was engaged primarily in activities described within Internal
Revenue Code c at accomplished an exempt purpose?

Was more than an insubstantial part of activities in furtherance
of a non-exempt purpose described within Internal Revenue Code cH3)?
Was operated for the purpose of serving a private benefit rather
than public interests:

FACTS:

(Taxpayer) was incorporated in cat in LS
. e taxpayer was recognized as a tax-exempt organization under Internal Revenue Code
Section (§) 501(c){(3) a of J. The taxpayer is classified with public charity status as

described under IRC § 509(a)(2).

According to the Taxpayer's Articles of Association, the organization's object
errterera mee The taxpayer's Articles of Association do not include the required
dissolution clause that guarantees assets are dedicated to an exempt purpose in the event of
dissolution, per requirements under Treasury Regulation 1.501(c)(3)-1(b)(4).

, the Taxpayer filed Form 8868 for extension of time to file Form 99
. The Taxpayer timely filed Form 990 for tax year ended

0 for tax i

On the Taxpayer’s Form 990 return in tax year ended , the mission and primary
activities includ . In addition, Part Il! of the Taxpayer's
statement of program service accomplishment reported that an expense of program service
was a In Part IX, Line = a Taxpayer
reporte er Expenses of Member Events In the amount of . in Part VIII, line 1b, the

Taxpayer did not report membership dues on the statement of revenue.

Schedule G disclosed that the Taxpayer conducted special fundraising events and gaming activities
during the year. In the Taxpayer's Schedule G, Part Ill, line 11, the Taxpayer responded “no” to the
question “Does the organization conduct gaming activities with nonmembers.”

[Page 1]

The Taxpayer submitted their Constitution and Bylaws in the information document request #1 that
was presented on a, On cages al of the Constitution and Bylaws, the Taxpayer
published information about membership vacancy, membership rules, voting quorum, and
membership dues.

On a. the Revenue Agent (RA) conducted a field examination with the President and
Taxpayer's representative. The RA observed that the Taxpayer:

Operates a full-service kitchen and bar serving both food and beverages,

Publicized posters of fundraiser in the facility for in,

Conducts gaming activities, including lottery and KENO,

Tracks member and non-member attendance at a sign-in podium.

Provides daily access to recreational facilities, including bar, billiards and pool tables for both
members and non-members from JM, and

e Hosts annual social events, fundraising events, tournaments, and banquet hall in event hall
space located in the basement.

During the initial interview, the Taxpayer's representative stated the following:

e The Taxpayer's primary purpose Bo receeraT primarily for
who fundraises for community causes. é organization was initially made for
members to

The Taxpayer conducts gaming, including lottery and Keno, through the State
Lottery, and that income is earned when the organization cashes out cash prize winnings for

members, and collects a percentage of the winnings from the State.

e The Taxpayer conducts fundraising events; some were conducted annually, which both
members and non-members can attend these events.

e The Taxpayer has a vacancy of members that offers both social and full memberships.
Social memberships have no voting rights and costs annually, and full memberships have
voting rights and costs annually.

[Page 2]

LAW:

Internal Revenue Code § 501(c)(3)

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.

Treasury Regulation § 1.501(c)(3}-1 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.

[Page 3]

(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 for 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.

(v) An organization must, in order to establish its exemption, submit a detailed
statement of its proposed activities with and as a part of its application for exemption
(see paragraph (b) of §1.501(a}—1).

(2) Articles of organization. For purposes of this section, the term articles of organization or
articles includes the trust instrument, the corporate charter, the articles of association, or any
other written instrument by which an organization is created.

[Page 4]

(4) Distribution of assets on dissolution. An organization is not organized exclusively for one or
more exempt purposes unless its assets are dedicated to an exempt purpose. An
organization's assets will be considered dedicated to an exempt purpose, for example, if, upon
dissolution, such assets would, by reason of a provision in the organization's articles or by
operation of law, be distributed for one or more exempt purposes, or to the Federal
Government, or to a State or local government, for a public purpose, or would be distributed by
a court to another organization to be used in such manner as in the judgment of the court will
best accomplish the general purposes for which the dissolved organization was organized.
However, an organization does not meet the organizational test if its articles or the law of the
State in which it was created provide that its assets would, upon dissolution, be distributed to
its members or shareholders.

(c) Operational test—

(1) Primary activities. 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). An organization will not be so regarded if
more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

(2) Distribution of earnings. An organization is not operated exclusively for one or more
exempt purposes if its net earnings inure in whole or in part to the benefit of private
shareholders or individuals. For the definition of the words private shareholder or
individual, see paragraph (c) of § 1.501(a)—1.

(d) Exempt purposes —

(1) In general.
(i) An organization may be exempt as an organization described in Section 501(c)(3) if it
is organized and operated exclusively for one or more of the following purposes:

Religious,

Charitable,

Scientific,

Testing for public safety,

Literary,

Educational, or

g. Prevention of cruelty to children or animals.

[illegible]

(ii) An organization is not organized or operated exclusively for one or more of the
purposes specified in subdivision (i) of this subparagraph unless it serves a public
rather than a private interest. Thus, to meet the requirement of this subdivision, it is

[Page 5]

necessary for an organization to 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.

(2) Charitable defined. The term charitable is used in Section 501(c)(3) in its generally
accepted legal sense and is, therefore, not to be construed as limited by the separate
enumeration in Section 501(c)(3) of other tax-exempt purposes which may fall within the broad
outlines of charity as developed by judicial decisions. Such term includes: Relief of the poor
and distressed or of the underprivileged; advancement of religion; advancement of education
or science; erection or maintenance of public buildings, monuments, or works; lessening of the
burdens of Government; and promotion of social welfare by organizations designed to
accomplish any of the above purposes, or

(i) to lessen neighborhood tensions;

(ii) to eliminate prejudice and discrimination;

(iii) to defend human and civil rights secured by law; or

(iv) to combat community deterioration and juvenile delinquency. The fact that an
organization which is organized and operated for the relief of indigent persons may
receive voluntary contributions from the persons intended to be relieved will not
necessarily prevent such organization from being exempt as an organization organized
and operated exclusively for charitable purposes. The fact that an organization, in
carrying out its primary purpose, advocates social or civic changes or presents opinion
on controversial issues with the intention of molding public opinion or creating public
sentiment to an acceptance of its views does not preclude such organization from
qualifying under Section 501(c)(3) so long as it is not an action organization of any one
of the types described in paragraph (c)(3) of this section.

Rev. Rul. 66- 179, 1966-1 C.B. 139 describes situations under which garden clubs may qualify for
exemption under section 501 of the Code.

Situation 1 describes an organization that is incorporated as a nonprofit organization to instruct the
public on horticultural subjects and stimulating interest in the

beautification of the geographic area. In furtherance of these purposes, the organization (1) maintains
and operates a free library of materials on horticulture and allied subjects; (2) instructs the public on
correct gardening procedures and conservation of trees and plants by means of radio, television, and
lecture programs; (3) holds public flower shows of a noncommercial nature at which new varieties of
encourages roadside beautification and civic planting; and (6) makes awards for civic achievement in
conservation and horticulture.

Situation 2 described an organization with the same facts as described in Situation 1 except that a
substantial part of the organization's activities, but not its primary activity, consists of social functions
for the benefit, pleasure, and recreation of its members.

[Page 6]

The organization in Situation 1 is organized and operated exclusively for charitable and educational
purposes and qualifies for exemption under Section 501(c)(3) of the Code.

The facts in Situation 2 are distinguishable from those in Situation 1 in that the organization in
Situation 2 conducts substantial social functions not in furtherance of any of the purposes specified in
Section 501(c)(3). Accordingly, the organization does not qualify for exemption under Section
501(c){3). However, because the organization is operated primarily to bring about civic betterment
and social improvements and the social functions for the benefit, pleasure and recreation of the
members do not constitute its primary activity, the organization qualifies for exemption under Section
501(c)(4).

Rev. Rul. 77-366, 1977-2 C.B. 192 states that a nonprofit organization that arranges and conducts
wintertime ocean cruises during which activities to further religious and educational purposes are
provided in addition to extensive social and recreational activities is not operated exclusively for
exempt purposes and does not qualify for exemption under Section 501(c)(3) of the Code.

Rev. Rul. 69-279, 1969-1 C.B. 152, an irrevocable inter vivos trust, which provides that a fixed
percentage of the income must be paid annually to the settlor with the balance of the income to charity
does not qualify for exemption under Section 501(c)(3) of the Code. Under the terms of the trust
instrument a percentage of the trust's income must be paid to the settlor. Thus, the trust is organized
and is operated for two purposes-to benefit the settlor and to benefit charity. The trust therefore is not
organized and operated exclusively for charitable purposes. Rather, it is organized and operated, in
part, for the benefit of the private interest of the settlor and a part of the trust's earnings is inuring to
the benefit of a private individual.

Rev. Rul. 69-256, 1969-1 C.B. 151, A testamentary trust established to make annual payments to
exempt charitable organizations and to use a fixed sum from annual income for the perpetual care of
the testator's burial lot is not exempt under Section 501(c)(3) of the Code. Advice has been requested
whether the trust described below is exempt from Federal income tax under Section 501(c)(3) of the
Internal Revenue Code of 1954. A testamentary trust was established to make annual payments to
charitable organizations exempt from Federal income tax under Section 501(c)(3) of the Code and to
use a fixed sum from its annual income for the perpetual care of the testator's burial lot. Section
501(c)(3) of the Code provides for the exemption of organizations organized and operated exclusively
for charitable purposes, no part of the net earnings of which inures to the benefit of any private
shareholder or individual. Section 1.501(c)(3)-1(d)(1)(ii) of the regulations 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. Accordingly, the trust is not exempt from Federal income
tax under Section 501(c)(3) of the Code. However, see section 642(c) of the Code for the provisions
regarding a deduction by the trust in computing its gross income, for amounts paid or permanently set
aside for a charitable purpose.

In First Libertarian Church v. Commissioner Internal Revenue, 74 T.C. 396 (1980), the court stated
that the church failed to show that it successfully segregated the clearly social and political aspects of

[Page 7]

its supper club meetings and its publication from its purpose to further the doctrine of ethical egoism.
As the church operated for social and political purposes to more than an insubstantial degree, it fails to
qualify for exemption under Section 501(c)(3) of the Code. The court stated that an organization will
not qualify for exemption if a nonexempt activity is more than an insubstantial part of its overall
activities or if an activity has more than an insubstantial non-exempt purpose. The court explained
that "clearly the regulations and cases contemplate that a single activity may be carried on for more
than one purpose. If a substantial secondary purpose is not an exempt one, qualification under
Section 501(c)(3) will be denied."

in Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), it was held that if an activity serves a
substantial non-exempt purpose, the organization does not qualify for exemption even if the activity
also furthers an exempt purpose.

In Church by Mail, Inc. v. Commissioner of Internal Revenue, 765 F.2d 1387 (9th Cir. 1985), tax court
upheld the Commissioner's determination, holding that (1) the Church was operated for the non-
exempt purpose of providing a market for Twentieth's services, and (2) a substantial, if not principal,
purpose of the Church's operations was to generate income for the private benefit of Reverend Ewing
and Reverend McElrath and their respective families.

In St. Louis Science Fiction Limited v. Commissioner, 49 TCM 1126, 1985-162, the Tax Court held
that a science fiction society failed to qualify for tax-exempt status under Section 501(c)(3) of the
Code. Although many of the organization's functions at its annual conventions (the organization's
principal activity} were educational, its overall agenda was not exclusively educational. A substantial
portion of convention affairs were social and recreational in nature.

TAXPAYER'S POSITION:

The Taxpayer has not provided a position statement at this time.

[Page 8]

GOVERNMENT'S POSITION:

IRC Section 501(c)(3) states that 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 will not qualify for tax exempt status under IRC §
501(c)(3).

Treasury Regulation 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 limit its purposes to one or more
exempt purposes and do not expressly empower it to engage, otherwise than as an insubstantial part,
in activities which in themselves are not in furtherance of one or more exempt purposes. An
organization is not organized exclusively for one or more exempt purposes if its articles expressly
empower it to carry on, other than as an insubstantial part, 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, although its articles may state
that the organization is created "for charitable purposes within the meaning of Section 501(c)(3) of the
Internal Revenue Code.”

Treasury Regulation 1.501 (c)(3)-1(b)(4) requires that an organization must add an adequate
dissolution provision where its articles or the law of the State in which it was created that its assets
would, upon dissolution, be distributed to its members or shareholders. This code section requires
that the assets must be dedicated to an exempt "purpose." Since a named beneficiary at the time of
dissolution may not be qualified, may not be in existence, or may be unwilling or unable to accept the
assets of the dissolving organization the articles should be amended to provide for distribution of the
assets for one or more of the purposes specified in IRC § 501(c)(3) in the event of any such
contingency.

The Taxpayer's Articles of Association purposes oo an
al The Taxpayer's purposes indicates that their activities are not exclusively charitable or
educational. These terms suggest that the Taxpayer is structured to serve the private interests of its
members or a specific group, which fails to meet the organizational requirements under § 501(c)(3).
Furthermore, the Articles of Association lack the required dissolution clause, meaning there is no legal
assurance that the Taxpayer's assets will be distributed for § 501(c)(3) purposes if the organization is
dissolved, which fails to meet the organizational test requirements under Section 501(c)(3)-1(b)(4).
Therefore, the Taxpayer does not qualify for tax exemption status described under IRC Section
501(c)(3).

Treasury Regulations 1.501(c)(3)-1(c)(1) states that an organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish

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one or more of such exempt purposes specified in 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.

Treasury Regulations 1.501(c)(3)-1(c)(2) states that an organization is not operated exclusively for one
or more exempt purposes if its net earnings inure in whole or in part to the benefit of private
shareholders or individuals.

Taxpayer's operations during tax year ended reece demonstrate that Taxpayer
substantially engages in activities that do not er charitable, educational, or literary purposes
described under IRC Section 501(c)(3).

Taxpayer's substantial activities include:

from ;

Providing recreational facilities such as billiards and pool tables to members and non-members,
Conducting gaming, including lottery and Keno,

Hosting member-exclusive social events and tournaments,

Facilitating fundraising events that does not further charitable or public benefit, and

Failing to report membership dues as revenue on Form 990.

The Taxpayer’s program expenses on Form 990 reported a total amount o and were
described as being used to ; e Taxpayer's
description of program expenses; along wi e associated substantial activities; demonstrate that

services are provided to a limited class of individuals - its members - rather than the public.

Although the Taxpayer may carry on activities that further one or more tax-exempt purposes, it will not
be treated as operated exclusively for an exempt purpose if it has a single non-charitable purpose that
is substantial in nature. The Taxpayer's records and examination results shows that a substantial
portion of the organization's activities are recreational, social, and benefits members, which does not
meet the requirement that the organization must operate exclusively for exempt purposes. The failure
to report membership dues further indicates noncompliance with Form 990 reporting requirements.

« rom il a - functioning kitchen and bar serving both food and beverages, accessible daily

For the reasons stated above, while the Taxpayer does conduct some activities and serve some
purposes that are exempt under Section 501(c)(3), the Taxpayer also serves more than an
insubstantial purpose that does not qualify under Section 501(c)(3), therefore the Taxpayer does not
qualify for tax exemption status under IRC Section 501(c)(3).

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CONCLUSION:

Based on the facts and circumstances presented, the Taxpayer does not qualify for tax exemption
status under IRC section 501(c)(3).

1.

Taxpayer was not operated exclusively for exempt purposes because it did not engage primarily in
activities which accomplish an exempt purpose as explained in IRC Section 501(c)(3).

Taxpayer failed to meet the organizational test due to the non-charitable purposes listed in Articles
of Association and does not include the required dissolution clause.

More than an insubstantial part of the activities of the Taxpayer were not in furtherance of an
exempt purpose. Taxpayer's operations are not exclusively charitable or educational and
resemble those of a social club. Therefore, the Taxpayer does not qualify for tax exempt status
described in IRC Section 501(c)(3).

Finally, the Taxpayer was operated for the purpose of serving the private benefit of its members.
The Taxpayer fails to meet the operational test, due to a substantial portion of its activities being
social and recreational purposes, that primarily benefit members, rather than a public charitable or
educational purpose.

For these reasons, we have determined that the organization does not meet the requirements of IRC
Code Section 501(c)(3), (he should have its tax-exemption

revoked.

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