IRS determination 200807021: Homebuyer aid organization denied charity status

Plain-English summary

An organization provided down payment assistance to homebuyers and received payments from home sellers and related businesses that benefited from the transactions. The IRS found that seller payments generally corresponded to the assistance provided. It concluded that the arrangement primarily advanced insiders' business interests and the private interests of those financing it, rather than an exempt charitable purpose. The final letter says the organization did not qualify for section 501(c)(3) exemption, contributions were not deductible, and it had to file corporate income tax returns. The letter superseded an earlier adverse letter dated August 17, 2007.

Ruling snapshot

• Question: Did the homebuyer assistance program operate exclusively for exempt purposes?
• Outcome: Denial of tax-exempt status in a final adverse determination.
• Key authorities: IRC §§ 501(c)(3), 170.

Full text (IRS public release)

200807021

Internal Revenue Service
Department of the Treasury
Appeals Office
4050 Alpha Road
Suite 517, MC:8000NWSAT
Dallas, TX 75244

Date: NOV 16 2007
Person to Contact:
UIL Code: 501.03-30
Employee ID Number:
Tel:
Fax:
Refer Reply to:
AP:
In Re:
EO Determination
Form Required to be Filed:
1120
Tax Period(s) Ended:

LEGEND:
A =
B =

Last Day to File a Petition with the
United States Tax Court:

Certified Mail

Dear :

This is a final adverse determination as to your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). It is determined that you do not qualify as exempt from Federal income tax under IRC Section 501(c)(3).

Our adverse determination was made for the following reason(s): A substantial part of your activities consists of providing down payment assistance to home buyers. To finance the assistance, you rely on home sellers and other real-estate related businesses that stand to benefit from these down payment assistance transactions. Your receipt of a payment from the home seller corresponds to the amount of the down payment assistance provided in substantially all of your down payment assistance transactions. The manner in which you operate demonstrates you are operated primarily to further your insiders’ business interests. Therefore, you are operated for a substantial nonexempt purpose. In addition, your operations further the private interests of the persons that finance your activities. Accordingly, you are not operated exclusively for exempt purposes described in section 501(c)(3).

200807021

Contributions to your organization are not deductible under Code section 170.

You are required to file Federal income tax returns on the form indicated above. You should file these returns within 30 days from the date of this letter, unless a request for an extension of time is granted. File the returns in accordance with their instructions, and do not send them to this office. Processing of income tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory judgment under Code section 7428.

If you decide to contest this determination under the declaratory judgment provisions of Code section 7428, a petition to the United States Tax Court, the United States Court of Claims, or the district court of the United States for the District of Columbia must be filed within 90 days from the date this determination was mailed to you. Contact the clerk of the appropriate court for rules for filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write to the United States Tax Court, 400 Second Street, N.W., Washington, D.C. 20217.

We will notify the appropriate State officials of this action, as required by Code section 6104(c). You should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements.

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

for CHARLES FISHER
TEAM MANAGER

This letter supersedes our letter dated August 17, 2007.