Other 200842055: Local adult club did not qualify as an amateur sports charity

Plain-English summary

An adult membership club had previously been reclassified from § 501(c)(4) to § 501(c)(3) after amending its articles to state charitable, educational, and amateur-sports purposes. Its actual activity remained local, involving adult members, a seasonal activity, inspections, a local tournament, and a banquet. The IRS concluded that the club was neither educational nor charitable and did not foster national or international amateur sports competition. It also did not qualify under § 501(j), which requires links to national or international competition. The organization agreed with the revocation, which the IRS made retroactive to the beginning of a redacted tax year.

Ruling snapshot

• Question: Did a local adult club qualify as charitable, educational, or organized to foster national or international amateur sports competition?
• Outcome: Revocation. Its local activities did not satisfy § 501(c)(3) or § 501(j).
• Key authorities: IRC §§ 170, 501(c)(3), 501(j), 6104(c), 7428; Treas. Reg. § 1.501(c)(3)-1(b), (d)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examination
625 Fulton Street, Room 503
Brooklyn, NY 11201

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Release Number: 200842055 XX = Date Address = address
Release Date: 10/17/08 Uil: 501.03-01
Date: July 24, 2008
Legend Taxpayer Identification Number:
ORG = Organization name Person to Contact:
ORG Identification Number
ADDRESS Contact Telephone Number:
LAST DATE FOR FILING A PLEADING WITH THE
TAX COURT, THE CLAIMS COURT, OR THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF
COLUMBIA:
Dear

This is a final determination regarding your exempt status under section 501(c)(3) of the
Internal Revenue Code (IRC). Recognition of your exemption from Federal income tax

as an organization described in Internal Revenue Code section 501(c)(3) is retroactively
revoked to June 1, 20XX, because you have not established that you are organized and

operated exclusively for exempt purposes.

IRC section 501(c)(3) exempts from taxation organizations which are organized and
operated exclusively for religious, charitable or educational purposes, or fostering
national or international amateur sports competition.

You failed to meet the requirements of Treasury Regulation section 1.501(c)(3)-1(b) in

that
you are not organized exclusively for an exempt purpose. Your primary activity is

on a local level with adult members.

We are therefore revoking your exemption from Federal income tax as an organization
described in Section 501(c)(3) of the Internal Revenue Code effective June 1, 20XX.

Contributions to your organization are no longer deductible under section 170 of the
Internal Revenue Code.

You are required to file Federal income tax returns on Form 1120. These returns
should be filed with the appropriate Service Center for all years beginning June 1,

20XX.

Processing of income tax returns and assessment of any taxes due will not be delayed
should a petition for declaratory judgment be filed under section 7428 of the Internal
Revenue Code.

If you decide to contest this determination in court, you must file a pleading seeking a
declaratory judgment in the United States Tax Court, the United States Court of Federal
Claims, or the United States District Court for the District of Columbia before the 91st
day after the date this final determination was mailed to you. Please contact the clerk
of the appropriate court for rules regarding filing pleadings for declaratory judgments
and refer to the enclosed Publication 892. You may write to these courts at the
following addresses:

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal
appeals process. The Taxpayer Advocate cannot reverse a legally correct tax
determination, or extend the time fixed by law that you have to file a petition in a United
States court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling. You
may call toll-free and ask for Taxpayer Advocate Assistance.

If you prefer, you may contact your local Taxpayer advocate at:

We will notify the appropriate State Officials of this action, as required by section
6104(c) of the Internal Revenue Code.

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

Sincerely Yours,

Marsha A. Ramirez
Director, EO Examinations

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer May 31, 20XX
ORG
LEGEND
ORG = Organization name XX = Date motto = motto
ISSUE:

Whether the organization is a charitable organization within the definition of 501(c)(3) of the
Internal Revenue Code.

FACTS:

ORG (ORG) was originally classified as a 501(c)(4). ORG is a club of adult men ranging from
the ages of 18 to 90 years old. The primary activity is motto on a local level. During the motto
season ORG also checks motto, motto, and motto to see that they meet specifications. There is a
yearly local tournament and banquet.

In 19XX the articles were amended to add, “Organized and operated at all times exclusively for
charitable and educational purposes to foster regional, national, and international motto
competition.” IRS reclassified the organization to a 501(c)(3).

The prior agent audited ORG several times and approved of their status as a 501(c)(3).

Law:

Internal Revenue Code 501(c)(3) grants exemption to an organization that is educational,
charitable, or fostering national or international amateur sports competition.

Amateur sports organizations may qualify under IRC 501(c)(3) in the following ways:

(1) The organization may be “educational” if it teaches sports to youth or is affiliated with
an exempt educational organization. (Section 1.501(c)(3)-1(d)(3) of the regulations.)

(2) The organization may be “charitable” if it develops, promotes, and regulates a sport for
youth. (Section 1.501(c)(3)-1(d)(2) of the regulations.)

(3) The organization is organized and operated to foster national or international amateur
sports competition, but does not provide athletic facilities or equipment.

(4) The organization is a “qualified amateur sports organization” under IRC 501(j)(2). IRC
501(j) requires the organization to be organized and operated exclusively to foster
national or international sports competition. It can do this by: (a) Conducting national or
international sports competitions; or (b) Supporting and developing amateur athletes for
national or international sports competitions

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer May 31, 20XX

ORG

IRC 501(j) allows the organization to provide facilities and equipment. An organization must
have links to national or international competition. An organization does not qualify under IRC

501(j) if its activities are merely local.

GOVERNMENT’S POSITION:

ORG (ORG) does not meet the requirements of a 501(c)(3). It is not educational, charitable, or
fostering national or international amateur sports competition.

TAXPAYER’S POSITION

The organization agrees with the revocation of their 501(c)(3) status.

CONCLUSION

ORG does not qualify as a 501(c)(3). Their primary activity is motto on a local level with adult
members. This is not educational, charitable, or fostering national or international competition.

Accordingly, the organization’s exempt status is revoked.

OTHER INFORMATION

Our review of your return, Form 990, and related records indicated that you failed to file all
required Forms 1099. Under Sections 6041 through 6050 of the Internal Revenue Code of 19XX,
you are required to file an information return, Form 1099, for payments of $ or more during a
calendar year made to individuals and unincorporated entities for rent, compensation, services, or
other fixed or determinable gains, profits, and income. Even though we have now obtained these
returns, your organization is responsible for timely filing the appropriate forms in the future

As part of our examination, we determined that you were not liable for filing Form 990-T on
unrelated business income. You are reminded that Form 990-T is required to be filed when you
have gross receipts from unrelated business activities in excess of $.

During our examination we noted that you did not report your group exemption on your Form

990. In the future, please record this number.

Our examination showed you did not maintain sufficient records regarding reimbursed expenses.
In the future, you should maintain adequate records.

Form 886-A (Rev.4-68) Department of the Treasury - Internal Revenue Service
Page: -2-

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Tax Exempt/Government Entities
1100 Commerce St.
TAX EXEMPT AND Dallas, TX 75242

GOVERNMENT ENTITIES
DIVISION

Taxpayer Identification Number:

ORG
ADDRESS Form:

Tax Year(s) Ended:
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

Certified Mail - Return Receipt Requested

Dear

We have enclosed a copy of our report of examination explaining why we believe
revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code

(Code) is necessary.
If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, you must submit to us a written
request for Appeals Office consideration within 30 days from the date of this letter to
protest our decision. Your protest should include a statement of the facts, the
applicable law, and arguments in support of your position.

An Appeals officer will review your case. The Appeals office is independent of the
Director, EO Examinations. The Appeals Office resolves most disputes informally and
promptly. The enclosed Publication 3498, The Examination Process, and Publication
892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain how to
appeal an Internal Revenue Service (IRS) decision. Publication 3498 also includes
information on your rights as a taxpayer and the IRS collection process.

You may also request that we refer this matter for technical advice as explained in
Publication 892. If we issue a determination letter to you based on technical advice, no
further administrative appeal is available to you within the IRS regarding the issue that
was the subject of the technical advice.

Letter 3618 (04-2002)
Catalog Number 34809F

If we do not hear from you within 30 days from the date of this letter, we will process
your case based on the recommendations shown in the report of examination. If you do
not protest this proposed determination within 30 days from the date of this letter, the
IRS will consider it to be a failure to exhaust your available administrative remedies.
Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree
under this section shall not be issued in any proceeding unless the Tax Court, the
Claims Court, or the District Court of the United States for the District of Columbia
determines that the organization involved has exhausted its administrative remedies
within the Internal Revenue Service." We will then issue a final revocation letter. We
will also notify the appropriate state officials of the revocation in accordance with section
6104(c) of the Code.

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal
appeals process. The Taxpayer Advocate cannot reverse a legally correct tax
determination, or extend the time fixed by law that you have to file a petition in a United
States court. The Taxpayer Advocate can, however, see that a tax matter that may not
have been resolved through normal channels gets prompt and proper handling. You
may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you
prefer, you may contact your local Taxpayer Advocate at:

If you have any questions, please call the contact person at the telephone number
shown in the heading of this letter. If you write, please provide a telephone number and
the most convenient time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

Marsha A. Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F