IRS classified an organization as a private foundation after it failed the public support test

View official IRS release (PDF)

Plain-English summary

The IRS determined that the organization was not a publicly supported charity under IRC § 509(a)(2). The released materials state that its public support test failed while its gross investment test passed, so it did not qualify under both requirements. The organization remained exempt under IRC § 501(c)(3), but its foundation classification and related filing and excise-tax consequences were addressed in the determination. The file includes the final determination and supporting public-support schedules.

Ruling snapshot

• Question: Did the organization satisfy the public support and gross investment tests for treatment under IRC § 509(a)(2)?
• Outcome: Other
• Key authorities: IRC §§ 170, 4941, 501, 509, and 7428

Full text (IRS public release)

internal Revenue Service — Department of the Treasury
Appeals Office

701 Market Street, Suite 2200 Person to Contact:
Philadelphia, PA 19106
Employee ID Number:
Date: August 13, 2010 Tel:
Fax:
Refer Reply to:
Number: 201044023 .
Release Date: 11/5/2010 In Re:
A Tax Period(s) Ended:
Form Number
Employer Identification Number
UIL - 0509 .01-01
CERTIFIED MAIL
Last Day to File a Petition with the _
United States Tax Court: Not Applicable
Dear

This is a final adverse determination regarding your private foundation classification under
Internal Revenue Code section 501(c)(3). Although you are exempt under Section 501(C)(3) of
the Code, you do not qualify as a public charity status under 509(a)(2), but as a private
foundation within the meaning of Section 509(a) of the Code effective December 29, 20xx.

Our adverse determination was made for the following reason(s):

Your organization failed to satisfy the requirements as a public charity under Section 509(a),
and you are considered privately supported. Your organization was funded primarily by
business interests of NN1, which are substantial contributors and therefore disqualified
persons. With little evidence of activities for solicitation of public support, you have not
established to the satisfaction of the Internal Revenue Service that you can meet the public
support requirements to be classified as a public charity.

Contributions to your organization are deductible under code section 170.

You are required to file Form 990-PF, Return of Private Foundation, for any years that are still
open under the statute of limitations.

You have waived your right to contest this determination under the declaratory judgment
provisions of Section 7428 of the Code by your execution of Form 906, Closing Agreement
Concerning Specific Matters, an executed copy of which is being sent to you under separate

cover.

_ You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
po "assistance is not a substitute for established IRS procedures such as the formal appeals process.

' ‘The Taxpayer Advocate is not able to reverse legally correct tax determinations, nor extend the
(og time fixed by law that you have to file a petition in the U.S. Tax 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. If you want Taxpayer Advocate assistance, please contact the
Taxpayer Advocate for the IRS office that issued this notice of deficiency. See the enclosed
Notice 1214, Helpful Contacts for Your “Notice of Deficiency”, for Taxpayer Advocate
telephone numbers and addresses.

Thank you for your cooperation.

Sincerely,

Zhul ALE

CHARLES FISHER
TEAM MANAGER

Enclosures:
Notice 1214 Helpful Contacts for your ‘Deficiency Notice’

2

wo

Internal Revenue Service Department of the Treasury
Director, Exempt Organizations P.O. Box 2508
Rulings and Agreements Cincinnati, Ohio 45201

mace: MAY 05 203
R=

Person to Contact - ID#:

Contact Telephone Numbers:

Federal Identification Number:

@ EIN=

Accounting Period Ending:

Dear

Based on the information supplied, and assuming your operations will be as
stated in your application for recognition of exemption, we have determined
you are exempt from Federal income tax under section 501(a)(3) of the
Internal Revenue Code as an organization described in section 501(c)(3).

We have further determined that, for the reasons set forth on Enclosure I,
you are a private foundation within the meaning of section 509(a) of the
Code. In this letter, we are not determining whether you are an operating
foundation as defined in section 4942(j)(3) of the Code.

This letter supersedes our letter dated December , 20

If your sources of support, or your purposes, character, or method of
operation change, please let us know so we can consider the effect of the
change on your exempt status and foundation status. Also, you should inform
us of all changes in your name or address.

As of January 1, 1984, you are liable for taxes under the Federal Insurance
Contributions Act (social security taxes) on remuneration of $100.00 or
more you pay to each of your employees during a calendar year. You are not
liable for the tax imposed under the Federal Unemployment Tax Act (FUTA).
However, since you are a private foundation, you are subject to excise
taxes under Chapter 42 of the Code. You may also be subject to other
Federal_excise taxes___If_yon have any questions about excise, employment,
or other Federal taxes, please let us know.

Donors may deduct contributions to you as provided in section 170 of the
Code. Bequests, legacies, devises, transfers, or gifts to you or for your
use are deductible’ for Federal estate and gift tax purposes if they meet
the applicable provisions of sections 2055, 2106, and 2522 of the Code.

You are required to file Form 990-PF, Return of Private Foundation or
Section 4947(a) (1) Trust Treated as a Private Foundation. Form 990-PF must
be filed by the 15™ day of the fifth month after the end of your annual
accounting period. A penalty of $20 a day is charged when a return is

Page 2

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filed late, unless there is reasonable
maximum penalty charged cannot exceed $10,000 or 5 percent of your gross
receipts for the year, whichever is less. For organizations with gross
receipts exceeding $1,000,000 in any year, the penalty is $100 per day per
return, unless there is reasonable cause for the delay. The maximum
penalty for an organization with gross receipts exceeding $1,000,000 shall
not exceed $50,000. This penalty may also be charged if a return is not
complete, so please be sure your return is complete before you file it.

cause for the delay. However, the

Federal income tax returns unless you are

ed business income under section 511 of the
Code. If you are subject to this tax, you must file an income tax return
on Form 990-T, Exempt Organization Business Income Tax Return. In this
letter we are not determining whether any of. your present or proposed
activities are unrelated trade or business as defined in section 513 of the

Code.

You are not required to file
subject to the tax on unrelat

You are required to make certain returns available for public inspection
for three years after the later of the due date of the return, or the date
the return is filed. The returns required to be made available for public
inspection are Form 990-PF, Return of Private Foundation or Section
4947(a) (1) Nonexempt Charitable Trust Treated as a Private Foundation, and
Form 4720, Return of Certain Excise Taxes on Charities and Other ‘Persons
Under Chapters 41 and 42 of the Internal Revenue Code. You, are also
required to make available for public inspection your exemption

application, any supporting documents, and your exemption letter. Copies

of these documents must be provided to any individual upon written or in
person request without charge other than reasonable fees for copying and
postage. You may fulfill this requirement by placing these documents on
the Internet. Penalties may be imposed for failure to comply with these
requirements. Additional information is available in Publication 557, Tax
Exempt Status for Your Organization, or you may call the number shown

above.

-You need an employer identification number even if you have no employees.

If an employer identification number was not entered on your application, a
j Please use

numbexr.will be assigned to you and you will be advised of it.
that number on all returns you file and in all correspondence wi

Internal Revenue Service.

are a private >

If you do not agree with our determination that you
atter by the Office of

foundation, you may request consideration of this m
Regional Director of Appeals.
| as explained in the enclosed Publication 892.
facts, law and any other information t
a hearing, please request it when you
contacted to arrange a date. The hearing may
office, or, if you request, at any mutually conven

To do this you should file a written appeal
your appeal should give the
o support your position. If you want
file your appeal and you will be

be held at the regional

gent district office. If

a en

Page 3

| aed

you are represented by someone who is not one of your principal officers,
that person will need to file a power of attorney or tax information

authorization with us.

If you do not appeal this determination on your private foundation status
within 30 days from the date of this letter, as explained in Publication
892, this letter will become our final determination on this matter. —
Further, if you do not appeal this determination within the time provided,
it will be considered by the Internal Revenue Service as a failure to
exhaust available administrative remedies. Section 7428 (b) (2) of the Code
provides, in part, that, “ 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
administrative remedies available to it within the Internal Revenue

Service.

If we have indicated in the heading of this letter that an addendum
applies, the addendum enclosed is an integral part of this letter.

Because this letter could help resolve any questions about your exempt
status and private foundation status, you should keep a copy of it in your
permanent records.

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

Sincerely, i

e .
reg ls ae ave iz ee ed
ost! oe? wen “. ay!

Robert S. Choi
Director, Exempt Organizations
Rulings and Agreements

Enclosure: Publication 892
Enclosure I

ENCLOSURE I ue

LEGEND
ORG= Name of organization x= Amount

NN= Name of individual X= Year
RR= Related organization EIN= EIN of the organization
UR= Unrelated organization FN= Family name

FACTS:

Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the
Internal Revenue Code, was submitted on January 22,200X. You were formed on
December 30, 200X, by the execution of a Trust Agreement by and among NN1, a
resident of and NN2, a resident of , referred to as the "Donors", and NN1,
resident of _ referred to as the "Trustee" Section 1.1 of the Trust states, "this trust is
established forthe purpose of alleviating poverty through micro-credit loans to those
unable to obtain conventional financing for education and business. Other purposes
included helping the poor and homeless; providing support to families with premature
and/or disabled children; providing support to families adopting or providing foster care
to children in need; providing educational opportunities to those unable to afford college
or technical school education; supporting moral and family values relating to self-
reliance and education; and supporting the missionary, humanitarian, and educational
efforts of

The supplemental information to Form 1023 stated that the primary activity of the
organization will focus on its goals of alleviating poverty and expanding self-reliance and
education. You will do this by extending micro-credit loans to individuals or small
businesses needing small amounts of capital to expand their businesses and
opportunities, but which do not qualify for, or are too small to be effectively served by
conventional financial sources or institutions. This activity will be conducted by the
board members who have experience in business capital and venture capital. At this
time the organization has not yet made any loans or provided any assistance to needed
families or businesses. In your letter dated June ,20 you stated that the micro loan
program is not expected to be anything but a small part of your activities.

Section 3.2 of the Trust document states, "the Board of Directors shall be comprised of
not fewer than three persons and no more than nine persons." The three Directors are
NN1, NN3, and NN4. NN‘ owns and controls several companies that may provide
office space and related services to the organization.

You requested an advance ruling under section 509(a)(2) of the Code. However, since
the Service no longer issues advance rulings you agreed to a definitive ruling.

Since the date your organization was formed you have received a total of $x. The
parties contributing the $x to your organization were: RR1, in the amount of $x; RR2 in
the amount of $x; and UR in the amount of $x. RR1 and RR2 are owned and/or
managed by a member of the FN family. UR is unrelated to the FN Family.

The narrative for Part V, Item 6a, page 4 states, "this charitable supporting organization
does not have a fund raising program, nor has it developed any program for fund-
raising, though it may do so in the future."

The narrative for Part VIII, Items 4a-b, Page 6 states, "fund-raising for this organization
will initially be limited to personal solicitations made by members of this organization's
board of directors to previously existing contacts. No other fundraising activities are
contemplated at this time, though they may occur in the future.”

This organization has a close relationship with ORG2 (Supporting Organization), with
which It shares its Board of Directors. In the minutes to the annual meeting for 200X it
included an acknowledgement that the applicant will be the primary charity of ORG2,
with which they will be operated and controlled.

LAW:

Section 509(a) of the Code defines a private foundation as any domestic or foreign
organization described in IRC 501(c)(3) other than an organization referred to in IRC

509(1), (2), (3), or (4).

Sections 509(a\1) and 170(b)(1)(A)(vi) of the Code describes an organization which
normally receives a substantial part of its support from a governmental unit or from —
direct or indirect contributions from the general public.

Section 509(a)(2) of the Code describes an organization that receives no more than
one-third of its support from gross investment income and more than one-third of its

support in each tax year from any combination of the following:

a) gifts, grants, contributions or membership fees from other than a disqualified person,
and

b) gross receipts from admissions, sales of merchandise, performance of services or
furnishings of facilities, in an activity that is not an unrelated trade or business (to the
extent that gross receipts from any person, or bureau or similar agency of a
governmental unit do not exceed the greater of $5,000 or 4 percent of the organization

total support in that year).

Section 509(a)(3) of the Code describes an organization which is operated solely for the
benefit of or in connection with one or more organizations described in sections

509(a)(1) or 509(a)(2) of the Code.

Section 509(a)(4) of the Code describes an organization that is organized and operated
exclusively for testing for public safety.

Section 507 (d)(2) of the Code provides that the term "substantial contributor" means

more than $5,000, if such amount is more that 2 percent of the total contributions

received before the close of the taxable year in which the contribution is received from
such person.

Section 4946 (a)(1) (C) of the Code includes in the definition of a disqualified person an
owner of more than 20 percent of : ,

(i) the total combined voting power of a corporation

(ii) the profit interest of a partnership

(iii) the beneficial interest of a trust or unincorporated enterprise, which is a substantial
contributor to the foundation.

Section 1.170A-9T(f)(3)(ii) of the Regulations states in part, “an organization must be so
organized and operated as to attract new and additional public and government support
on a continuous basis. An organization will be considered to meet this requirement if it
maintains a continuous and bona fide program for solicitation of funds from the general
public, community, or membership group involved, or if it carries on activities designed
to attract support from government units or other organizations described in section
170(b)(1)(A)(i) through (vi). In determining whether an organization maintains a
continuous and bona fide program for solicitation of funds from the general public or
community, consideration will be given to whether the scope of its fund raising activities
is reasonable in light of its charitable activities."

Section 1.170a-9T(f)(3)iii)(D)(3) of the Regulations states that the following factors will
also be considered evidence that an organization is "publicly supported”:

(1) The participation in, or sponsorship of, the programs of the organization by member
of the public having special knowledge or expertise, public officials, or civic, or
community leaders;

(2) The maintenance of a definitive program by an organization to accomplish its
charitable work in the community, such as slum clearance or developing employment
opportunities; and

(3) The receipt of a significant part of its funds from a public or governmental agency to
which it is in some way held accountable as a condition of the grant, contract, or
contribution. ;

Section 1.509(a)-3(d)(I) of the Regulations states in part, “such an advance ruling or
determination letter may be issued if the organization can reasonably be expected to

_ meet the requirements of paragraph (a) of this section during the advance ruling period.
The issuance of a ruling or determination letter will be discretionary with the
Commissioner."

Section 1.509(a):3(d)(2) of the Regulations states in part, "while the factors which are
relevant to this determination, and the weight accorded to each of them, may differ from
case to case, depending on the nature and functions of the organization, a favorable
determination will not be made where the facts indicate that an organization is likely
during its advanced ruling or extended advance ruling period to receive less than one-
third of its support from permitted sources (subject to the limitation of paragraph b of this
section) or to receive more than one-third of its support from items described in —
509(a)(2)(B).”

Section 1.509(a)-3(d)(3) of the Regulations states, “all pertinent facts and circumstances
shall be taken into account under subparagraph (2) of the paragraph in determining
whether the organization structure, programs, or activities and method of operation of
an organization are such to enable it to meet the tests under section 509(a){2) for its
advance or extended advance ruling period." |

APPLICATION:

In your application you requested to be exempt under section 509(a)(2). Organizations
described in section 509(a)(2) of the Code must meet the support test provided in
section 509(a)(2)(A) and 509(a)(2)(B) of the Code. In determining whether or not such
tests are met, an organization must normally receive more than one-third of its support
from any combination of gifts, grants, contributions, or membership fees; gross receipts

from admission, sales of merchandise, performance of services, or furnishing of
facilities, in an activity which is not unrelated trade or business (within the meaning of
section 513 of the Code), not including such receipts from any person, or from any
bureau or agency of a governmental unit, in excess of the greater of $5,000 or 1 percent
of the organization's support in such taxable year, and normally not more than one third
of its support from investment income.

Your organization has been in operation for over three years. During that time you
received three contributions totaling $x. Two of the three contributors are for profit
entities that are owned and/or managed by members of the FN family. The other
contributor is an unrelated for profit entity. .

We considered your request for a definitive ruling under section 509(a)(2) and
determined that you did not meet the 33 1/3 support test. Since your organization was
formed you have received three contributions each in excess of $5,000. The
contributions were for $x, $x, and $x. These contributions would be considered as
received from substantial contributors. Included in the definition of disqualified persons
is a substantial contributor to the Foundation. Therefore, the contributions of $x, $x. and
$x are excluded from the calculation of the 33 1/3 percent-of-support-test.

Your percentage of public support under section 509(a)(2) was determined to be 0
percent (0/$x). Accordingly, you do not meet the 33 1/3 percent-of-support as required
by section 509(a)(2) of the Code.

You do not meet the support test described in Sections 509(a)(1) and 170(b)(1)(A)(vi) of
the Code. Since you were formed in 200X you received $x in contributions from three
contributors. The amounts given were more than 2 percent of your gross income.
Therefore, in calculating your percentage of public support, we calculated 6 percent of
public support ($x/$x). .

You do not meet the facts and circumstances test described in Section 1. 170A-9(e)(3)

of the Regulations, since you received less than 10 percent in public support. Therefore,
you are not an organization described in sections 509(a)(1) and 170(b)(1)(A){vi) of the
Code.

You are not an organization described in section 509(a)(3) of the Code because you are
not organized and operated solely for the benefit of, or in connection with one or more
of the organizations described in sections 509(a)(1) or 509(a)(2) of the Code.

You are not an organization described in section 509(a)(4) of the Code because you are
not operated and organized for public safety.

We considered if your organization would pass the support test by December 31,200X.
which is the end of your fifth fiscal year. Based on the facts submitted we determined
that you would not reasonably be expected to pass the public support test describe in
section 509(a)(2) of the Code during this time. Part Vill, item 4 on page 6 of your
application indicates that you would conduct the following fundraising programs: mail
solicitations, personal solicitations, foundation solicitations, phone solicitations, accept
donations on your website, and government grant solicitations. The application asks
that you attach a description of each fundraising program. In your narrative you said that
fundraising for this organization will initially be limited to personal solicitation made by
members of the organization's Board of Directors to previously-existing contacts and
that no other fund-raising activities are contemplated at this time, though they may
occur in the future.

We requested that you provide a detailed description of your fundraising activities. In
your letter dated June ,20 you reiterated what was said in your application that
fund raising will be limited to personal solicitations made by the Board of Directors. Your
organization does not maintain a continuous and bona fide program for solicitation of
funds from the general public.

As required by section 1.509(a)-3(d)(3) of the regulations all pertinent facts and
circumstances shall be taken into account in determining whether an organization will
likely pass the public support test described in section 509(a)(2). This includes
organizational structure, programs, or activities and method of operation. Your
organization was formed December 30, 20__. During that time you received funding
from limited sources, and your future fundraising programs will be the same.

Your organization is structured to give control to the FN family. The Trust is between
NN1 and NN2 (Donors) and NN1 (Trustee). Your organization has three board
members, but all of the power and authority is given to the Trustee as outlined in

Section 4.6 of the trust document. There is no indication in the application or in the
minutes to the board meetings that your organization has appointed any officers. The
trust document does not contain any provisions to establish a fundraising committee
and the minutes of the board meetings (which meet annually) do not include any
discussions on how to raise funds. In addition, NN1 and his related companies have
donated $x to the organization and provide office space and related services to the
organization. Your organizational structure is similar to a private foundation and not a
public charity. ,

Thus far your organization has distributed $x to other 501(c)(3) organizations. No other
charitable activity has been conducted. In your application you stated that your primary
activity will be conducting micro-credit loans to individuals and businesses. In your letter
dated April ,20 you stated that this activity will be conducted by the Board of
Directors, citing their individual expertise in business, venture capital, or non profit
organizations activities which will enable you to conduct this program effectively. When
we requested additional information on this activity you stated that the micro loan
program is not expected to be anything but a small part of your activities and may not
even be conducted at all as you do not have experience with this activity.

The minutes of your board meetings did not discuss this activity or any other charitable
activity. The only charitable activity that was discussed in your meetings was distributing
funds to other tax exempt organizations, an activity that is consistent with most private
foundations. Hence, there is no reasonable expectation of funding from the general
public.

APPLICANT'S POSITION

In your protest you identified three issues to substantiate your position that you should
qualify as a public charity and not a private foundation. a

Issue 1. You state that you can reasonably expect to pass the public support test once
you receive your determination letter. You have been unable to commence an active
fund raising program because you have not received a determination letter on which
contributors could rely in making charitable contributions. Since you received a
determination letter that you are a private foundation you have begun a fund raising
program with the general public. This will be conducted by the directors and will be
primarily by word of mouth and telephone solicitations.

Issue 2. You maintain the position that the board is comprised of three unrelated
individuals and is not controlled by anyone board member or the FN Family. You refer
to Section 3.11 of the Trust Agreement that states that a director may be removed with
or without cause, by a majority vote of the other directors; and Section 3.8 of the Trust
Agreement that states a majority of the directors shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. You refer us to Reg.
1.170A-9T(f)(3)(iii)(C) that states, “the fact that an organization has a governing body
which represents the broad interests of the public, rather than the personal or private

interest of a limited number of donors, will be taken into account in determining whether
an organization is “publicly supported."

Issue 3. Lastly, you state that you are structured to pursue direct-and indirect charitable
activities because you have made contributions to organizations that are tax exempt
under section 501(c)(3) of the Code. You refer to Fund for Anonymous Gifts v. Internal
Revenue Service, 194 F3rd. 173 (1999), in which the Court held that a charitable entity
was exempt even though substantially all of its receipts would be donated to other
approved charities. You also refer to section 1.1 of the Trust Agreement that states that
you are formed for charitable purposes and no part of the net earnings will inure to any
of the board members.

SERVICE POSITION

Issue 1. During the entire determination process you maintained that fundraising will be
limited to personal solicitations by the directors and you will not maintain a continuous
and bona fide program to solicit funds from the general public. Several times in our
correspondence we asked how you will be publicly supported and you maintained that.
your fund raising will be limited to personal solicitation by the directors.

In your protest letter you reiterated the same position without going into further detail on
how you will raise additional funds. In addition, you did not specify how much you
expect to raise. Your organization did not mention if it will apply for government grants
or grants from other tax exempt entities.

Your main argument is that you are unable to raise funds since you did not have a
determination letter. Now that you have a determination letter you will be able to raise
additional funds and you could apply for a Solicitation Permit which will allow you
to expand your fund raising efforts.

Looking at the three year history of your organization there is nothing that suggests you
will actually make a reasonable effort to raise additional funds if you are given public
charity status. Thus far your organization has received three donations for a total of $x.
For your organization to pass the support test you would have to receive a significant
amount of contributions from a number of donors to pass the support test by the end of
200X. The fund raising will be done by the three board members that will devote four
hours per week to the organization. Per the application, the duties they will perform
include management, administration, and oversight. Furthermore, your board only
meets once a year and per the minutes of those meetings, fund raising was never
discussed and did not even appear to be an issue.

Your organization will also be a supported organization for ORG2. Their purpose is to -
raise funds and donate the proceeds to your organization. However, that organization is

not tax exempt under section 501(c)(3) of the Code and is not generating any income.
Therefore, you have lost your main source of support. :

Further, section 1. 170a-9T(f)(3Xiii)(D)(3) of the Regulations states that the following
factors will also be considered evidence that an organization is "publicly supported”:

(1) The participation in, or sponsorship of, the programs of the organization by member
of the public having special knowledge or expertise, public officials, or civic, or
community leaders; ,

(2) The maintenance of a definitive program by an organization to accomplish its’
charitable work in the community, such as slum clearance or developing employment
opportunities; and

(3) The receipt of a significant part of its funds from a public or governmental agency to
which it is in some way held accountable as a condition of the grant, contract, or
contribution.

Your organization has not been consistent in the information that has been submitted.
On page 6 of the application you indicated that you will receive funding from mail
solicitations, personal solicitations, foundation grants, phone solicitations, donations
from your website, and government grants. However, in the narrative to these items you
stated in part, "fundraising for this organization will initially be limited to personal
solicitations made by members of the organization's Board of Directors to previously
existing contacts. No other fund raising activities are contemplated at this time, though
they may occur in the future.” ;

Furthermore, you have been inconsistent in describing the activities that you will be

• conducting. In the initial application you stated that you would be extending micro-credit

loans to individuals and small businesses. When we requested detailed information on
this activity you said that this will only be a small part of your activities, and the micro-
credit loan program will not be pursued in the near future, if at all. In your protest letter
dated January ,20 you nowstate that the purpose of the Foundation is alleviating
poverty through providing micro-credit loans.

Thus you do not meet the requirements to satisfy us that you are publicly supported.
You have not demonstrated that you have a definitive program of charitable activities,
that you will have the participation of members of the public with expertise in charitable
programs, or that a significant part of your funds will come from the public or from
government agencies.

Issue 2. Your position is that you are not controlled by the FN Family because the board
is comprised of three unrelated individuals. You cited Reg. 1.170a-9T(F)(3)(iiiI(C)(3) on -
the makeup of an acceptable governing Board.

individuals you have not demonstrated that your organization is not indirectly controlled
by the FN Family. NN1 is the "Donor" and the "Trustee”. Section 4.6 of the Trust
describes the powers granted to the Trustee. Even though the powers of the Trustee
may be exercised, prohibited, limited, restricted, or supplemented by the Board of
Directors there is no evidence that they ever exercised that right. It appears that the
board of directors simply sign off on the actions taken by the Trustee.

Issue 3. Finally, the Service never stated that your organization is not organized and
operated for charitable purposes. We agree that giving funds to organizations that are
exempt under section 501(c)(3) is a charitable purpose. This is also an activity that is
conducted by private foundations and public charities. Public charities often conduct .
charitable activities in addition to providing funds to other organizations, whereas private
foundations are more likely to restrict their charitable activities to grant-making, without
conducting other charitable programs. Your organization qualifies as a charitable private
foundation, but not as a public charity.

CONCLUSION

In conclusion, your organization is structured as such that the trustee controls the
organization, you have very limited fundraising plans, and you are not conducting any
501(c)(3) activities other than making distributions to other 501(c)3) organizations.
Based on the information submitted your organization cannot reasonably be expected to

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Even though your organization's Board of Directors is comprised of three unrelated !
meet the requirements of paragraph 509(a) during the advance ruling period.

Exhibit 1

Name: [illegible]
EIN: [illegible]
Period: 200[illegible]-200[illegible]

SUPPORT TEST COMPUTATION FOR IRC 509(a)(1) ORGANIZATIONS

Public Support Test results: TEST FAILED

PUBLIC SUPPORT TEST

1. Gifts, grants, and contributions received........................ [illegible]
   (DO NOT INCLUDE UNUSUAL GRANTS)
2. Membership fees received......................................... [illegible]
3. Exempt function income........................................... [illegible]
4. Interest, dividends, etc......................................... [illegible]
5. Net income from Unrelated Business activity (UBI)................ [illegible]
6. Tax revenues levied for organization-benefit..................... [illegible]
7. Value of services or facilities furnished by governmental unit... [illegible]

8. Other income (Do not include gain/loss from sale................. [illegible]
   of capital assets)

9. Total of lines 1 through 8........................................ $ 24,000

10. Total support revenue for 509(a)(1) calculation
    (Denominator): Line 9 - line 3................................... $ 24,000

11. Total of lines 1, 2, 6, and 7.................................... $ 24,000

12. 2% of Total support revenue for 509(a)(1), (line 10 x 2%)........ $ 480

13. Amount disallowed by contributors who gave in excess of 2%...... $ 22,560

14. Public support (Numerator): Line 11 - line 13.................... $ 1,440

15. Percentage of public support (line 14 / line 10)................. 6.00%

Contributors exceeding 2% of Line 10 Total Support

Name(s) of Contributors Amount
Contributed

1. [illegible]
2. [illegible]
3. [illegible]
4. [illegible]
5. [illegible]
6. [illegible]
7. [illegible]
8. [illegible]
9. [illegible]
10. [illegible]
    Total $ 24,000

NOTE: If there are more than 10 contributors exceeding 2% of total support, continue
on next sheet.

Exhibit 2 ° ,

EIN:
Period: 20¢20@

SUPPORT TEST COMPUTATION FOR IRC 509(a)(2) ORGANIZATIONS

Public Support Test results: TEST FAILED

Gross Investment Test results; TEST PASSED
Both tests must be passed to qualify for IRC 509(a)(2).
PUBLIC SUPPORT TEST

1. Gifts, grants, and contributions reCelved............esrcsserrssrersesnrresseronses $ 24,000
   (DO NOT INCLUDE UNUSUAL GRANTS)
2. Membership fees received.............ccccseees svasessnesasceneseeses soneavesevessecee
3. Exempt function income..........ccccscccssscsenserececceennescessoncr ever sesenseseecs
4. Interest, dividends, etc......... evuevenennscecsteccrsnsscsocarovaceucecencoueseeseeeens
   _ 5. Netincome from Unrelated Business activity (UBI)...........6 Teecsecesecsersoes
5. Taxrevenues levied for organization benefit............sssseessennarcetetseeees
   7 .. Value of services or facilities furnished by governmental uniIt.......+-eeeee

6. Other income (Do not include gain/loss from sale............:.+2000 do eeseeeees
   of capital assets) — Oy Lo .
   9 . Total of lines 1 through 8...........sccccecssccsssnensersoensssessencveeeeseseneeeceees $ 24,000
   10 . Add lines 1,2,3,6 Ad 7o...n ccc ccccsrerscersssrsccecseeneren ones eneeaes ie oeeceesees $ ° 24,000

7. Deduct: a. Income from disqualified persons
   See details on Schedule A...............ccccescsresseceesecaseeeestenecens | 24,000

b. Excess exempt function income ,
See details on Schedule B.............::ccsccscnecne cee seeare reson sen eee

12. Line 10 less lines 11a & 11b = public support (numerator).........eeecer $
    13 . Total support from line 9 (denominator)............sssererereseeerrerersereetseees $ . 24,000

13. Public support percentage (line FQIA3). ee csccee censor snecse nee censaeenecen snore 0.00%

Gross Investment Test

15 . Investment Income from line 4.........ssceeesseessseseneeseessessesenaneotentans .
16 . Unrelated business income on line 5 less tax paid............ceeseerrererees :

17. Total of lines 15 and 16 (numerator)...........cseececccreeeeree Leeeecccesseeeeteeeens :
    18 . Total support from line 9 (denominator).........ccsesecessserseneeorerreceteceeees 24,000

19 , Gross investment percentage (line 17/lime 18)...............ceessereerereee nee 0.00%

Lass

Name:
EIN:
Period:

Total(Report pa ge 1

Schedule B, Exclusion of Excess Exempt Function Income

Year 1 Year 2 Year 3 Year 4 Year 5
Total support

1% of total support 70 120} - 50 0 0
Greater amount $5000 or 1% $ 5,000) $ 5,000|$ 5,000/$ 5,000|$ 5,000

Exempt function income, payers exceeding the greater of $5000 or 1%

Total disqualified exempt
function income - (report on page 1, line 11b). $