IRS denies exemption to a fundraising organization supporting a foreign research project

Plain-English summary

The IRS denied a U.S. organization's application for recognition under IRC § 501(c)(3). The organization raised funds for a foreign organization and said its money supported rabbis researching and publishing ancient Jewish legal texts, but it also described itself as a fundraising arm and had not held the board meetings required by its bylaws. The IRS found that it lacked control and discretion over funds sent abroad, did not keep adequate records identifying recipients or uses, and could not show that distributions served public rather than private interests. The determination concluded that the organization failed the operational test and that contributions to it were not deductible under IRC § 170.

Ruling snapshot

• Question: Did the organization qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6104(c), 6110, and 7428(b)(2); Treas. Reg. §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(c)(1), and 1.501(c)(3)-1(d)(1)(ii); Rev. Ruls. 56-304, 63-252, and 66-79.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Release Number: 201215011 Contact Person:
Release Date: 4/13/2012
Date: January 18, 2012 Identification Number:
UIL Code: 501.03-00
501.03-05 Contact Number:
501.03-15
501.03-03 Employer Identification Number:
Form Required To Be Filed:
Tax Years:
All Years
Dear

This is our final determination that you do not qualify for exemption from Federal income tax as
an organization described in Internal Revenue Code section 501(c)(3). Recently, we sent you a
letter in response to your application that proposed an adverse determination. The letter
explained the facts, law and rationale, and gave you 30 days to file a protest. Since we did not
receive a protest within the requisite 30 days, the proposed adverse determination is now final.

Since you do not qualify for exemption as an organization described in Code section 501(c)(3),
donors may not deduct contributions to you under Code section 170. You must file Federal
income tax returns on the form and for the years listed above within 30 days of this letter, unless
you request an extension of time to file.

We will make this letter and our proposed adverse determination letter available for public
inspection under Code section 6110, after deleting certain identifying information. Please read
the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, you should follow
the instructions in Notice 437. If you agree with our deletions, you do not need to take any
further action.

In accordance with Code section 6104(c), we will notify the appropriate State officials of our
determination by sending them a copy of this final letter and the proposed adverse letter. You
should contact your State officials if you have any questions about how this determination may
affect your State responsibilities and requirements.

Letter 4038(CG) (11-2005)
Catalog Number 47632S

2

If you have any questions about this letter, please contact the person whose name and
telephone number are shown in the heading of this letter. If you have any questions about your
Federal income tax status and responsibilities, please contact IRS Customer Service at
1-800-829-1040 or the IRS Customer Service number for businesses, 1-800-829-4933. The
IRS Customer Service number for people with hearing impairments is 1-800-829-4059.

Sincerely,

Lois Lerner
Director, Exempt Organizations

Enclosure
Notice 437
Redacted Proposed Adverse Determination Letter
Redacted Final Adverse Determination Letter

Letter 4038(CG) (11-2005)
Catalog Number 47632S

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Date: November 29, 2011 Contact Person:
Identification Number:
Contact Number:
FAX Number:
Employer Identification Number:
Legend: UIL Numbers:
501.03-00
B = Individual 501.03-05
M= State 501.03-15
R= Company 501.03-30

W = Organization

X= Foreign City

Y = Foreign Country

Z = Foreign Organization
x= Date

Dear

We have considered your application for recognition of exemption from federal income
tax under Internal Revenue Code section 501(a). Based on the information provided,
we have concluded that you do not qualify for exemption under Code section 501(c)(3).
The basis for our conclusion is set forth below.

Issue

Do you fail to meet the operational test of IRC 501(c)(3)? Yes, for the reasons
described below.

Facts

You were incorporated pursuant to the Non-Profit Corporation Law in the State of M on
date x. Your articles indicate you were formed, in part, to create, form and establish a
charitable organization to benefit needy families in foreign country Y; to promote, further
and support selected charitable activities through grants, funding and financial
assistance to various individuals, institutions and organizations dedicated to the aid and
assistance of needy families in the foreign country of Y; to aid, encourage, stimulate,
foster and promote charitable and benevolent activities through grants, bequests, gifts
or otherwise to individuals, groups, institutions and organizations dedicated to the
benefit of needy families in the foreign country Y.

Your bylaws state that you were formed to receive charitable contributions and
distribute them to needy individuals and schools to further Jewish education. They also
state a regular meeting will be held each January 1st and July 1st.

As a part of your application for recognition of exemption you submitted a narrative
description of activities which stated you “would like to raise money from the directors
and from their contacts to help a religious school in the foreign country Y, which is also
called foreign organization Z, meet its budgetary needs.” You further stated you “will
only dispense funds to that one school in the foreign country of Y.” You said you are
“limited to raising funds for the school in the foreign country of Y.” The school in the
foreign country Y is located in the city of X. The money you raise is used to help the
foreign organization cover the scholarships it gives out to those students who cannot
afford all or part of the tuition necessary to balance the budget.

The narrative also indicates your directors frequent foreign country Y several times per
year and will supervise the use of the funds raised to ensure they will actually be used
exclusively for school purposes. You said at the present you do not have a written
contract with foreign organization Z. You stated that you will require foreign
organization Z to submit financial data on a monthly basis.

Your narrative continued by stating your directors have no relationship with foreign
organization Z, other than the headmaster of foreign organization Z had asked you to
undertake this project. You said your contributors are told the funds are going
exclusively to foreign organization Z, but if the school is found to be lacking, the funds
already collected will then be used for another school located in the foreign country of Y.

After we contacted you regarding your application for exemption, you submitted a letter
stating you would like for us to “please disregard the old narrative.” You then submitted
a new narrative. The revised narrative stated there is an organization in the foreign
country of Y that was formed 20 years ago for the purpose of reprinting and editing the
central Jewish legal code. You stated foreign organization Z had handpicked a group of
about fifteen rabbis, who are experts in Jewish law, to research old manuscripts of the

3

code in order to correct errors. You stated your primary purpose is to provide grants to
these rabbis to enable them to do their work. You stated all of these activities take
place in the foreign country Y and “the American branch of this organization was formed
for the purpose of helping to raise funds for this worthy project that is revolutionizing the
study and practice of Jewish law.” We asked why the purposes changed. You said you
have always been an organization that raises money to fund the research and
publication of ancient Jewish legal texts and that the officers relied on their previous
accountant to prepare the old narrative and application which erroneously described
their activities.

We asked for copies of the minutes from each of your board meetings. You responded
by saying “the American branch of the organization has only the fundraising function.

All board meetings and operational decisions are made by the organization in the
foreign country of Y.” We asked nine questions seeking details of your grant making
program. These questions included, in part; how you review and approve grant
applications, how the foreign organization certifies funds will be used for charitable
purposes, and if contributions to you by individuals are earmarked. We also asked for
you to explain, in detail, how you have full control of the donated funds and full
discretion over their use. You did not directly or specifically answer any of these
questions. You responded to all of these inquires by saying “the U.S. organization (you)
only gives grants to the foreign organization or directly to the individuals who are doing
the research for the organization located in the foreign country Y.” You further stated all
of the individuals that receive funds are located in foreign country Y.

Your initial Form 1023 was filed with our office in the last quarter of your second
calendar year of existence. The financial data provided with your application showed
proposed revenue for the first three years totaling less than $

Upon our request, you submitted a list of donors to your organization. The list included

over $ in donations from a private foundation in your first year of existence. This
was excluded from the financial data you submitted with your Form 1023 even though it
had already been received by you the year before you submitted the application. When
we asked why these substantial donations were excluded, you said these checks “were
sent directly to the foreign country Y and did not go through the US bank account.”

We then asked you to submit actual financial data. You provided data that showed you
received almost $ in your first three years.

You submitted a copy of the single Form 990 that you had filed. The Form 990 showed
all of your expenditures went straight to foreign organization Z. Further, your Form 990
also included a statement that “the organization raises funds for an org. in foreign
country Y that is researching and editing the Code of Jewish Law, as well as obtaining
and publishing never before printed commentaries.”

4

You submitted copies of your bank statements during the processing of your application
for exemption. The bank statements showed payments made to a domestic, non-profit
organization. We asked about these payments and you said “the chief editor came from
the foreign country of Y to raise funds and the organization was short of funds to cover
his expenses.” You said “they borrowed money from domestic organization W and then
reimbursed them.” Per your bank statements, you reimbursed the domestic
organization W, not the foreign organization Z.

Your bank statements included copies of four cancelled checks. These checks were all
written on the same day and were also cashed in foreign country Y on the same day
they were written. However, you said that your checkbook is kept in the United States.
The four checks totaled almost $ Each of the checks had the same six digit
number that appears to have been stamped by the bank at the upper right hand corner.
The checks were written to four separate individuals. They were each made payable to
the first name “E” and surnames were not legible. However, the surnames did not
appear to be the same.

Your bank statements also included many transfers to other accounts. We asked you to
provide a detailed explanation regarding the nature of these transfers and whether or
not you had other bank or investment accounts. You responded “these transfers are
reimbursements for fundraising expenses.” We asked for specific details regarding a
large wire transfer you made, including the recipient's name and purpose. You
responded “the wire was sent to the foreign country Y to cover the checks that were
returned. The money was originally sent to the foreign country Y branch of the
organization to fund operations.”

The signatures included on your responses to requests for additional information were
not legible. We asked who was signing the responses and you said it was individual B.
You then said he was a volunteer officer and had been serving in that capacity since
2007. Individual A was not included in the listing of your board members, officers and
directors on your initial Form 1023. You indicated he lives in the United States and he
also writes all of the checks.

We asked how you ensure control is maintained over funds you send to the foreign
country Y and for you to explain your procedures. You stated you “have online access
to their accounts” and that you “periodically check and monitor the transactions to
ensure that all monies sent are received and are properly distributed by the foreign
organization Z.” You also said the organization in the foreign country Y was formed
over 15 years ago. You said they were raising money from US citizens without an
official organization and without providing a tax exemption. They decided to open an
American non-profit in the US and previous donations were entered into the books for
record keeping purposes.

5

We requested a representative sample of your cancelled checks. In one particular
month four checks were made payable to check cashing company R, located in the
foreign country Y. A stamp was used rather than there being a handwritten name in the
“Pay to the Oder of” line of the checks. Also, the checks were all stamped (again, not
handwritten) on the same date. The four checks totaled approximately $ You
said these checks were a repayment of a loan that the organization in the foreign
country Y took out in order to cover operating expenses. You provided no further
details or documentation regarding these transactions or the loan.

During another month, several large checks also cleared your account that were made
payable to the foreign check cashing company R. We asked why you were writing
checks to a check cashing company. You said when an American check is deposited
into a bank in the foreign country Y, it takes about three weeks to clear and the
exchange rate is not favorable. You said the bank also charges high foreign check
fees. You said often times the money is needed immediately to fund the ongoing
expenses of the organization. You purport that using a money exchange service allows
you to get immediate funds at more favorable exchange rates with lower fees.

Law

Section 501(c)(3) of the Internal Revenue Code (Code) provides for the recognition of
exemption of organizations that are organized and operated exclusively for charitable,
religious or educational purposes, where no part of the net earnings inures to the benefit
of any private shareholder or individual.

Section 1.501 (c)(3)-1(a)(1) of the regulations states that, in order to be exempt as an
organization described in section 501(c)(3) of the Code, 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.

Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will be
regarded as operated exclusively for one or more exempt purposes only if it engages
primarily in activities which accomplish one or more of such exempt purposes specified
in section 501(c)(3) of the Code. An organization will not be so regarded if more than
an insubstantial part of its activities in not in furtherance of an exempt purpose.

Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides that an organization is not
organized or operated exclusively for any of the purposes specified in section 501(c)(3)
of the Code unless it serves a public rather than a private interest.

Section 1.501(c)(3)-1(d)(2) of the regulations defines the term “charitable” as including
the relief of the poor and distressed or of the underprivileged, and the promotion of
social welfare by organizations designed to lessen neighborhood tensions, to eliminate

6

prejudice and discrimination, or to combat community deterioration. The term
“charitable” also includes the lessening of the burdens of government.

Rev. Rul. 56-304, 1956-2 C.B. 306 states that an organization which otherwise meets
the requirements for exemption from federal income tax are not precluded from making
distributions of their funds to individuals, provided such distributions are made on a true
charitable basis in furtherance of the purposes for which they are organized. However,
organizations of this character which make such distributions should maintain adequate
records and case histories to show the name and address of each recipient of aid; the
amount distributed to each; the purpose for which the aid was given; the manner in
which the recipient was selected and the relationship, if any, between the recipient and
(1) members, officers, or trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of either, and (3) a corporation
controlled by a grantor or substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the Internal Revenue Service.

Rev. Rul. 63-252, 1963-2 C.B. 101, states that contributions to certain domestic
charitable organizations are deductible if it can be shown that the gift is, in fact, to or for
the use of the domestic organization, and that the domestic organization is not serving
as an agent for, or channel for, a foreign charitable organization. In reaching this
conclusion, the revenue ruling states that it seems clear that the requirements of section
170(c)(2)(A) of the Code would be nullified if contributions inevitably committed to go to
a foreign organization were held to be deductible solely because, in the course of
transmittal to the foreign organization, they came to rest momentarily in a qualifying
domestic organization. In such cases, the domestic organization is only nominally the
donee; the real donee is the ultimate foreign recipient. In each case, the question to be
decided is whether the amounts paid to the domestic organization are deductible under
section 170(a) of the Code:

(1) In pursuance of a plan to solicit funds in this country, a foreign organization caused a
domestic organization to be formed. At the time of formation, it was proposed that the
domestic organization would conduct a fund-raising campaign, pay the administrative
expenses from the collected fund and remit any balance to the foreign organization.

(2) Certain persons in this country, desirous of furthering a foreign organization's work,
formed a charitable organization within the United States. The charter of the domestic
organization provides that it will receive contributions and send them, at convenient
intervals, to the foreign organization.

(3) A foreign organization entered into an agreement with a domestic organization which
provides that the domestic organization will conduct a fund-raising campaign on behalf
of the foreign organization. The domestic organization has previously received a ruling
that contributions to it are deductible under section 170 of the Code. In conducting the

7

campaign, the domestic organization represents to prospective contributors that the
raised funds will go to the foreign organization.

(4) A domestic organization conducts a variety of charitable activities in a foreign
country. Where its purposes can be furthered by granting funds to charitable groups
organized in the foreign country, the domestic organization makes such grants for
purposes which it has reviewed and approved. The grants are paid from its general
funds and although the organization solicits from the public, no special fund is raised by
a solicitation on behalf of particular foreign organizations.

(5) A domestic organization, which does charitable work in a foreign country, formed a
subsidiary in that country to facilitate its operations there. The foreign organization was
formed for purposes of administrative convenience and the domestic organization
controls every facet of its operations. In the past the domestic organization solicited
contributions for the specific purpose of carrying out its charitable activities in the foreign
country and it will continue to do so in the future. However, following the formation of the
foreign subsidiary, the domestic organization will transmit funds it receives for its foreign
charitable activities directly to that organization.

Rev. Rul. 66-79, 1966-1 C.B. 48, amplifies Rev. Rul. 63-252 to provide that
contributions to a domestic charity that are solicited for a specific project of a foreign
charitable organization are deductible under section 170 of the Code if the domestic
charity has reviewed and approved the project as being in furtherance of its own exempt
purposes and has control and discretion as to the use of the contributions. This
conclusion is reached because the contributions received by the domestic charity are
regarded as for the use of the domestic organization and not the foreign organization
receiving the grant from the domestic organization.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179
(1945), the Supreme Court held that the presence of a single non-exempt purpose, if
substantial in nature, will destroy a claim for exemption regardless of the number or
importance of truly exempt purposes.

In Church in Boston v. Commissioner, 71 T.C. 102 (1978), the court found that the
organization’s officers received amounts of money in the form of “grants.” These grants
carried with them no legal obligation to repay any interest or principal. Petitioner
contended, as it had during the administrative proceeding before the IRS, that the
grants were made in furtherance of a charitable purpose: to assist the poor who were in
need of food, clothing, shelter, and medical attention. However, petitioner was unable to
furnish any documented criteria which would demonstrate the selection process of a
deserving recipient, the reason for specific amounts given, or the purpose of the grant.
The only documentation contained in the administrative record was a list of grants made
during one of the three years in question which included the name of the recipient, the
amount of the grant, and the “reason” for the grant which was specified as either

8

unemployment, moving expenses, scholarship, or medical expense. This information
was insufficient in determining whether the grants were made in an objective and
nondiscriminatory manner and whether the distribution of such grants was made in
furtherance of an exempt purpose. The failure to develop criteria for “grant”
disbursements or to keep adequate records of each recipient can result in abuse.
Accordingly it was found that the organization failed to establish that their
disbursements constituted an activity in furtherance of an exempt purpose.

In Western Catholic Church v. Commissioner of Internal Revenue, 73 T.C. 196 (1980),
the petitioner’s only activities were some individual counseling and distribution of a few
grants to needy individuals, while its primary activity was investment of funds. The
directors borrowed money in its name, but used some of it for automobiles and to pay
off personal loans. The petitioner's failure to keep adequate records and its manner of
operation made it impossible to trace the money completely, but the court found it clear
that money passed back and forth between petitioner and its director and his for-profit
businesses. The Court held that petitioner had not shown it was operated exclusively for
exempt purposes or that no part of its earnings inured to the benefit of its officer.

Application of Law

You are not described in section 501(c)(3) of the Code because you are not operated
exclusively for charitable, religious or educational purposes, where no part of your net
earnings inure to the benefit of private shareholders or individuals.

Your Articles of Incorporation contain the appropriate language to show you meet the
organizational test. However, you do not meet the requirements of section 1.501(c)(3)-
1(a)(1) of the regulations because you do not meet the operational test.

You do not meet the operational test described in section 1.501(c)(3)-1(c)(1) because
you have not demonstrated that your assets are used exclusively for exempt purposes.
Because of your lack of control and discretion over the funds sent to individuals and
organization Z in foreign country Y, you cannot substantiate that your assets are used
exclusively for exempt purposes. Therefore, you do not meet the operational test.

As required by Revenue Ruling 56-304, you do not keep adequate records to
substantiate that the grants and contributions you make further a 501(c)(3) purpose.
The evidence shows you have sent substantial funds in the form of checks made out to
a check cashing company in foreign country Y. The cash is then distributed to
individuals. You do not track the distributed cash to individuals. You have no records to
show who actually received the final distributions or what the funds were used for.
Therefore, it is clear that you do not keep adequate records as required by Rev. Rul. 56-
304.

9

You are similar to the organization described in Example 1 of Rev. Rul. 63-252. You
have little or no control over who receives the cash in the foreign country Y, or how
much they receive. You are, according to your own statement, a fundraising arm in the
United States whose purpose is to fund individuals editing ancient texts on behalf of the
foreign organization Z in the foreign country of Y. Like Example 1 in Rev. Rul. 63-252,
at the time of your formation, it was proposed that you would conduct a fundraising
campaign, pay the administrative expenses from the collected funds and remit any
balance to the foreign organization. This further shows that you have a lack of
discretion and control over the funds you raise. You simply send the funds to
organization Z, who distributes it as they wish.

In contradiction to Revenue Ruling 66-79, the funds you raise are not used for the
purposes of the domestic organization (you), but rather for the purposes of the foreign
organization receiving the grant from the domestic organization (you). Even your name
suggests a purpose to assist a specifically named foreign organization. On many
occasions you said your purpose is to raise funds and send them to foreign organization
Z. In fact, you stated the “American branch (you) of this organization was formed for the
purpose of helping to raise funds for this worthy project.” You stated you are the “U.S.
fundraising arm” and that your only purpose is to collect funds and distribute them to
foreign organization Z. You have not met the requirements described in Revenue
Ruling 66-79 because you have not shown that you review projects and approve them
as being in furtherance of your own exempt purposes. Furthermore, you have not
shown that you have control and discretion as to the use of the contributions.

When we asked for board meeting minutes you replied you only conduct fundraising
activities and that foreign organization Z makes all of the operational decisions.
Although your Bylaws provide information regarding your operational methods and
mandate two meetings per year, you have had no board meetings. Your Bylaws do not
appear to be an accurate depiction of your operational functions. These facts further
show that you do not have proper control and discretion as described in Rev Ruls 63-
252 and 66-79, and therefore cannot substantiate that your assets are used exclusively
for exempt purposes.

You have submitted copies of cancelled checks written for substantial amounts that
were made payable to a check cashing company. You also have written large checks
to unidentified individuals in the foreign country of Y. It is unclear who, specifically,
cashed these checks, or what the cash was then used for. You have no follow up
procedures or documentation to demonstrate your maintenance or control over the
funds. You have failed to compile or retain such records. When we asked for financial
data, you inadvertently sent us data regarding grants received by the foreign
organization. You appear to have difficulty distinguishing between your records and the
records of the foreign organization. Again these facts suggest that you do not exercise
the proper control and discretion of assets to ensure their appropriate use. Therefore,

10

you do not meet the operational test as required by section 1.501(c)(3)-1(c)(1) of the
Regulations.

Because the end beneficiaries of your grants are individuals and you are not involved in
the selection process nor have a method of following up, you have also not proven that
your assets are used exclusively for public, and not private purposes as is required by
section 1.501(c)(3)-1(d)(1)(ii) of the Regulations.

You have delegated much of your authority, responsibility, and operations to the foreign
organization Z. You allow Z to make the determination regarding who is eligible for
payments. As in the above cited case of Church in Boston v. Commissioner, your
failure to develop criteria for grant disbursements or to keep adequate records for each
recipient can result in abuse.

Like the organization in the Better Business Bureau case, you have a substantial non-
exempt activity that precludes exemption. Neither is an organization operated
exclusively for one or more exempt purposes if its net earnings inure to the benefit of
private shareholders or individuals, nor if its activities further private rather than public
interests. As large checks continue to be written to both check cashing companies and
to other unknown individuals in the foreign country Y, we are unable to determine that
private interests aren’t being served.

You allow individuals to cash large checks with no substantiating documentation
regarding the distributions. As in the case of Western Catholic Church v.
Commissioner, because of your failure to keep adequate records and your manner of
operation, we are not able to conclude that the money you distribute is spent exclusively
for exempt purposes and is not inuring to the benefit private individuals.

Applicant’s Position

You stated that you ensure control is maintained over funds sent overseas because you
have online access to their bank accounts. You say each rabbi gets paid by the hour
for their work and their payment is based upon qualifications and knowledge. You
further said checks are written to a check exchange company in foreign country Y
because it takes about three weeks for an American check to clear the bank and the
exchange rate is not favorable. You stated the money is often needed by the foreign
organization Z immediately to fund their ongoing operations and that writing the check
to the foreign check casher allows the foreign organization Z to get funds quicker and at
a more favorable exchange rate. You asserted that after the checks are cashed by an
unspecified individual in foreign country Y, the funds are then deposited in the foreign
organization Z's bank account.

You later submitted a statement saying you no longer cash any checks overseas and all
money sent to foreign country Y is being wired into a bank account. Therefore, all

11

money sent is traceable. You also said some of the activities are being conducted in the
United States now.

Service’s Response to Application Position

Although you have access to foreign organization Z’s bank account, you do not have
control and discretion over the funds that you send overseas. You send checks to
foreign country Y, which are stamped, not hand-written, payable to a foreign check
cashing company R. These checks are often for large amounts. You say the cash is
then taken to the bank of the foreign organization Z for deposit. You do not have any
board meeting minutes or reports regarding the usage of these funds. You did not
indicate who, specifically, cashes the checks and how you ensure that the funds are all
deposited and used for exempt functions. Also, the fact you have direct access to the
foreign organization’s bank accounts only accentuates the notion that you and the
foreign organization are controlled by the same individuals. You have provided no
written documentation to substantiate claims that you have changed the way you
disburse funds.

Although you now say you wire money to foreign country Y instead of writing checks,
this fact, in and of itself, does not correct any of the issues regarding control and
discretion of your funds. Further, conducting some activities in the United States also
doesn’t resolve your failure of the operational test due to the lack of control and
discretion of your funds.

Conclusion

Based on the above facts and law, you do not have adequate control and discretion
over the use of the funds you distribute. Without the proper control and discretion, you
are unable to ensure the funds distributed to individuals in foreign country Y are used
exclusively for exempt purposes and do not inure to the benefit of private individuals.
Therefore you do not meet the operational test. Accordingly, you are not exempt under
section 501(c)(3) of the Code.

You have the right to file a protest if you believe this determination is incorrect. To
protest, you must submit a statement of your views and fully explain your reasoning.
You must submit the statement, signed by one of your officers, within 30 days from the
date of this letter. We will consider your statement and decide if the information affects
our determination. If your statement does not provide a basis to reconsider our
determination, we will forward your case to our Appeals Office. You can find more
information about the role of the Appeals Office in Publication 892, Exempt Organization
Appeal Procedures for Unagreed Issues.

An attorney, certified public accountant, or an individual enrolled to practice before the
Internal Revenue Service may represent you during the appeal process. If you want

12

representation during the appeal process, you must file a proper power of attorney,
Form 2848, Power of Attorney and Declaration of Representative, if you have not
already done so. You can find more information about representation in Publication
947, Practice Before the IRS and Power of Attorney. All forms and publications
mentioned in this letter can be found at www.irs.gov, Forms and Publications.

If you do not file a protest within 30 days, you will not be able to file a suit for declaratory
judgment in court because the Internal Revenue Service (IRS) will consider the failure
to appeal as a failure to exhaust available administrative remedies. Code section
7428(b)(2) provides, in part, that a declaratory judgment or decree shall not be issued in
any proceeding unless the Tax Court, the United States Court of Federal Claims, or the
District Court of the United States for the District of Columbia determines that the
organization involved has exhausted all of the administrative remedies available to it
within the IRS.

If you do not intend to protest this determination, you do not need to take any further
action. If we do not hear from you within 30 days, we will issue a final adverse
determination letter. That letter will provide information about filing tax returns and other
matters.

Please send your protest statement, Form 2848, and any supporting documents to the
applicable address:

Mail to: Deliver to:
Internal Revenue Service Internal Revenue Service
EO Determinations EO Determinations
P.O. Box 2508 Room 7-008 550 Main Street Room 7-008
Cincinnati, OH 45201 Cincinnati, OH 45202

You may fax your statement using the fax number shown in the heading of this letter. If
you fax your statement, please call the person identified in the heading of this letter to
confirm that he or she received your fax.

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

Sincerely,

Lois Lerner
Director, Exempt Organizations
Enclosure: Publication 892