IRS revokes a student-housing organization's section 501(c)(3) exemption

Plain-English summary

The IRS revoked a student-housing organization's section 501(c)(3) exemption after concluding that its primary activity was operating and maintaining a chapter house for a university fraternity. The organization rented rooms to students, gave preference to members of the fraternity, and had not shown that its housing and related facilities were primarily educational. The IRS found that the organization did not serve a sufficiently broad public interest and that its chapter-house activity was not an exempt educational purpose. The IRS granted relief under section 7805(b), so the revocation was effective September 1 of a redacted year rather than retroactively.

Ruling snapshot

• Question: Did the organization's chapter-house and student-housing activities qualify for section 501(c)(3) exemption, and should revocation apply retroactively?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6104(c), 7428, and 7805(b); Treas. Reg. §§ 1.501(c)(3)-1(a), (c), and (d)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations

1100 Commerce Street, MC 4920DAL
Dallas, TX 75242 501-03.00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION January 26, 2012
Release Number: 201219026 Taxpayer Identification Number:
Release Date: 5/11/2012 Person to Contact:
ak aioe’ ade: Identification Number:
oer Contact Telephone Number:

XX - Date Address - address

ORG
ADDRESS

CERTIFIED MAIL
Dear

This is a final adverse determination regarding your exempt status under section
501(c)(3) of the Internal Revenue Code (the Code). Our favorable determination letter
to you dated May 3, 20XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective September 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

You are not operating exclusively for any charitable purpose, educational purpose, or
any other exempt purpose. Our examination reveals that you are not engaged primarily
in activities which accomplish charitable, educational or other exempt purposes as
required by Treas. Reg. 1.501(c)(3)-1(c)(1). Your activities, including your financial
transactions, more than insubstantially furthered non-exempt purposes.

Contributions to your organization are no longer deductible under IRC §170 after
September 1, 20XX.

You are required to file income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the tax year ending August 31, 20XX and
for all tax years thereafter in accordance with the instructions of the return.

Processing of income tax returns and assessments 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 under the declaratory judgment provisions of
section 7428 of the Code, a petition to the United States Tax Court, the United States
Claims Court, or the district court of the United States for the District of Columbia must
be filed before the 91st Day after the date this determination was mailed to you. Please
contact the clerk of the appropriate court for rules regarding filing petitions for
declaratory judgments by referring to the enclosed Publication 892. You may write to
these courts at the following addresses:

You also 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 contact the person whose name and telephone
number are shown in the heading of this letter.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosure:
Publication 892

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

TE/GE EO Examinations

1100 Commerce Street

Dallas, TX 75242

Date: November 1, 2010

ORG Taxpayer Identification Number:
Form:
ADDRESS Tax Year(s) Ended:

Person to Contact/ID Number:
Contact Telephone Number:
Contact Fax Number:

CERTIFIED MAIL - RETURN RECEIPT
REQUESTED

Dear

We propose to revoke our recognition of your exempt status as an organization described in section 501(c)(3)
of the Internal Revenue Code. We have enclosed our report of examination explaining why we are proposing
this action.

If you accept our proposal, please sign and return the enclosed Form 6018, Consent to Proposed Action —
Section 7428, unless you have already provided us a signed Form 6018. We will issue a final revocation
letter determining you are not an organization described in section 501(c)(3). After the issuance of the final
revocation letter we will publish an announcement that you have been deleted from the cumulative list of
organizations contributions to which are deductible under section 170 of the Code. If you do not respond to
this proposal, we will similarly issue a final revocation letter. Failing to respond to this proposal may
adversely impact your legal standing to seek a declaratory judgment because you may be deemed to have
failed to exhaust administrative remedies.

If you do not agree with our proposed revocation and wish to protest our proposed revocation to the Appeals
Office of the Internal Revenue Service, then 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. This written request is called
a protest. For your protest to be valid it needs to contain certain specific information which generally
includes a statement of the facts, the applicable law, and arguments in support of your position. For the
specific information needed for a valid protest, please refer to page 6 of the enclosed Publication 3498, The
Examination Process, and page 2 of the enclosed Publication 892, Exempt Organizations Appeal Procedures
for Unagreed Issues. These documents also explain how to appeal an IRS proposed action

If you do submit a valid protest, then 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 and Publication 892 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. Please note that Fast Tract Mediation Services referred to in Publication 3498, generally
do not apply after issuance of this letter.

You may also request that we refer this matter for Technical Advice as explained in Publication 892 and an
annual revenue procedure. Please contact the individual identified on the first page of this letter if you are
considering requesting Technical Advice. If we issue a determination letter to you based on a Technical

Letter 3618 (Rev 11/2003)
Catalog Number 34809F

2

Advice Memorandum issued by the EO Rulings and Agreements function, then no further administrative
appeal will be available to you within the IRS on this matter.

If you agreed with the proposed revocation or if you receive a final revocation letter, you will be required to
file Federal income tax returns for the tax periods(s) shown above. File these returns with the Ogden Service
Center within 30 days of the date you agreed with the revocation or the date of your final revocation letter,
whichever is sooner, unless a request for extension of time is granted. File returns for later tax years with the
appropriate service center indicated in the instructions for those returns.

We will notify the appropriate state officials of the revocation in accordance with section 6104(c) of the
Code. Currently, only certain states are eligible to receive notification of proposed revocation actions. You
can call the person at the heading of this letter to find out if your State is eligible to receive a notice of
revocation of your tax-exempt status.

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,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (Rev 11/2003)
Catalog Number 34809F

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX
LEGEND
ORG - Organization name XX - Date City - city State - state

CO-1 & CO-2 - 1st & 2nd COMPANIES

ISSUES

1. Whether the tax-exempt status of an organization that was granted exemption under
   IRC 501(c)(3) and operates to manage funds and assets to be used for housing, dining,
   library, technology and study facilities for students of CO-1, in City, State should be
   revoked.

2. Whether revocation of the organization’s tax-exempt status should be applied
   retroactively.

FACTS

The organization received determination Letter 1050, dated January 9, 20XX,
recognizing it as an organization exempt under Internal Revenue Code Section
501(c)(3). According to its Articles of Incorporation, the primary purpose of the
organization is exclusively for charitable and educational purposes, including the
provision of lodging, dining, library, technological and related educational facilities for
students of CO-1. The organization is not a membership organization. It is governed
by an independent board of directors whom have not been compensated.

The organization receives funding from the rents received from students of CO-1. Each
student who resides in the facility executes a lease. Fees for lodging and dining are
based on comparable amounts charged for similar student housing at CO-1. These
costs are generally at or below cost. CO-1 sends out the invoices and collects the fees
charged for a % fee. There are approximately 30 rooms in this facility.

In addition to receiving housing fees from students which are intended to defray a
substantial portion of the annual operating expenses, the organization solicits donations
from CO-1 alumni, parents of students and other sources for capital expenses
associated with capital improvements and to defray subsidies provided to needy
students. Scholarships and grants have not been actualized to date. The organization
was formed as a mechanism to raise funds to improve the building’s modern
educational needs of students by assuring their safety, security and general well-being
as prescribed by CO-1. CO-1’s Plan for Prominence in Fraternity and Sorority Affairs
announced their proposed CO-1 Standard Policy for Non-University owned Fraternity
Chapter Houses dated 8/18/20XX giving the fraternity houses two years to comply. CO-
1 had discovered a great disparage between University and Non-University housing.
Non-University owned fraternities must meet the basic and fundamental standards for
safety, security, maintenance and technology that exist on campus, so that they may be

Form 886-Acrev.468) Department of the Treasury - Internal Revenue Service
Page: -1-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX

brought in line with University owned residential facilities. Per the University “it is
neither the intent nor the desire of the University to deprive the fraternities of their ability
to govern themselves. Instead, a collaborative partnership is envisioned to provide
additional support in domains that are difficult for undergraduates to manage.”

The organization is intended to benefit members of the CO-2 and other men and
women who are full time students of CO-1. Students who are members of the CO-2
are given preference in the use of facilities, but the library and study facilities are
available to other students of the University. Although it is unclear how they would gain
access due to the key system.

ISSUE 1
LAW

Section 501(c)(3) of the Code exempts from federal income tax organizations
organized and operated exclusively for charitable, educational, and other exempt
purposes, provided that no part of the organization's net earnings inures to the benefit
of any private shareholder or individual.

Section 1.501(c)(3)-1(a)(1) of the regulations provides that in order to be exempt
as an organization described in section 501(c)(3) of the Code, the organization must be
one that is both organized and operated exclusively for one or more of the purposes
specified in that section.

Section 1.501(c)(3)-1(c)(1) of the regulations provides that an organization will
not be regarded as operated exclusively for exempt purposes if more than an
insubstantial part of its activities is not in furtherance of exempt purposes.

Section 1.501(c)(3)-1(d)(ii) of the regulations provides that an organization is not
organized or operated exclusively for one or more exempt purposes unless it serves a
public rather than a private interest. Thus, it is necessary for an organization to
establish that it is not organized or operated for the benefit of private interests such as
designated individuals, the creator or his family, shareholders of the organization, or
persons controlled, directly or indirectly, by such private interests.

Section 1.501(c)(3)-1(d)(2) of the regulations provides that the term "charitable"
is used in section 501(c)(3) of the Code in its generally accepted legal sense, and
includes the promotion of education.

The presence of a single substantial nonexempt purpose can destroy the
exemption regardless of the number or importance of exempt purposes. Better Bus.
Bureau v. United States, 326 U.S. 279, 283, 90 L. Ed. 67, 66 S. Ct. 112 (1945); Am.
Campaign Acad. v. Commissioner, 92 T.C. 1053, 1065 (1989); see also Old Dominion

Form 886-Avrev.468) Department of the Treasury - Internal Revenue Service
Page: -2-

Form 886-A Department of the ‘Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX

Box Co., Inc. v. United States, 477 F2d. 340 (4th Cir. 1973), cert. denied, 413 US 910
(1973) (“operating for the benefit of private parties who are not members of a charitable
class constitutes a substantial nonexempt purpose”). When an organization operates
for the benefit of private interests, such as designated individuals, the creator or his
family, or persons directly or indirectly controlled by such private interests, the
organization by definition does not operate exclusively for exempt purposes. Am.
Campaign Acad. v. Commissioner, supra at 1065-1066.

Revenue Ruling 76-336, addresses a nonprofit organization that was formed to
provide housing for students of a college who was unable to provide adequate student
housing and located in a community in which suitable housing is not otherwise
available. The organization was formed by community leaders in response to studies
by staff members of the college and the community leaders that determined that the
community in which the college was located did not have suitable housing available at a
reasonable affordable rent to meet the needs of the students. The college itself
provided no housing facilities because it is financially unable to do so. The
organization operated a housing facility for students adjacent to the college campus.

All students of the college were eligible to apply for the housing.

On these facts the Service stated the organization is both helping the college, which is
unable to provide adequate student housing to fulfill its education purposes and aiding
the students to attain an education. The organization provides needed student housing
that is not otherwise available. And all students who attend the college are eligible to
apply for residence.

Revenue Ruling 60-367, addresses contributions made to a college for the
purpose of acquiring or constructing a housing facility for use by a designated fraternity
constituted allowable deductions by the donors in computing their taxable income in the
manner and to the extent provided in section 170 of the Internal Revenue Code. The
contemplated housing will be owned by the college and will be rented to fraternity
members either as fraternity groups or as individual students, but leases will be for
short-term periods. Then rentals in either case will be substantially equivalent to the
rentals charged for comparable housing facilities in the college dormitories. The effect
of designation by a donor as to the fraternity house for which his gift is to be used must
not be such that his gift is for the benefit of the fraternity rather than for the benefit of
the college. Therefore, the college must, as the result of the gift, have the attributes of
ownership in respect of the donated property, and its rights as an owner must not, as a
condition of the gift, be limited by conditions or restrictions which in effect make a
private group the beneficiary of the donated property... The college should, as an
owner, be free to use the property acquired with the gift as it future policy suggests or
requires.

Form 886-Avrev.4-68) Department of the Treasury - Internal Revenue Service
Page: -3-

Form 886-A Department of the Treasury- Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/ Period Ended
ORG 20XX/ Aug 31, 20XX

Rev. Rul. 64-118, provides that an organization does not qualify for exemption
from Federal income taxation under section 501(c)(3) as an education organization,
where its primary activity is to furnish, on a rental basis, a chapter house to a fraternity
which is composed of students. In this case the organizations primary activity was the
operation and maintenance of a chapter house adjacent to the university which leased
to the members of the local chapter. Receipts were derived from donations, loans, and
rental payments. Its principal expenditures were incurred in improving and maintaining
the chapter house.

Alumnae Chapter Beta of Clovia v. Commissioner, T.C. Memo 1983-303, the
court ruled against Rev. Rul 76-336 in that the material facts were different. That is, all
students who attended the college were eligible to apply for residence; and the college
provided no housing facilities because it was not financially able to do so.

R.L. Phinney, District Director of Internal Revenue, Appellant, v. J. Chrys
Dougherty et ux., Appellees, 307 F.2d 357, which stated that the facts show that
substantially all of the organizations funds have been used for the purpose of acquiring
and maintaining a chapter house and leasing it to a local chapter of a fraternity. “It is
true that in a sense you have a connection with education but a substantial function is
to aid a group of students combined in a social club. It has long been the position of
the Service that college fraternities are not exempt educational organizations but are
primarily social clubs.” It concluded that where the predominant activity is the
acquisition, improvement or maintenance of a chapter house, the other activities must
be regarded as incidental. The purpose of serving the purely social purposes of the
fraternity cannot be said to be minor and incidental to its broader educational purposes.

TAXPAYER’S POSITION

The organization believes that it is entitled to exemption under section 501(c)(3)
as indicated in its application for exempt status filed in 20XX. That is, its function would
be to provide University housing for students at CO-1 and related academic support.
During the determination letter process, the IRS raised the question whether section
501(c)(7) status would be more appropriate to which the organization responded by its
letter dated April 12, 20XX. Thereafter, the IRS issued its determination that
organization would qualify under section 501(c)(3) and contributions would qualify under
section 170. Based on this determination it is exempt under section 501(c)(3).

The organization stated that CO-1 has adopted a Plan for Prominence of
Fraternities and Sororities (The Plan) which closely regulates the activities and facilities
of all CO-1 non-university owned fraternities and sororities, including the housing
facilities occupied by fraternity and sorority members. Further, the organization states,
“The Plan makes it clear that non-university owned fraternity houses and land are under
the complete control of the university, and are considered to be an integral part of the

Form 886-A(rev.468) Department of the Treasury - Internal Revenue Service
Page: -4-

Form 886-A Department of the Treasury - Intemal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/ Period Ended
ORG 20XX/ Aug 31, 20XX

university's academic and non-academic standards.” The organization removed all
social functions and established that it is exclusively an educational organization. The
organization states “that an organization which provides residences for university
students on a non-profit basis does qualify as engaged in an educational function is
shown by comparison to CO-1’s provision of residential facilities to its general student
body.”

The organization cites Revenue Ruling 81-225 stating that “the IRS taxes the
income from assets based on who exercises control over the asset rather than upon
who holds legal title to the asset.” (The investor-control doctrine.) This is evidence that
CO-1 has control over non-university fraternity housing based on the Plan of
Prominence of Fraternities.

GOVERNMENT’S POSITION

Based on the facts of the examination, the organization does not qualify for
exemption since the primary activity is concerned with the operation and maintenance
of a chapter house adjacent to the university which is leased to the members of the
local chapter and to other full time students upon vacancy. Receipts are derived from
rental payments, donations and loans from the University. Its principal expenditures are
incurred in improving and maintaining the chapter house. Although the purpose in
operating the chapter house may arguably benefit the public in the education of CO-1
students the fact remains that the organization is not primarily an educational institution.

Treas. Reg. 1.501(c)(3)-1(d)(3)(i) defines education as the instruction and
training of the individual for the purpose of improving or developing his or her
capabilities, or the instruction of the public on subjects useful to the individual and
beneficial to the community. The organization implies that since it is providing housing
needs for students of CO-1 that it too should receive the same exempt status of section
501(c)(3) as the University. The courts and Internal Revenue Rulings have consistently
found this not to be the case. Although the organization has two separate entities,
Delta Association and CO-2 to handle all fraternity issues, the organization consists of
the chapter house for CO-2. It is known on campus as the CO-2 house. It is supported
by Alumni of the CO-2. To state the organization furthers housing and academic
interests of all students at CO-1 is not supported by the facts. In Alumnae Chapter
Beta of Clovia v. Commissioner, the court ruled that the college provided no housing
facilities because it was not financially able to do so. That is clearly not the case for
CO-1. In fact, under CO-1’s Plan for Prominence it appears CO-1 would prefer owning
all of the fraternity houses.

Regardless, the courts have consistently found that providing living and dining
are not an exempt purpose. Neither is the operation and maintenance of a chapter
house furthering an exempt purpose. The organization has used Rev. Rul 76-336 and

Form 886-AcRev.4-68) Department of the Treasury - Internal Revenue Service
Page: -5-

Form 886. A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX

Rev. Rul. 60-367 to support its position. However, both are clearly not the facts in this
case. In Rev. Rul. 76-336 the case is one where the college could not afford to provide
any student housing. That is not the case with CO-1. ORG has the capacity to house
approximately 30 students where CO-1 houses over 2,000 students. In Rev. Rul. 60-
367 the concerned party is a college. ORG equates itself as part of CO-1, thus its
section 501(c)(3) designation, which is not accurate. The residences furnished by CO-1
are an insubstantial part compared to its primary purpose. That is to educate the
students. ORG is not an exclusive educational organization. Rather, it merely provides
residence to students of CO-1. Its purpose statement states it is “to manage funds and
assets to be used for housing, dining, library, technology and study facilities for
students of CO-1, in City, State.” in other words, its primary activity is the operation and
maintenance of a chapter house. It also states it will provide scholarships to needy
students. However, to date that has not happened. If it ever does provide scholarships
that would be an exempt purpose for educational needs. But it is not currently a factor.

In Rev. Rul 64-118 it clearly states that for an organization to qualify for
exemption it must be both organized and operated exclusively for one or more of the
purposes specified under statute. An organization may be formed for the purpose of
promoting the education of the members of a local chapter of a fraternity, but, in order
to qualify for exemption the purposes and activities must be educational within the
contemplation of the statute and must be without any substantial noneducational
purpose or activity. But, where the predominant activity is the acquisition, improvement
or maintenance of a chapter house, incidental activities concerned with the cultural
development of students are not sufficient to bring the organization within the
classification of an educational organization described in section 501(c)(3). Therefore
as stated in the revenue ruling, an organization whose predominant activity is the
acquisition, improvement or maintenance of a fraternity chapter house does not qualify
for exemption as an educational organization within the meaning of section 501(c)(3).
Because the fraternity is not itself an educational organization, assisting in the
acquisition and maintenance of a chapter house is not educational in nature.

It has long been the position of the Internal Revenue Service that college
fraternities are not exempt educational organizations. ORG has taken the step to try
and separate itself from the fraternity by using separate entities as listed above.
However, ORG cannot overcome the fact that it is the chapter house for the fraternity
and is recognized by CO-1 in its literature as such. This is similar to the facts presented
in R.L. Phinney v. J. Chrys Dougherty where the organization failed to meet the
operational test. That is, its predominant activity was for the acquisition, improvement
or maintenance of a chapter house. Phinney also stated that the organization did not
lease the facilities to the chapter purely as an investment to obtain funds for education
purposes. Therefore it concluded that contributions used to acquire and maintain the
facilities did not constitute an investment in actuality.

Form 886-Acrev.468) Department of the Treasury - Internal Revenue Service
Page: -6-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX

As for ORG’s argument using Rev. Rul. 81-225 which address who possesses
the ownership of mutual fund shares held by life insurance companies with wraparound
annuity contracts. The organization seems to allude to the fact that CO-1’s Plan for
Prominence of Fraternities is evidence of university control over non-university fraternity
housing is equal or more than equivalent to the control that exists if the university were
to hold title to the housing. Under ORG’s reasoning this would make ORG exempt for
educational purposes like CO-1. However, ORG does retain legal title to this fraternity
house. And two, CO-1 is not forcing ORG to abide by its fiduciary responsibility to its
students. However, if ORG wants to house university students it must abide by their
rules. This is typical of any university's requirements. It does not grant to ORG the
same exempt status as CO-1.

CONCLUSION

Based on the foregoing reasons, the organization does not qualify for exemption
under section 501(c)(3) and its tax exempt status should be revoked.

ISSUE 2

LAW

IRC § 7805(b) provides that the Secretary may prescribe the extent, if any, to
which any ruling (including any judicial decision or any administrative determination
other than by regulation) relating to the Internal Revenue laws shall be applied without
retroactive effect.

Rev. Proc. 98-1, 1998-1 1.R.B. 7 provides that except in rare or unusual
circumstances, the revocation or modification of a letter ruling will not be applied
retroactively to the taxpayer for whom the letter ruling was issued or to a taxpayer
whose tax liability was directly involved in the letter ruling provided that: (1) there has
been no misstatement or omission of material facts; (2) the facts at the time of the
transaction are not materially different from the facts on which the letter ruling was
based; (3) there has been no change in the applicable law; (4) the letter ruling was
originally issued for a proposed transaction; and (5) the taxpayer directly involved in the
letter ruling acted in good faith in relying on the letter ruling, and revoking or modifying
the letter ruling retroactively would be to the taxpayer's detriment.

TAXPAYER’S POSITION

The organization claims that it meets the five criteria to obtain equitable relief
under section 7805(b) on the basis that it operated under the good faith belief that it
qualified as an educational and charitable organization under section 501(c)(3) of the
Code.

Form 886-Acrev.468) Department of the Treasury - Internal Revenue Service
Page: -7-

Form 886-A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX/ Aug 31, 20XX

GOVERNMENT’S POSITION

Section 7805(b) relief should be granted in this case. The organization clearly
stated in its letter dated April 12, 20XX to the Internal Revenue Service’s Determination
Unit that it was formed as a separate entity from the fraternity where no funds would be
used for social or fraternal purposes. Further it associates itself with CO-1 to establish
its educational purpose. It states that “CO-1 closely regulates fraternity housing, and
the application attaches publications of CO-1 that establishes both academic
requirements for members and requirements for provision of housing to CO-1 students.
As stated, the University does not permit students to reside in fraternity related housing
unless the housing meets “CO-1 Standard” criteria, which includes satisfaction of all
health and safety codes.” This is a standard fiduciary responsibility of any University to
its students. For the organization to state that this was the reason for establishing ORG
in order to make the substantial capital improvements that were needed to meet the
modern educational needs of CO-1 students and to secure their safety, security and
general well being is putting itself on the same level as CO-1 in establishing its exempt
status. ORG fails to meet the educational purpose as it is not the University who does
provide educational instruction to its students. However, it is not the responsibility of
the organization due to the Determination Units failure to grasp that point.

CONCLUSION

Based on the foregoing, the organization is entitled to section 7805(b) relief.

Effective date of revocation is September 1, 20XX.

Form 886-A:rev.4-68) Department of the Treasury - Internal Revenue Service

Page: -8-