Determination 1249016: IRS denies exemption for a free investment advice organization

View official IRS release (PDF)

Plain-English summary

The IRS upheld a denial of tax-exempt status for an organization that planned to provide free investment advice and financial literacy assistance. The organization’s articles authorized purposes broader than those permitted under section 501(c)(3), and its proposed operations did not establish that it would serve charitable or educational purposes exclusively. The IRS also found that the organization’s services were available to the general public rather than limited to a charitable class, could benefit private financial professionals through referrals, and did not satisfy section 501(q)'s credit-counseling requirements. Contributions to the organization would not be deductible under section 170, and the organization was required to file Forms 1120.

Ruling snapshot

• Question: Did the organization qualify for exemption under IRC § 501(c)(3) and satisfy the requirements of § 501(q)?
• Outcome: Denied
• Key authorities: IRC §§ 170, 501, 509, 7428, and 6110; Treas. Reg. §§ 1.501(c)(3)-1 and 53.4945-4

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Appeals Office
Taxpayer Identification Number:

Release Number: 201249016 Person to Contact:
Release Date: 12/7/2012

Date: September 13, 2012 Tel:

Fax:

Tax Period(s) Ended:

UIL: 0501.03-00
Certified Mail

We considered your appeal of the adverse action proposed by the Director, Exempt Organizations,
Rulings and Agreements. This is our final determination that you do not qualify for exemption from
Federal income tax under Internal Revenue Code (the “Code”) section 501(a) as an organization
described in section 501(c)(3) of the Code.

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

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. You have not established that you are organized
exclusively for exempt purposes described in section 501(c)(3) of the Code. The
purposes in your articles of organization are broader than the exempt purposes described
in section 501(c)(3) of the Code. You have not established that you are operated
exclusively for exempt purposes described in section 501(c)(3) of the Code. Providing
free investment advice to the general public is not a charitable activity. You also have not
established that you carry on any substantial educational activity. You have not
established that you meet the requirements of section 501(q) of the Code. You also have
not provided sufficient detail about your intended operations.

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

You are required to file Federal income tax returns on Forms 1120 for the tax periods stated in the
heading of this letter and for all tax years thereafter. File your return with the appropriate Internal
Revenue Service Center per the instructions of the return. For further instructions, forms, and information

please visit www.irs.gov.

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 Code.

If you decide to contest this determination, you may file an action for declaratory judgment under the
provisions of section 7428 of the Code in one of the following three venues: 1) United States Tax Court,
2) the United States Court of Federal Claims, or 3) the United States District Court for the District of
Columbia. A petition or complaint in one of these three courts must be filed within 90 days from the date
this determination letter was mailed to you. Please contact the clerk of the appropriate court for rules for
filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write
to the United States Tax Court, 400 Second Street, N.W., Washington, D.C. 20217. See also Publication
892.

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 tax matters
that may not have been resolved through normal channels get prompt and proper handling. If you want
Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the IRS office that issued this
letter. You may call toll-free, 1-877-777-4778, for the Taxpayer Advocate or visit www.irs.gov/advocate
for more information.

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

Sincerely Yours,

Appeals Team Manager

Enclosure: Publication 892

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: November 14, 2011 Contact Person:

Identification Number:
Contact Number:

FAX Number:

Employer Identification Number:

LEGEND: UIL:

B = individual 501.32-00
C= state §01-32-01
D = date 501.33-00
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.

Issues

Do you qualify for exemption under section 501(c)(3) of the Code? No for the reasons
described below.

Do you meet the requirements under Section 501(q) of the Code? No, for the reasons
described below.

Facts

Letter 4036(CG) (11-2005)

2

You were incorporated on D under C non-profit law. Your Articles of Incorporation
(“Articles”) state your specific purpose is to:

...provide educational and charitable assistance, through guidance and
advice, improving the investment knowledge and financial literacy of the
general public. By integrating money with core human values, this
corporation will assist the general public to become consumers with a
conscience, aware that every dollar spent is a vote that can uphold and
sustain a healthy economy without sacrificing sufficient rates of return on
long term investments for retirement planning and college savings.

Your Articles also provide that you are organized and operated exclusively for educational
and charitable purposes within the meaning of section 501(c)(3) of the Internal Revenue

Code.

Your Bylaws state, in Article 2, that your specific purposes are:

(a)
(b)
(c)
(d)

(e)

(f)

to provide financial advice to the general public

to provide financial advice to the general public (freely at no cost)

to provide financial advice to the general public (value based factors
emphasized)

to provide the general public an awareness of how their spending directly affects
the economy (in a nonsustainable versus healthy way)

to provide the general public socially responsible investment choices (socially
screened mutual funds, municipal bonds, credit unions, community development
banks and loan funds, etc.)

to provide the general public basic financial literacy and financial planning
(emphasis on reducing unwanted debt and saving for retirement or college)

Your operations will be based in two geographic areas of State C. You will provide
investment advice to the general public. Your business will be conducted initially and
primarily by B, your president, and a registered investment advisor with the Securities and
Exchange Commission and State C. Your primary business activity of providing
investment advice to the general public will be provided at no cost. You expect to mainly
provide help for the underserved population which may have limited discretionary income.
You will also provide general assistance with financial literacy and debt reduction.

You strive to access those in need of assistance with investment matters, concentrating
mainly on screened mutual funds, to meet retirement and college savings goals. You will
provide investment opportunities that are values-based and promote a healthier and
sustainable economy. Your goal is to educate the general public on spending and saving

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

3

money in a socially responsible way, for the good of themselves and the world as a
whole.

You have not conducted any advertising, however, you plan to reach the general public
through flyers and bumper stickers as well as booths outside of various public gatherings.
You will seek support from government grants, public agency funding and individual
contributions. You are currently operating out of the B’s home until you are more

successful.

You have three officers and two directors. Due to B’s experience as an investment
advisor he will provide and be compensated for his services. B is an officer but not a
director. B will be compensated no more than $75,000 for the current year and two

succeeding years.

You will provide investment opportunities that are values-based and promote a healthy
and sustainable economy, such as banking with a credit union or investing in a socially
screened municipal bond fund. You will recommend mutual funds to your clients as an
investment vehicle of choice as well as bonds for those closer to retirement and
community investment projects. You will not charge a fee for advice given to the public
and expect mainly to provide help for the under-served population striving to access those
in need of assistance with investment matters. You define “underserved” persons as
those transitioning from the criminal justice system, substance abusers, unemployed and
low income population, however, no individuals shall be refused investment advice should
they seek it. You did not provide the percentage of your clients that will be underserved.
You will determine which clients are underserved through the use of a cash flow
questionnaire. You understand that the under-served population may have limited
discretionary income and you will provide general assistance with financial literacy and
debt reduction. You submitted copies of materials that you plan to give to clients. The
submitted information included auto insurance buying tips, financial recordkeeping,
sample budgets and tips for high school/college students.

Your investment advice will differ from traditional investing in its approach to selecting or
rejecting potential investment candidates. You will have no involvement in the actual
investment transactions. Traditional investing involves selecting an investment based
upon criteria such as: industry, size, growth projections, and earnings estimates. You will
pay attention to the above listed criteria but will also give weight to those areas that are
important to your client's values, such as environmental impact, or if they make/sell
alcohol or tobacco products. The extra layer of scrutiny means that two companies may
look about the same by the numbers, but one will fail the socially response test. The
socially responsible company will be chosen for your client's investment. You will also
make similar recommendations to the general public. You will select investment
candidates based upon the socially responsible test in addition to traditional criteria. You

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

4

did not explain how you will make your advice available to the general public, however,
you did submit a sample of written investment advice that you will provide. The advice
consists of two pages of general information regarding opening an online brokerage
account. You will provide one-on-one advice utilizing some type of computer aided
program to provide financial plans. The financial planner will gather extensive information
from the client including family and financial information to be entered into the software
program. Clients will be put in touch with other trusted financial professionals in order to
execute those parts of a financial plan that requires the purchase of registered securities.

You plan to start an internship and volunteer program, providing valuable experience and
insight to students seeking careers in financial planning. B will provide the training to the
interns and volunteers. No compensation will be provided to interns. A computer program
will be used to prepare financial plans for clients, personalized to address their specific
needs. Extensive information will be gathered on the client, client's family and finances.
You plan to advertise through the use of flyers, bumper stickers, community events,
churches and schools, although you have not yet prepared any advertising materials.

You will not enter into contracts with the investment opportunity entities. You do not
provide credit repair, credit counseling, debt consolidation, debt repayment or debt
negotiation services. You feel that your directors have proven skills in business
administration and facilitation as well as sufficient knowledge of financial planning
business in order to conduct your operations. B was employed in the financial planning
industry for 10 years, however, B was laid off several years ago and has been
unemployed to date. B was not an officer with his former employer, however, he performs
the same duties of providing investment advice.

Law

Section 501(c)(3) of the Code provides that corporations may be exempted from tax if
they are organized and operated exclusively for charitable or educational purposes and
no part of their net earnings inures to the benefit of any private shareholder or individual.

Section 501(q) of the Code provides that organizations which provide “credit counseling
services” as a substantial purpose shall not be exempt from taxation under section 501(a)
unless they are described in sections 501(c)(3) or 501(c)(4) and they are organized and
operated in accordance with the following requirements:

(A) The organization--

(i) provides credit counseling services tailored to the specific needs and
circumstances of consumers,

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

(B)

(C)

(D)

(ii)

(iii)

(iv)

5

makes no loans to debtors (other than loans with no fees or interest)
and does not negotiate the making of loans on behalf of debtors,

provides services for the purpose of improving a consumer's credit
record, credit history, or credit rating only to the extent that such
services are incidental to providing credit counseling services, and .

does not charge any separately stated fee for services for the purpose
of improving any consumer's credit record, credit history, or credit

rating.

The organization does not refuse to provide credit counseling services to a
consumer due to the inability of the consumer to pay, the ineligibility of the
consumer for debt management plan enrollment, or the unwillingness of the
consumer to enroll in a debt management plan.

The organization establishes and implements a fee policy which--

(i)

(ii)
(iii)

requires that any fees charged to a consumer for services are
reasonable,

allows for the waiver of fees if the consumer is unable to pay, and

except to the extent allowed by State law, prohibits charging any fee
based in whole or in part on a percentage of the consumer's debt, the
consumer's payments to be made pursuant to a debt management
plan, or the projected or actual savings to the consumer resulting from
enrolling in a debt management plan.

At all times the organization has a board of directors or other governing
body--

(i)

(ii)

which is controlled by persons who represent the broad interests of the
public, such as public officials acting in their capacities as such,
persons having special knowledge or expertise in credit or financial
education, and community leaders,

not more than 20 percent of the voting power of which is vested in
persons who are employed by the organization or who will benefit
financially, directly or indirectly, from the organization's activities (other
than through the receipt of reasonable directors’ fees or the repayment

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

6

of consumer debt to creditors other than the credit counseling
organization or its affiliates), and

(iii) not more than 49 percent of the voting power of which is vested in
persons who are employed by the organization or who will benefit
financially, directly or indirectly, from the organization's activities (other
than through the receipt of reasonable directors’ fees).

(F) |The organization receives no amount for providing referrals to others for
debt management plan services, and pays no amount to others for obtaining

referrals of consumers.

Section 501(q)(4)(A) defines, for purposes of section 501(q), the term “credit counseling
services” to mean (i) the providing of educational information to the general public on
budgeting, personal finance, financial literacy, saving and spending practices, and the
sound use of consumer credit; (ii) the assisting of individuals and families with financial
problems by providing them with counseling; or (iii) a combination of the activities

described above.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations (“regulations”) provides 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(b)(1)(i) of the regulations provides that an organization is organized
exclusively for one or more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization to engage, otherwise than as an
insubstantial part of its activities, in activities that in themselves are not in

furtherance of one or more exempt purposes.

Section 1.501(c)(3)-1(b)(4) of the regulations provides that an organization's assets must
be dedicated to an exempt purpose, either by an express provision in its governing
instrument or by operation of law.

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 that 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 is not in furtherance of an exempt purpose.

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides an applicant organization must
establish it serves a public rather than a private interest and specifically 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) in its generally accepted legal sense and includes: Relief of the poor
and distressed or of the underprivileged; advancement of religion; advancement of
education or science; erection or maintenance of public buildings, monuments, or works;
lessening of the burdens of Government; and promotion of social welfare by organizations
designed to accomplish any of the above purposes, or (i) to lessen neighborhood
tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights
secured by law; or (iv) to combat community deterioration and juvenile delinquency.

Section 1.501(c)(3)-1(d)(3)(i) of the regulations provides that the term “educational,” as
used in section 501(c)(3) of the Code, relates to:

(a) The instruction or training of the individual for the purpose of improving or
developing his capabilities; or

(b) The instruction of the public on subjects useful to the individual and beneficial to
the community.

Rev. Rul. 65-299 - The instant organization was formed to assist individuals and families
with financial problems to work out those problems and to check the rising incidence of
personal bankruptcy in the community. The objectives and activities of the organization
contribute to the betterment of the community as a whole. Accordingly, it is held that the
organization is entitled to exemption from federal income tax as an organization described

in section 501(c)(4) of the Code.

Rev. Rul. 67-138 - The organization's training of low-income families on various aspects
of house-building and homeownership is "educational" since the training is useful to and
develops the capabilities of the individuals who receive it and benefits the community.
The organization's other activities in assisting families in need to obtain adequate housing
are "charitable" since they provide relief to the underprivileged, lessen the burdens of
government, and are a means of combating community deterioration. Accordingly, the
organization is exempt from federal income tax under section 501(c)(3) of the Code.

Rev. Rul. 68-16 - A fund set up as an adjunct to a school of business administration that
is exempt from federal income tax for the sole purpose of providing business students
with instruction and experience in managing securities may be exempt from federal

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

8

income tax under section 501(c)(3) of the Internal Revenue Code of 1954. The fund is
used by the students as an adjunct to their course of instruction to obtain knowledge and
experience in security portfolio management. Thus, the fund contributes to their
education. Accordingly, the organization is exempt from federal income tax under section

501(c)(3) of the Code.

Rev. Rul. 68-167 - Section 501(c)(3) of the Code provides for the exemption from federal
income tax of organizations organized and operated exclusively for charitable purposes.
Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations states that the term ‘charitable’
includes relief of the poor and distressed. An organization can relieve the poor and
distressed other than through direct grants, such as by providing necessary services. This
organization provides a necessary service for needy women by giving them a market for
their products and a source of income. In assisting needy persons in this manner, the
organization serves a charitable purpose. Accordingly, the organization is exempt from
federal income tax under section 501(c)(3) of the Code.

Rev. Rul. 69-441 - By aiding low-income individuals and families who have financial
problems and by providing, without charge, counseling and a means for the orderly
discharge of indebtedness, the organization is relieving the poor and distressed.
Furthermore, by providing the public with information on budgeting, buying practices, and
the sound use of consumer credit, the organization is instructing the public on subjects
useful to the individual and beneficial to the community. Accordingly, the organization is
exempt from federal income tax under section 501(c)(3) of the Code. Compare Revenue
Ruling 65-299, C.B. 1965-2, 165, which holds that a nonprofit organization formed to
advise, counsel, and assist individuals in solving their financial difficulties by budgeting
their income and expenses and effecting an orderly program for the payment of their
obligations qualifies for exemption from federal income tax under section 501(c)(4) of the
Code (rather than under section 501(c)(3)). In that case the organization was not
engaged in any educational activities, and the families or individuals eligible for
assistance were not limited to those who were in need of such assistance as proper

recipients of charity.

Rev. Rul. 70-585 — Provides four situations where an organization is formed for charitable
purposes and accomplishes its charitable purposes through a program of providing
housing for low and, in certain circumstances, moderate income families, it is entitled to
exemption under section 501(c)(3) of the Code. Situation 1 - By providing homes for low
income families who otherwise could not afford them, the organization is relieving the
poor and distressed. Thus, it is held that this organization is organized and operated
exclusively for charitable purposes, and it is exempt from federal income tax under
section 501(c)(3) of the Code. Situation 2 - the organization's activities are designed to
eliminate prejudice and discrimination and to lessen neighborhood tensions, it is engaged
in charitable activities within the meaning of section 501(c)(3) of the Code. Situation 3 -

Letter 4036(CG) (11-2005)
Catalog Number 47630W

9

the organization's purposes and activities combat community deterioration by assisting in
the rehabilitation of an old and run-down residential area, they are charitable within the
meaning of section 501(c)(3) of the Code. Situation 4 - The organization plans to erect
housing that it to be rented at cost to moderate income families. The organization is
financed by mortgage money obtained under federal and state programs and by
contributions from the general public. Since the organization's program is not designed to
provide relief to the poor or to carry out any other charitable purpose within the meaning
of the regulations applicable to section 501(c)(3) of the Code.

Rev. Rul. 72-559 - The organization was formed to provide legal services for
economically depressed communities. Its sole activity is the operation of a legal program
for the benefit of low income residents of these communities. By inducing lawyers to
establish practices in economically depressed communities and to provide substantial
free legal services to low income residents of such communities, the organization is
relieving the poor and distressed. The fact that the recipients of the organization's
financial assistance, the legal interns, are not themselves members of a charitable class
does not mean the organization is not operating primarily for charitable purposes. The
interns are merely the instruments by which the charitable purposes are accomplished.
Therefore, the fact that they derive personal gain from the arrangement does not detract
from the organization's charitable purposes. Accordingly, it is held that the organization's
activities are charitable and, since it otherwise qualifies for exemption the organization is
exempt under section 501(c)(3) of the Code.

Rev. Rul. 75-283 - By providing information and technical assistance to local tenant
groups in public housing projects regarding the rights and responsibilities of tenants and
the effect of existing laws and regulations concerning public housing, and by representing
such groups before state and federal housing authorities, the organization is aiding
individuals whose income is too low for them to obtain decent, safe, and sanitary housing.
Such activities can be expected to result in improved living conditions, fair rental and
lease agreements, and more knowledgeable tenants. The cumulative effect of the
organization's activities is the relief of the poor and distressed within the meaning of
section 1.501(c)(3)-1(d)(2) of such regulations. Accordingly, it is operated exclusively for
charitable purposes and qualifies for exemption from federal income tax under section

501(c)(3) of the Code.

Rev. Proc. 86-43, 1986-2 C.B. 729, describes the methodology test the Internal Revenue
Service uses to determine when the advocacy of a particular viewpoint or position is
educational under sections 501(c)(3) of the Code and 1.501(c)(3)-1(d)(3) of the
regulations. The revenue procedure states that the focus of section 1.501(c)(3)-1(d)(3) is
on the method the organization uses to communicate to others, not the content of its
communication. The method of communication is not educational "if it fails to provide a
development from the relevant facts that would materially aid a listener or reader in a

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

10

learning process." One factor indicating the method is not educational is as follows: "[t]he
approach used in the organization's presentations is not aimed at developing an
understanding on the part of the intended audience or readership because it does not
consider their background or training in the subject matter." The remaining factors relate
specifically to advocacy organizations and the "full and fair exposition” part of the

regulation.

In Better Business Bureau of Washington, D.C. v. U.S., 326 U.S. 279, 283, 66 S. Ct. 112,
90 L. Ed. 67 (1945), the Supreme Court held that the “presence of a single... .
[nonexempt] purpose, if substantial in nature, will destroy the exemption regardless of the

number or importance of truly . . . [exempt] purposes.”

In Solution Plus, Inc. v. Commissioner, T.C. Memo. 2008-21, the Tax Court held that a
credit counseling organization was not exempt under section 501(c)(3) because it was not
organized and operated exclusively for educational or charitable purposes and
impermissibly served private interests. The organization was formed by an individual with
experience selling debt management plans. The founder and his spouse were the only
members' of the organization's board of directors. The organization did not have any
meaningful educational program or materials for providing to people who contacted the
organization, and its financial education seminars for students constituted an insignificant

part of the organization's overall activities.

The Court held that the organization's purposes were not educational because its
“activities are primarily structured to market, determine eligibility for, and enroll individuals
in DMPs."_ Its purposes are not to inform consumers "about understanding the cause of,
and devising personal solutions to, consumers’ financial problems," or "to consider the
particular knowledge of individual callers about managing their personal finances." The
Tax Court also held that the organization's purposes were not charitable because "its
potential customers are not members of a [charitable] class that are benefited in a 'non-
select manner * * * because they will be turned away unless they meet the criteria of the

participating creditors.”

The Tax Court further held the organization would operate for the private interests of its
founder because the founder and spouse were the only directors, the founder was the
only officer and employee, and his compensation was based in part on the organization’s
DMP sales activity levels. The organization was “a family-controlled business that he
personally would run for financial gain, using his past professional experience marketing
DMPs and managing a DMP call center.” The Court further held that the organization’s
principal activity of providing DMP services, which were only provided if approved by a
caller's creditors, furthered the benefit of private interests.

Letter 4036(CG) (11-2005)
Catalog Number 47630W

11

Application of Law

Section 501(c)(3) of the Code sets forth two main tests for an organization to be
recognized as exempt. An organization must be both organized and operated exclusively
for purposes described in section 501(c)(3). Section 1.501(c)(3)-1(a)(1). You fail both

tests.

Organizational Test

To demonstrate that it is organized exclusively for exempt purposes, thus satisfying the
organizational test, an organization must have a valid purpose clause and a valid
dissolution provision. Sections 1.501(c)(3)-1(b)(1)(i) and 1.501(c)(3)-1(b)(4) of the
regulations. You do not have a valid purpose clause. Therefore, you do not meet the
organizational test. A valid purpose clause limits the organization’s purposes to one or
more exempt purposes and does not expressly empower the organization to engage,
otherwise than as an insubstantial part of its activities, in activities that in themselves are
not in furtherance of one or more exempt purposes. Section 1.501(c)(3)-1(b)(1)(i) of the

regulations.
Your Articles provide that your specific purpose is to:

“...provide educational and charitable assistance, through guidance and advice,
improving the investment knowledge and financial literacy of the general public. By
integrating money with core human values, this corporation will assist the general public
to become consumers with a conscience, aware that every dollar spent is a vote that can
uphold and sustain a healthy economy without sacrificing sufficient rates of return on long
term investments for retirement planning and college savings.”

Your Articles do not limit your purposes to one or more exempt purposes. Specifically,
integrating money with core human values, assisting the general public to become
consumers with a conscience, aware that every dollar spent is a vote that can uphold and
sustain a healthy economy without sacrificing sufficient rates of return on long term
investments for retirement planning and college savings are not exempt purposes.
Therefore, you do not have a valid purpose clause. Accordingly, you are not organized

for exempt purposes.

Operational Test

To satisfy the 501(c)(3) operational test, an organization must establish that it is operated
exclusively for one or more exempt purposes. Section 1.501(c)(3)-1(c)(1) of the
regulations. You failed to establish that you are operated exclusively for one or more

exempt purposes.

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

12

Your Activities Are Not Charitable

All of your time and resources are devoted to providing investment advice. You will
provide investment opportunities that are value-based and promote a healthy and
sustainable economy, such as banking with a credit union or investing in a socially
screened municipal bond fund, recommending mutual funds to your clients as an
investment vehicle of choice as well as bonds for those closer to retirement and
community investment projects. You will not charge a fee and expect mainly to provide
help for the “underserved”, those in need of assistance with investment matters. You
define “underserved” persons as those transitioning from the criminal justice system,
substance abusers, the unemployed and the low income population, however, no
individuals seeking advice shall be refused. Providing investment advice services does
not provide relief to the poor and distressed within the meaning of section 1.501(c)(3)-
1(d)(2) of the regulations or serve any other purpose recognized as charitable.

Your advice is not limited to low income persons. While you intend to mainly provide help
to the “underserved”, some of whom may be considered charitable beneficiaries, you will
provide advice to anyone who seeks it. In fact, the persons that you define as
underserved, by their very nature, do not have the funds to engage in investment
activities. Therefore, your services are not directed exclusively to low-income individuals.
Accordingly, you are unlike the organizations described in Rev. Rul. 67-138, supra and
Rev. Rul. 69-441, supra, which aided low-income individuals and families who have
financial problems, thereby relieving the poor and distressed. You are similar to the
organization described in Situation 4 of Rev. Rul. 70-585 in that you are providing advice
to individuals that are not poor and distressed. You are also similar to the organization
described in Rev. Rul. 65-299 in that you are providing information that contributes to the
betterment of the community as whole by encouraging socially responsible investment
choices. However, the organization in that case qualified for exemption under section

501(c)(4) rather than (c)(3).

You are unlike the organization in Rev. Rul. 68-167, where the organization provided a
necessary service for needy women to give them a market for their products and a source
of income. Providing investment advice is not a necessary service to provide a source of
income to your clients. Nor are you like the organization in Rev. Rul. 72-559, were the
organization is relieving the poor and distressed by providing substantial free legal
services to low income residents. The recipients of the free legal services are low income
individuals. Finally, the organization in Rev. Rul. 75-283, was aiding individuals whose
income was too low for them to obtain decent, safe, and sanitary housing. Such activities
can be expected to result in improved living conditions, fair rental and lease agreements,
and more knowledgeable tenants. The cumulative effect of the organization's activities is
the relief of the poor and distressed. Your activities do not provide assistance in obtaining

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

13

needs of everyday life such as a source of income, decent and affordable housing or legal
services. Thus, you failed to establish that your activities are charitable within the

meaning of section 501(c)(3) of the Code.

Your Activities Are Not Educational

You are distinguishable from the organizations in Rev. Rul. 68-16 and Rev. Rul. 69-441
because you are not conducting an educational program. Although you stated that your
goal is to educate the general public on spending and saving money in a socially
responsible way, you have not provided any evidence of an educational program. Your
sole activity is recommending investment options such as mutual funds, bonds or credit
unions based upon a “socially responsible test” as well as traditional criteria. You did
submit a few materials that include information such as auto insurance buying tips,
financial recordkeeping and tips for high school/college students, however, the minimal
educational content is incidental to your activity of providing investment advice.
Recommending which mutual fund to invest in does not provide instruction or training for
the purpose of improving or developing the advisee's capabilities within the meaning of
section 1.501(c)(3)-1(d)(3)(i). Nor do you provide any instruction of the public. You do
plan to start an internship program to provide instruction to the interns seeking careers in
financial planning, however, the program is not operational at this time. Unlike the
organizations Rev. Rul. 68-16 supra, and Rev. Rul. 69-441, supra, you do not offer
counseling sessions that are structured primarily to improve your clients’ understanding of
their financial problems or their skills in solving them nor do you provide instructions to
students. You provided no evidence that your financial advisor does anything other than
gather family and financial information in order to provide advice as to which investment
vehicles are appropriate. Communicating with a homeowner to fill out a financial
worksheet and an intake sheet is not an educational activity because the communication
does not provide a development from the relevant facts that would materially aid a listener

or reader in a learning process. Rev. Proc. 86-43..

You have not held any seminars or workshops to date, nor have you begun your
internship program. Your “counseling” sessions are used to solicit the information
required to provide advice regarding appropriate socially responsible investment options
in which to invest.. Finally, the few educational materials that you distribute are incidental
to your activity of providing investment advice. Therefore, you failed to establish that your
interactions with clients provide instruction or training “useful to the individual and
beneficial to the community” within the meaning of section 1.501(c)(3)-1(d)(3)(i) of the

regulations.

You do not operate a substantive on-going educational program. You do not dedicate
any revenue to activities involving educational programs. You do not allocate any
expenses to training employees. Like the organization in Solution Plus, supra, you did

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

14

not provide evidence that you help clients develop an understanding of the cause of their
financial problems or a plan to address their financial problems. You provided no
evidence that you intend to establish long-term counseling relationships with your clients.
Thus, your activities are not educational within the meaning of section 501(c)(3).

Private Benefit

An organization is not organized or operated exclusively for exempt purposes unless it
serves a public rather than a private interest. See section 1.501(c)(3)-1(d)(1)(ii) of the
regulations. Your provision of investment advice is a service that your clients would
otherwise have to provide themselves, either through their own efforts or through the
payment of fees to a third party. Finally, you benefit 3rd party financial professionals
through referrals of clients required services to purchase registered securities.

Therefore, you have not demonstrated that your operations serve a public rather than a
private interest as required by section 1.501(c)(3)-1(d)(1)(ii).

Section 501(q) of the Code

An organization that provides educational information on financial topics or financial
counseling to homeowners who are at risk of foreclosure is providing “credit counseling
services” within the meaning of section 501(q)(4)(A) of the Code. Thus, even if you had
established that you engage in such activities as a substantial purpose, to be exempt
from taxation you must, in addition to complying with the requirements of section
501(c)(3), comply with the provisions of section 501(q).

You do not provide credit counseling services tailored to the specific needs and
circumstances of consumers. Section 501(q)(A)(i). You do not provide educational
information to the public on budgeting, personal finance, financial literacy, saving and
spending practices, and the sound use of credit. Nor do you assist individuals and
families with financial problems by providing them with counseling. Section 501(q)(4)(A).
You have provided no educational seminars or workshops to the general public and no
educational materials distributed to your clients. Your programs are tailored towards
teaching people how to soundly invest as well as choosing socially responsible
companies to invest with. Therefore, you do not meet the requirements under section

501(q).

Finally, you indicated B, your president, is projected to receive compensation from you as
an employee. Therefore, more than 20% of the members of your Board of Directors are

also compensated as employees. Section 501(q)(D)(ii).

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

15

Had you established that you otherwise met the requirements of section 501(c)(3), your
failure to satisfy the requirements of section 501(q) would prevent you from being exempt
from taxation under section 501(a).

Conclusion

Based on the facts and information provided, you are not organized or operated
exclusively for exempt purposes. You are not organized exclusively for exempt purposes
as required by section 1.501(c)(3)-1(b)(1)(i) of the regulations because your Articles of
Incorporation do not restrict you to section 501(c)(3) purposes. You are not operated
exclusively for an exempt purpose as required by sections 1.501(c)(3)-1(a)(1) and
1.501(c)(3)-1(c)(1) of the regulations because you are not educating your clients nor do
you provide your services to poor or distressed individuals. You do not serve a public
rather than a private interest as required by section 1.501(c)(3)-1(d)(1)(ii) of the
regulations. Therefore, you are not described in section 501(c)(3).

Accordingly, you do not qualify for exemption as an organization described in section
501(c)(3) of the Code and you must file federal income tax returns. Contributions to you

are not deductible under section 170.

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.

Types of information that should be included in your appeal can be found on page 2 of
Publication 892. These items include:

1. The organization’s name, address, and employer identification number;

2. A statement that the organization wants to appeal the determination;

3. The date and symbols on the determination letter;

4. A statement of facts supporting the organization’s position in any contested factual
   issue;

5. A statement outlining the law or other authority the organization is relying on; and

6. A statement as to whether a hearing is desired.

The statement of facts (item 4) must be declared true under penalties of perjury. This
may be done by adding to the appeal the following signed declaration:

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

16

“Under penalties of perjury, I declare that I have examined the statement of facts
presented in this appeal and in any accompanying schedules and statements and, to the
best of my knowledge and belief, they are true, correct, and complete.”

Your appeal will be considered incomplete without this statement.

If an organization’s representative submits the appeal, a substitute declaration must be
included stating that the representative prepared the appeal and accompanying
documents; and whether the representative knows personally that the statements of facts
contained in the appeal and accompanying documents are true and correct.

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
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:

Letter 4036 (CG) (11-2005)
Catalog Number 47630W

17

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

Cincinnati, OH 45201

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 G. Lerner
Director, Exempt Organizations

Enclosure, Publication 892

Letter 4036 (CG) (11-2005)
Catalog Number 47630W