IRS denies tax exemption to an organization serving marriage and financial counseling programs

Plain-English summary

The IRS issued a final adverse determination denying an organization recognition as exempt under IRC § 501(c)(3). The organization offered conferences and counseling about marriage, biblical principles, and financial management, while related for-profit companies supplied materials and services. The IRS concluded that the organization operated in a commercial manner and that its activities benefited the private interests of its officers and their companies. The IRS also found that the organization did not meet the board and fee-policy requirements for credit counseling organizations under IRC § 501(q).

Ruling snapshot

• Question: Does the organization qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied, final adverse determination after no timely protest.
• Key authorities: IRC §§ 501(c)(3), 501(q), 6104(c), 6110(k)(3), and 7428(b)(2); Treas. Reg. § 1.501(c)(3)-1

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Contact Person:

Number: 201310048
Release Date: 3/8/2013 Identification Number:

Date: December 12, 2012 Contact Number:
Employer Identification Number:

Form Required To Be Filed:

UIL: 501.33-00 Tax 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 4763258

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,

Holly Paz
Director EO Rulings and Agreements

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: 8/28/12 Contact Person:
Identification Number:
Contact Number:
FAX Number:

Employer Identification Number:

LEGEND: VIL:
501.33-00

ACTONVIOND

L=

M year =
N year =

p dollars =
q dollars =
s dollars =
t dollars =
v dollars =
x dollars =
y dollars =
z dollars =

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.

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

Issue:
Do you qualify for exemption under section 501(c)(3) of the Code? You do not for the reasons
set forth below.

Alternate Issue:

If upon appeal, it is determined you do meet the requirements of section 501(c)(3), do you also
meet the requirements of section 501(q)(1) of the Code? You do not for the reasons set forth
below.

Facts:
You were incorporated in the State of B on C (date).

According to your Articles of Incorporation, your purpose is to teach married couples biblical
principles relative to better communication in the marriage relationship. Special emphasis is
placed on assisting them in making wise financial decisions. To accomplish this mission, you
will conduct marriage seminars and conferences in which proper money management and
financial stewardship are the main subjects. Your Articles of Incorporation also restrict your
purposes and dedicate your assets upon dissolution in accordance with section 501(c)(3)
requirements.

Your governing body consists of three members:

e D serves as your President. He is also the founder and president of J. J is a for profit
company which creates and provides software and training materials to financial
planners.

e F serves as your Secretary. He is the founder of H, a for-profit S Corp. H provides
behavioral assessment training for the leadership of various churches, as well as for
married couples and parents.

e D and F develop and produce your conferences.

You identified G as your Treasurer.

The Form 990 filed for your first year of operations listed these same individuals as the
members of your board of directors. In your second year, D and F were the only persons that
you listed as officers and directors.

None of your officers are compensated for their governing roles. However, F received
compensation as an employee of his company, H. H provided contract services that included
development of your website, preparation of training literature and designing your general
program approach. The terms of the contract were established and agreed upon orally. In fact,
the only written contracts you have provided are two loan contracts between you and J.

You conduct conferences where biblical principles of marriage and finances are presented to
couples. According to your promotional material, “Experts give you a biblical model of finance
while providing information that financial institutions will never tell you.” You originally stated that
the conferences will take places in church and non-church settings. You later stated that

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conferences would take place exclusively in churches. The conferences are primarily taught by
your officers, D and F.

The one day seminar follows an 80 page workbook which was created by D and F. The morning
topics appear to cover common problems in marital relationships and discusses how couples
should work together to resolve those issues. The afternoon topics include wealth strategies
and money management.

When requested to provide a detailed narrative describing each of the topics set forth in the
workbook, you stated that this “would simply require the writing of a book as opposed to putting
on a seminar. Suffice it to say that the training and discussion follows along the lines of the
pages of the workbook ...” You went on to state that all materials given to the participant and
used by the instructors have been previously provided to the IRS.

J provides “financial calculators” used in conjunction with the program. These online computer
programs are designed to help the participants understand that the proper use of money is a
biblical stewardship issue, not finance or wealth issues.

Your workbook provides biblical text to introduce a discussion of reasons for living a more
conservative lifestyle, as well as, the importance of investing and financial management. You
did not provide representative samples of these “financial calculators” or access to the online
computer programs. The workbook identifies the financial calculators, pictures and graphs used
in the money section as ones that are copyrighted and owned by J. Four other copyrights for
materials used in the workbook/presentation are identified as belonging to H.

J’s online program to determine if one is prepared for retirement is implemented at the
conferences as a type of post-conference assignment. You reported that J charges x dollars per
couple for this service. The charge is included in the conference registration fee. You allege
that, “These items are supplied basically at cost.”

The program allows the participant couple to input their ages, present income, savings amounts,
expected returns, etc. to determine if the funds necessary for them to retire at age 65 (or any
other age) will be available. Normally, J charges y dollars per couple for using the program. You
stated that the reduced fee is meant simply to offset the costs associated with providing the
service. No contracts or other documentation were provided to support theses statements.

H will also provide some computer based services to the conference participants. These
services include a computerized behavior/personality assessment to each attendee. This
service is implemented as a pre-conference assignment. The cost to each attendee will be x
dollars per person. Normally, H charges y dollars per person (to other third parties) for this
service. Attendees that cannot afford the fee for this service can use it free of charge. You
reported that you had not maintained records to reflect accurately the number of persons who
received service free of charge.

You expect your main sources of income to be donations from both private and public sources
and gross receipts from the conferences. In the future, you may sell recordings of the

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seminar/conferences at a slight markup (over cost) to secure additional funding.

In your first year, no contributions were received. For year N, J contributed % of your total
contribution income.

In order to get the events set up and create the conference materials, you accepted a loan in
the amount of p dollars from J shortly after you were incorporated. In addition, a second note for
q dollars was executed a year later. The additional loan was intended to cover additional
conference and materials expenses. Both notes are subject toa % interest rate per annum.
There is no set timetable for the loans to be repaid. However, it is hoped that you will obtain
sufficient funding from donations, contributions and gifts from third parties. If so, repayment of
these loans could be accomplished in a fairly short period of time.

All of the conferences will be sponsored through local churches. Each host church is asked to
pay v dollars to subsidize the conference. If the church pays v dollars, then each couple pays s
dollars to attend. If a church cannot afford its portion of the conference fee, the amount is
reduced to an amount the church can afford. When the church pays its full share, v dollars, each
couple pays s dollars to attend. If the church does not pay the full amount, the ‘per couple’ fee is
increased accordingly. No promotional materials or contracts relating to the use of church
facilities were provided with your application or in response to subsequent correspondence.

The sponsor church may also choose to pay an additional amount. In that case, the fee paid by
attending couples is reduced accordingly. Thus, the fee can range from zero to t dollars. At no
time will the ‘per couple’ fee be more than t dollars.

A partial breakdown of the conference registration fee indicates that $ of the t dollar fee
covers the profile and financial calculations programs provided by H and J. The workbooks and
lunch for the participating couples represent another $ . An explanation of the expenses
related to the remaining balance of the attendance fee was not provided.

You stated that you have also made an accommodation for those who would like to attend but
cannot afford the ‘per couple’ conference fee. In these cases, you will ‘scholarship’ the couple
so they can attend. You stated that “often times couples are admitted ‘free’ if the cost is a
burden on them.” However, you do not have a fee waiver policy. Instead, you state your fees
are not “confined to any particular price point...but attempt to achieve a price that will break
even in terms of costs and expenses versus revenue.”

In addition, no details were provided as to how the scholarship program is publicized and
administrated. You did not disclose how eligible persons become aware that scholarships are
available or the selection criteria used. And, you did not maintain a record of the persons who
have been recipients of your scholarships in the past.

You anticipate your largest expenditures will be for salaries and program expenses.

You submitted copies of your Form 990s for M year and N year. In M year, you received less
than $ in program income (conference fees) and spent nearly $ in various

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expenses, including almost $ paid to subcontractors, about $ for development/art
and over $ for seminar presentations. You stated that a majority of the contract labor was
paid to H. However, you also stated that no 1099’s were issued because there was no
additional contract labor in that year.

According to the Form 990 filed for N year, you spent nearly $ on contracted labor
provided by H. No contracts related to any of the expenditures have been provided.

You indicated that the excessive expenses in M year were due to your attempt to accelerate
your programs. These expenses included development of your training material, general
program approach and the website. Instead of spreading the development expenditures out
over several years, a loan from J was obtained so that funds could be available for the
development to take place on a shorter schedule. The only document you have furnished
related to “training material and general program approach’ is the workbook provided to seminar
participants. As pointed out earlier, most of the materials in the workbook are adapted from
patent and trademark materials owned by H and J.

Your website, K was a single page. All 3 of the links on that page redirect the viewer to H web
pages. The L link leads to a form where the registrant can enroll to attend the conference for z
dollars. The other 2 links lead to books and other materials co-authored by your founders, D and
F. The checkout page identifies H as the payee.

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 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(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.

Section 1.501(c)(3)-1(c)(2) of the regulations provides that an organization is not operated
exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the
benefit of private shareholders or individuals. Section 1.501(a)-1(c) of the regulations defines
the words “private shareholder or individual” in section 501 of the Code to refer to persons
having a personal and private interest in the activities of the organization.

Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides that an organization must serve a

Letter 4036(CG)(11-2005)
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6

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 501(q)(1) of the Code applies to organizations with respect to which the provision of
credit counseling services is a substantial purpose. An organization of this type shall not be
exempt from tax under subsection (a) unless such organization is described in paragraph (3) or
(4) of subsection (c) and meets the other requirements of this section.

Section 501(q)(1)(C) of the Code indicates that these organizations must establish and
implement a fee policy which, requires that any fees charged to a consumer for services are
reasonable. [501(q)(1)(C)(i)], allows for the waiver of fees if the consumer is unable to pay
[501(q)(1)(C)(ii)], 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 [501(q)(1)(C)(iii)).

Section 501(q)(1)(D) of the Code applies the following restrictions:

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

(i) 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,

(ii) 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 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).”

Section 501(q)(4)(A) of the Code 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.

In Revenue Ruling 69-441, 1969-2 C.B. 115, the Service found that a nonprofit organization
formed to help reduce personal bankruptcy by informing the public on personal money
management and aiding low-income individuals and families with financial problems was
exempt under section 501(c)(3) of the Code. Its Board of Directors consisted of a broad-base

Letter 4036(CG)(11-2005)
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from the community. In order to accomplish their exempt purpose, the organization provided
information to the public on budgeting, buying practices, and the sound use of consumer credit.
It aided low-income individuals and families who have financial problems by providing them with
individual counseling, and if necessary, by establishing budget plans. The organization did not
charge fees for counseling services (or proration services). Finally, the organization relied upon
contributions, primarily from the creditors participating in the organization’s budget plans, for its
support.

The Service found that, 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 was relieving the poor and distressed. Moreover, by providing
the public with information on budgeting, buying practices, and the sound use of consumer
credit, the organization was instructing the public on subjects useful to the individual and
beneficial to the community. Thus, the organization was exempt from federal income tax under
section 501(c)(3) of the Code.

The petitioner in Est of Hawaii, 71 T.C. 1067 (1979), conducted training, seminars and lectures
in the area of interpersonal awareness. Such activities were conducted under licensing
arrangements with various for-profit corporations. The licensing agreements were conditioned
on the petitioner maintaining tax exempt status. The petitioner argued that it had no commercial
purpose of its own and that its payments to the for-profits were just ordinary and necessary
business expenses. The Court did not agree with the petitioner citing that the operational test
(see Section 1.501(c)(3)-1(c)(1) (1) of the Income Tax Regulations) focuses on the purpose
rather than nature of an organization's activities. The Court concluded that the petitioner is not
exempt under IRC 501(c)(3) because the petitioner serves a substantial private and commercial
purpose rather than an exempt purpose.

In Church by Mail, Inc. v. Commissioner, (1985) the Court affirmed a Tax Court decision.
Church by Mail sent out sermons in numerous mailings. This required a great deal of printing
services. A for-profit company, controlled by the same ministers, provided the printing and the
mailing. This company also employed family members. The services were provided under two
contracts. The contracts were signed by the two ministers for both the organization and the for-
profit company. The organization’s business comprised two-thirds of the overall business done
by the for-profit company. The court determined that there was ample evidence in the record to
support the finding that the organization was operated for the substantial non-exempt purpose
of providing a market for the services of the for-profit company. The employees of the company
spend two-thirds of their time working on the services provided to the church. The majority of
the Church’s income is paid to the for-profit company to cover repayments on loan principal,
interest, and commissions. The critical inquiry is not whether particular contractual payments to
a related for-profit organization are reasonable or excessive, but instead whether the entire
enterprise is carried on in such a manner that the for-profit organization benefits substantially
from the operation of the Church. Further, the potential for abuse created by the ministers’
control of the Church requires open and candid disclosure of facts bearing upon the exemption
application. Moreover, the ministers’ dual control of both the Church and the for-profit company
enables them to profit from the affiliation of the two entities through increased compensation.

Letter 4036(CG)(11-2005)
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In Easter House v. U.S., 12 Ct. Cl. 476 (1987), affd. 846 F. 2d 78 (Fed. Cir 1988), the court
found that adoption services were the primary activity of the organization. In deciding that the
organization conducted adoption services for a business purpose rather for a charitable
purpose, the court considered the manner in which the organization operated. The record
established a number of factors that characterize a commercial activity and which were evident
in the operations of the organization as well. The court determined that the organization
competed with other commercial organizations providing similar services; fees were the only
source of revenue; it accumulated very substantial profits, because it set its fees in order to
generate a profit; the accumulated capital was substantially greater than the amounts spent on
charitable and educational activity; and the organization did not solicit and did not plan to solicit
contributions. The court also found a corporate-type structure in the classes of memberships
(including a single life member having inherent power that the holder could transfer like stock),
and dependence on paid employees. The organization was not found to be exempt under
section 501(c)(3) of the Code.

In B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978), the court found that a corporation
organized to provide counseling services was not exempt under section 501(c)(3) because its
activities constituted the conduct of a trade or business that is ordinarily carried on as a
commercial venture organized for profit. The corporation's primary purpose was not charitable,
educational or scientific, but rather commercial in nature. Further, the court found that the
organization's financing did not resemble that of a typical 501(c)(3) organization as it had not
solicited, nor had it received voluntary contributions from the public. Its only source of income
was from the fees for services that it collected. Those fees were set high enough to recover all
projected costs and produce a profit. Moreover, it did not appear that the corporation ever
planned to charge a fee less than “cost.” Additionally, the corporation did not limit its clientele to
organizations that were exempt under section 501(c)(3).

In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279 (1945), the
Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature,
will destroy the exemption regardless of the number or importance of truly exempt purposes.
The Court found that the trade association had an “underlying commercial motive” that
distinguished its educational program from that carried out by a university

Application of Law:
As noted in section 501(c)(3) of the Code and section 1.501(c)(3) -1(a)(1) of the regulations two

tests must be met to qualify for exempt status. Because your Articles of Incorporation contain
the proper language, you meet the operational test. However, you also bear the burden of
proving you meet the operational test. You have not met that burden for the reasons set forth
below.

You do not meet the requirements of section 1.501(c)(3)-1(c)(1) of the regulations because more
than an insubstantial part of your operations are not in furtherance of an exempt purpose. The
facts show substantial control by D and F and that you are an extension of their for profit

businesses, H and J. Through your products and services of H and J are marketed, promoted and

sold. Accordingly, more than an insubstantial part of your operations benefit D and F.

Letter 4036(CG)(11-2005)
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You do not meet the requirements of section 1.501(c)(3)-1(d)(ii) because you are organized and
operated for the benefit of D and F.

You are not similar to Revenue Ruling 69-441 because your board of directors does not consist of
a broad-base from the community, and because you charge fees for the services you provide.

Like Est of Hawaii, you are not exempt because you serve substantial private and commercial
purposes. While there is no formal licensing agreement between you and the companies
controlled by D and F, it is clear that virtually all your activities are conducted by your officers
who provide similar instructions and products in their for-profit businesses. Your website,
literature and materials promote H and J products, and a portion of the fees you collect is for H
and J products.

The facts presented in Church by Mail, Inc. v. Commissioner, are remarkably similar to your
operations.
e You are controlled by officers whose companies, H and J, provide services to you
e You are substantially funded by a loan from J and will repay J, on demand, the loan
principal and interest.
e DandF control both you and their for-profit companies H and J. This control enables
them to profit from the affiliation of the entities through increased revenues.

Church by Mail, Inc. was ultimately denied exemption because like you, the entire enterprise
was carried on in a manner that serves to benefit the for-profits that control its operations.

Like Easter House v. U.S., and B.S.W. Group, Inc. v. Commissioner, the commercial manner in
which you operate precludes you from exemption under section 501(c)(3). Your marriage and
financial counseling services are conducted in the same manner as commercial organizations.
In fact, D and F, own 2 such companies. Both H and J provide similar products and services
on a for-profit basis. In fact, H and J hold patents and trademarks on the material used in your
seminars. Like a commercial organization, you charge fees for your services. Though you state
services are provided free to some persons who could not afford to pay the participation fee,
you provided no evidence to support this claim or the number or percentage of individuals who
received free services. You do not have a fee waiver policy. Instead, your fees are calculated to
allow you to “break even in terms of costs and expenses versus revenue.” Like a commercial
organization, you market your services to prospective clients and offer suggestions designed to
increase attendance and sales.

As noted in Better Business Bureau of Washington D.C., the presence of a single non-exempt
purpose, if substantial in nature, will destroy the exemption regardless of the number or
importance of truly exempt purposes. The facts show that a substantial purpose of your —
operations is commercial and furthers the private interests of D and F.

Section 501(q) of the Code:

Because you are providing educational information to the general public on budgeting, personal
finance, financial literacy, saving and spending practices, and the sound use of consumer credit;

Letter 4036(CG)(11-2005)
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you are engaging in credit counseling services as defined in section 501(q)(4)(A) of the Code.
An organization that engages in credit counseling activities as a substantial purpose must, in
addition to complying with the requirements of section 501(c)(3), comply with the provisions of
section 501(q). You do not meet the requirements of section 501(c)(3) and you do not meet the
requirements of section 501(q).

You failed to establish that you have a fee policy that meets the requirements of section
501(q)(1)(C). Although you have indicated that you will provide ‘scholarships’ or provide
services ‘free’, this has not been expressed in any set fee policy. You have not elaborated on
how and when you would allow for any fee waiver to be used. Further, you have not shown that
any of the previous persons who attended your program were granted any reduction in fees or
any fee waiver option.

Credit counseling organizations must be governed by a board controlled by persons
representing the broad interests of the public rather than by persons who benefit from the
organization's activities, as noted in section 501(q)(1)(D) of the Code. A majority of the voting
power of your board is vested in persons, specifically D and F, who will benefit financially,
directly and indirectly, from the organization's activities (other than through the receipt of
reasonable directors' fees or the repayment of consumer debt to creditors other than the credit
counseling organization or its affiliates) through subcontractor payments, fees to their for-profit
entities for services or compensation. Accordingly, you do not have a board that is controlled by
persons who represent the broad interests of the public as required by section 501(q)(1)(D)(i).
You also fail to meet the requirements of sections 501(q)(1)(D)(ii) and (iii), which generally
specify the percent of voting power that is allowed to be vested in financially interested persons.

Conclusion:

Based on the facts provided, we hold that you do not meet the operational test for exemption
under section 501(c)(3) of the Code because you operate in a commercial manner and because
your operations serve the private interest of your officers, D and F. Had you established that
you met the requirements of section 501(c)(3) of the Code, the facts show you also fail to satisfy
the requirements of section 501(q) which is an alternate basis for denial of exemption.
Accordingly, we conclude you do not qualify for exemption as an organization described in
section 501(c)(3) of the Code. Contributions to you are not deductible under section 170 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 representation
during the appeal process, you must file a proper power of attorney, Form 2848, Power of

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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:

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,

Holly Paz
Director EO Rulings and Agreements

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