Other 1318027: IRS revokes a dog club's tax-exempt status

Plain-English summary

The IRS revoked a dog club's exemption under section 501(c)(3). The organization conducted dog shows, obedience training, and related matches, and it argued that these activities educated dog owners and the public. The IRS concluded that the primary object of the training was the dogs, not the owners, and that the club's activities did not qualify as educational or charitable purposes under section 501(c)(3). The IRS also concluded that more than an insubstantial part of the activities furthered non-exempt purposes. Contributions to the organization were no longer deductible under section 170, and the organization was required to file Form 1120 income tax returns.

Ruling snapshot

• Question: Whether the organization qualified for exemption under section 501(c)(3).
• Outcome: Revocation.
• Key authorities: IRC §§ 170, 501(c)(3), 7428; Treas. Reg. §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(c)(1), 1.501(c)(3)-1(d)(3).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations
625 Fulton Street, Room 503

Brooklyn, NY 11201 501.03-00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION February 1, 2011

Number: 201318027
Release Date: 5/3/2013

LEGEND Taxpayer Identification Number:
ORG = Organization name Person to Contact:
XX = Date Address = address Identification Number:

Contact Telephone Number:
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 February 20, 20XX is hereby revoked and you are no longer exempt under
section 501(a) of the Code effective January 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
January 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 December 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 91*' 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:

lf 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

DEPARTMENT OF THE TREASURY
Internal Revenue Service
N14 W24200 Tower Place, Suite 202
Waukesha, Wisconsin 53188

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

October 27, 2010

Taxpayer Identification Number:

ORG
ADDRESS Form:

Tax Year(s) Ended:
Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:

Certified Mail - Return Receipt Requested

Dear

We have enclosed a copy of our report of examination explaining why we believe
revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code
(Code) is necessary.

If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, 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. Your protest should include a statement of the facts, the
applicable law, and arguments in support of your position.

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, The Examination Process, and Publication
892, Exempt Organizations Appeal Procedures for Unagreed Issues, 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.

You may also request that we refer this matter for technical advice as explained in
Publication 892. If we issue a determination letter to you based on technical advice, no
further administrative appeal is available to you within the IRS regarding the issue that
was the subject of the technical advice.

Letter 3618 (04-2002)
Catalog Number 34809F

If we do not hear from you within 30 days from the date of this letter, we will process
your case based on the recommendations shown in the report of examination. If you do
not protest this proposed determination within 30 days from the date of this letter, the
IRS will consider it to be a failure to exhaust your available administrative remedies.
Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree
under this section shall not be issued in any proceeding unless the Tax Court, the
Claims Court, or the District Court of the United States for the District of Columbia
determines that the organization involved has exhausted its administrative remedies
within the Internal Revenue Service." We will then issue a final revocation letter. We
will also notify the appropriate state officials of the revocation in accordance with section
6104(c) of the Code.

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 (04-2002)
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
December 31,
20XX
LEGEND
ORG = Organization name XX = Date State = state President =
president CO-1 = 18* COMPANY

Issue

Whether ORG (ORG), meet the qualifications for exemption under section 501(c)(3) of the
Internal Revenue Code?

Facts

ORG was first formed as CO-1 and in 19XX did a amendment to change its name to ORG It was
formed as Non-stock Corporation in 19XX for the primary purpose of furthering the
advancement of all breeds of pure-bred dogs; to conduct dog shows, obedience trails and
sanctioned matches under the rules of the CO-2.

In 19XX the organization known as ORG failed to file its annual reports. Then in 19XX the
nonstick corporation was administratively dissolved by the State of State.

In 20XX _, President mistakenly filed reinstatement of Articles of Incorporation using a for-profit
stock corporation form under the same name “ORG” Then in 20XX , the State of State
Department of Financial Institutions corrected the error and administratively dissolved the for-
profit stock corporation and reinstated the Non-Stock Not-For-Profit Corporation under the same
nhame.

ORG applied for tax exempt status in 20XX and was granted exemption on February 20,
20XX_ as public charity under section 501(c)(3) of the Code.

The activities of the ORG are focused on conducting annual dog shows, (field trials) (obedience
trails) and Sanctioned matches under the rules of the CO-2 and to educate the public about dog
shows and matches. Approximately _ percent of the ORG efforts and resources are directed at
providing the shows and matches. The dog shows and matches are the club’s primary source of
income.

In addition, they provide dog training classes/seminars that are held six months out the year on a
weekly basis. Each class/seminar is 30 minutes long and two classes are held per day. ORG
holds dog obedience training classes, and awards the dogs a degree after completion of the course
and also award, them prizes at the shows events. While the owners received some instruction as
to the training of the dogs, it is the dog that is primary object of the training.

Law

Form 886-A rev.4-68) 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
December 31,
20XX

Internal Revenue Code Section 501(c)(3) exempts from Federal income tax: corporations, and
any community chest, fund, or foundation, organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary, or educational purposes, or to foster
national or international amateur sports competition (but only if no part of its activities involve
the provision of athletic facilities or equipment), or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation (except as otherwise provided in subsection (h)), and which
does not participate in, or intervene in (including the publishing or distributing of statements),
any political campaign on behalf of (or in opposition to) any candidate for public office.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations provides that in order for an
organization to be exempt under section 501(c)(3) of the Code it 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 or operational test, it is not exempt.

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

Rev. Rul. 73-456 held that a training center established to instruct the blind to properly function
with the aid of guide dogs met the operational test under IRC 501(c)(3). It operates a training
center where programs are conducted to train dogs to lead and assist the blind, and to instruct
them to function with their dogs. During the training course the blind person and his dog are
together twenty-four hours a day for approximately four weeks. The blind person is instructed in
caring for his dog, in giving commands, in reacting to the dog's actions, and in accepting
complete confidence in the dog's leadership. The blind person and his dog then receive additional
instruction to enable them to maneuver in traffic and in densely populated areas.

The training center maintains a staff consisting of a director and three assistants, and the
organization has been recognized as exempt from Federal income tax under section 501(a) of the
Code as an organization described in section 501(c)(3).

Rev. Rul. 74-194, 1974-1 C.B. 129, held a nonprofit organization formed to prevent the birth and
eventual suffering of unwanted animals in the community was exempt under 501(c)(3) by
preventing cruelty to animals. Many of whom would die of starvation, disease, or injury. The
organization advocates the spaying or neutering of the mixed breed dog and cat, and raises funds
to aid pet-owners who desire to spay or neuter their pets but who cannot afford the rates charged
by veterinarians to perform the operations. There is no relationship between any member of the

Form 886-A cev.4-68) 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
December 31,
20XX

organization and the veterinarians who perform the operations. The income of the organization
is derived from membership fees, contributions, and fund-raising activities. All funds are
expended for the organization's program.

Rev. Rul. 71-421 held that a dog club, formed to promote the ownership and training of pure-
bred dogs and conducting obedience training classes, was not exempt under section 501(c)(3).
The organization provides facilities and trainers for the conduct of obedience training classes.
Weekly classes are conducted under the regulations of the national club. The standard course
-_Jasts nine weeks and trains dogs in obedience. The classes are attended by members and their
dogs so that the dogs will learn to respond to their owners' commands.

Beyond the obedience course, members are encouraged to continue the training of their dogs in
sporting and show events. Members and their dogs participate in trial competitions with judges
evaluating the performance of the dogs. The trial competitions are in preparation for an annual

dog show conducted by the organization under the auspices of the national club.

Section 1.501(c)(3)-1(d)(3) defines the term ‘educational’ as relating 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.

The nature of obedience training requires that the owner of the dog appear at the classes so that
the dog is trained to respond to his owner's commands. While the owner receives some
instruction in how to give commands to his dog, it is the dog that is the primary object of the
training. The dog is also the primary object of the subsequent training in sporting and show
events. Therefore, the organization's training program for dogs is not within the meaning of
educational as defined in the regulations.

In Ann Arbor Dog Training Club, Inc. v. Commissioner, 74 T.C. 207 (1980) the court held
that the training of animals does not come within the meaning of "educational" as set forth in
Section 501(c)(3) of the Internal Revenue Code. The organization held dog obedience training
classes, awarded the dogs a degree after completion of the course and also awarded them prizes
at show events. While the owners of the dogs received some instruction as to the training of
dogs, it was the dog that was the primary object of the training and evaluation.

Government’s Position

Dog training in the manner you describe is not exempt purposes as described in IRC section
501(c)(3), because the organization’s training program for dogs as well as its dog shows is not
within the meaning of educational as defined in the regulations . In fact, you primarily serve the
private interests of the dog owners and thus not operated exclusively for 501(c)(3) purposes.

Form 886-A crev.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
December 31,
20XKX

Unlike Rev. Rul. 73-456, you are not training disabled individuals to function with the aid of
guide dogs. The facts show that the object of your training is that of the dogs, not the individual.
Even though you indicated that some of the dogs you train may be owned by disabled
individuals, your focus is on selecting a dog in need of training and not on the provision of
necessary services for the disabled individual.

Unlike Rev. Rul. 74-194, 1974-1 C.B. 129, ORG was not formed and operating to prevent the
birth and eventual suffering of unwanted animals. The dogs you train are not unwanted, unborn,
or non-owned. They are companion animals owned by clients who are in need of or desire dog
training services and/or boarding.

Your operations are similar to Ann Arbor Dog Training Club, Inc. v. Commissioner, 74 T.C.
207 (1980), because you regularly provide dog obedience training classes. In addition, it is the
dog that is the primary object of the training and evaluation.

You are similar to Rev. Rul. 71-421 because you also conduct obedience training for dogs as
indicated in this ruling.

You fail to meet the provisions of Section 1.501(c)(3)-1(a)(1) and _1.501(c)(3)-1(¢)(1) of the
Regulations because you are not operated exclusively for exempt purposes.

Taxpayer Position

ORG asserts that it provides educational training to the dog owners and meets the requirements
of Internal Revenue Code Section 501(c)(3). In addition the club feels that providing dog shows
are educational in nature.

Conclusion

ORG provides dog obedience training classes, awards the dogs with a degree after completion of
the course and also awards them prizes at show events. The object of training provided by ORG
is to train the dogs in obedience. An incidental benefit is to the owner as a recipient of the
obedience the dog receives from such training.

ORG was not formed for the purposes of nor does it operate exclusively for educational and
charitable purposes as defined in of Section 501(c)(3) of the Internal Revenue Code or the
Regulations pertaining thereto. You do not qualify for exemption under section 501(c)(3) of the
Internal Revenue Code and should be revoked.

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

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

Schedule No. or

Form 886 A Department of the Treasury - Internal Revenue Service
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG
December 31,
20XX

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.

Form 886-Ackev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -5-