1332013: IRS finalizes adverse determination for proposed Islamic educational broadcaster

Plain-English summary

The IRS finalized an adverse determination that an organization did not qualify for exemption under IRC § 501(c)(3). The organization proposed television programming, seminars, publications, and research about Islam, but did not provide enough detail about its broadcasts, personnel, seminars, publications, or operations. The IRS also found concerns about control by related individuals, compensation of the sole paid employee, and the lack of safeguards against private benefit. The final determination followed the organization's failure to file a protest within 30 days, and donors may not deduct contributions to it under § 170.

Ruling snapshot

• Question: Does the organization qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation, the proposed adverse determination became final.
• Key authorities: IRC §§ 501(c)(3), 170, and 7428; Treas. Reg. §§ 1.501(c)(3)-1 and 1.501(a)-1(b); IRC § 6110.

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Number: 201332013 Contact Person:
Release Date: 8/9/2013 laiaelalalelalahl

Identification Number:
Date: May 17, 2013 Contact Number:
ee Employer Identification Number:
lalaalalaiaiaiala Form Required To Be Filed:
UIL: 501.03-00 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 § 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.

Because you do not qualify for exemption as an organization described in § 501(c)(3), donors
may not deduct contributions to you under § 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. File the returns in accordance with their instructions, and do not send
them to this office. Failure to file the returns timely may result in a penalty.

We will make this letter and our proposed adverse determination letter available for public
inspection under § 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, follow the instructions in
Notice 437. If you agree with our deletions, you do not need to take any further action.

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

(800) 829-1040 or the IRS Customer Service number for businesses at (800) 829-4933. The
IRS Customer Service number for people with hearing impairments is (800) 829-4059.

Sincerely,
|
|
|
Holly O. Paz
| Director, Rulings and Agreements
Enclosures
Notice 437

Redacted Proposed Adverse Determination Letter
Redacted Final Adverse Determination Letter

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Date: April 5, 2013 Contact Person:
Identification Number:

UIL 501.03-00, 501.03-30 ieiaiaieialalaleiaial

behalalalahilaiaila Contact Number:

REKKRERRKKEE FAX Number:

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Employer Identification Number:

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Dear

We have considered your application for recognition of exemption from federal income tax
under Internal Revenue Code § 501(a). Based on the information provided, we have concluded
that you failed to establish your qualification for exemption under § 501(c)(3). The basis for our
conclusion is set forth below.

Facts:

You were incorporated as a State nonstock corporation on Date1. On Date2, you filed Articles
of Amendment which provide that you are organized exclusively for charitable, religious, and
educational purposes, and to make distributions to organizations that qualify as exempt under

§ 501(c)(3). These Articles of Amendment state your mission as: “Islamic Religious teachings
to include Holly [sic] Quran, Create understanding and sympathy for all religions, help the needy
all over the world, Teach principles taught by the Holly [sic] Prophet Mohammed (PBAU) and his

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progeny utilizing Satellite technology to broadcast internationally.” Your Articles of Amendment
also contain a prohibition on inurement and provide that upon dissolution, all of your assets shall
be distributed for one or more exempt purposes within the meaning of § 501(c)(3).

You stated that you operate to educate people through television programs, seminars,

publications, and other similar forums about the true meaning of Islam focusing on the Shi'a

school of thought, religious tolerance, and peaceful means of conflict resolution. You stated that

you plan to spend % of your time and resources on broadcasting activities, and the remaining
% of your time and resources on research, publications, and seminars, collectively.

You plan to produce and broadcast the following programs:

e Social: % of time and resources; to include debates on social, economical, and cultural
challenges. It will include discussions on the rights of women and children, and
documentaries on the professional and personal lives of successful Muslims in the West.

e Religious: % of time and resources; to focus on the prophet of Islam's biography, truth
about the event of Ashura, teaching of Islam through the Jaffari school of thought,
teaching, reading, and meaning of Qur'an, among other topics.

e Cultural: % of time and resources; to present the culture of Islam, Islamic
jurisprudence, introduction and understanding of Shi’a culture, rise and fall of Islamic
empires, and other related topics.

e Scientific. % of time and resources; to introduce discoveries Muslims made throughout
history, current scientific discoveries as seen through Qur'an and Islamic perspectives,
and other related topics.

e Kids/Youth Content: % of time and resources; aimed at teaching children and youth
religious tolerance and peaceful conflict resolution. Programs will teach children the true
meaning of Islam, reciting the Qur'an, and challenges pertaining to the growth of Muslim
adolescent and youth in the West. These programs will also focus on the analysis of
child abuse and its solutions, and other related programs.

e Entertainment: you failed to include this category in your allocation of time and
resources; this would include short education films on moral issues, historical Islamic
movies, game shows, and other related programs.

You indicated that you will produce and broadcast programs at a rented facility; however, you
stated that you do not yet have such a facility. In Letter1 we asked you to name the foreign
countries in which you will operate. We also asked you to describe your operations in each
foreign country and how those operations would further your exempt purposes. In Letter2 you
responded that you will broadcast through a satellite system from the United States into the
United States, Canada, and Europe. You stated that you do not have any offices in foreign
countries. You stated that you will produce and broadcast these programs with help from

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volunteers who will have the proper and required education and are experts in their fields. In
Letter3 we asked you to provide a list of names and qualifications of the people that will
contribute content to your religious and education programming and the people that will appear
as experts on your programs. In Letter4 you provided a list of seven individuals. You stated that
most have studied many years in Islamic seminary in different Islamic countries and have also
obtained secular degrees from different universities. You failed to provide individual
qualifications for each person named.

We asked you in Letter1 to describe what you had accomplished to that date in furtherance of
your television programming activities. You responded in Letter2 that you are “producing
religious and educational programs’ that include short films, documentaries, life of converts, and
more. In Letter3 we requested a schedule of each broadcast you had conducted since the date of
Letter2. We asked you to include the names, dates, subject matter, and location of each, as well as
a transcript of each. In Letter4 you provided a list of twenty-one broadcasts ranging in duration
from eighteen seconds to nearly forty-one minutes. Your list provided the name and duration of
each broadcast. You also provided a three to four word description of most broadcasts, though
not of all. The list did not contain dates or locations of the broadcasts, or a meaningful
description of their content. Additionally, you failed to provide transcripts of any broadcast. ‘

You intend to conduct and sponsor educational and cultural seminars within and outside the
United States. You stated that seminars will be designed to educate people about Islam and
will be organized and managed by your volunteer staff. In Letter1 we asked you to describe
what you had accomplished in furtherance of your seminar activities. We also asked you to
describe the content of your seminars or planned seminars. You responded in Letter2 that you
had not conducted any seminars. In Letter3 we requested a schedule of each seminar you had
conducted since the date of Letter2. We asked you to include the names, dates, subject matter,
and location of each. You responded in Letter4 that you had not conducted any seminars since
you were formed and have no plans to do so for at least the next two years.

You also plan to publish printed materials about Islamic education, cultural issues, and the
rights of women and children, among other things. You stated that you will use qualified,
independent volunteer scholars and experts within and outside the United States to draft these
materials. You stated that you will distribute these publications, without any preference or
discrimination, to various public and private libraries and other educational institutions for a
nominal charge to cover the direct costs of production. You intend to distribute publications
once per year. We asked you in Letter1 to describe what you had accomplished to date in
furtherance of your publishing activities. We also asked you to describe the content and
distribution of your publications. You responded in Letter2 that you had not published anything
to date nor had you set a date for publication. In Letter3, we asked you to provide copies of any
published material or a description of planned publications since the date of Letter2. You
responded in Letter4 that you had still not published anything and have no plans to do so in the
near future.

You plan to conduct research and collect empirical data on Islamic studies, as well as ways and
means of producing high quality programs to achieve your goals. You stated that independent,

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volunteer researchers within and outside the United States will conduct the research and engage
in data gathering activities. You intend to make the results of your research available to the
general public and other relevant organizations through your website, booklets, newsletters, and
other printed material.

A recent review of your website revealed that you have three news stories posted to your
website. The most recent story is from over a year ago. The most recent images from your
website’s Image Gallery are approximately a year and a half old. Your website lists thirteen
videos that visitors can watch, all but one of which was added to your website over a year ago.
Your website lists one event, which took place over a year and a half ago. Your website has a
blog section consisting of four posts. The most recent blog post was posted over a year ago.

You stated that you will not make grants, loans, or other distributions to domestic or foreign
organizations. You plan to conduct fundraising through personal solicitations and will accept
donations on your website. You anticipate receiving revenue from gifts, grants, and
contributions. You also report small amounts of net unrelated business income. Your expenses
include those for fundraising; contributions, gifts, grants, and similar amounts paid out;
compensation of officers and directors; other salaries and wages; interest expense; occupancy,
depreciation and depletion; professional fees; and other administrative fees. Your statement of
revenue and expenses for Partial Year listed revenue of $x1 from donations and from refunds
and credits. Expenses of $x2 for Partial Year included those for finance charges, website
development, satellite services, business services, operations, automobile expenses, salary and
wages, Car rentals, airline tickets, and travel, among others.

Founder and his son, Co-Founder, will conduct your activities. Founder has an associate's
degree in religious studies and studied for ten years in Seminary Priest. You stated that
Founder works full-time for you supervising programs, planning programs, critiquing programs,
and participating in board meetings; however, Founder does not receive compensation for his
services. Co-Founder also has an associate’s degree in religious studies. Co-Founder manages
day-to-day operations, reviews material for broadcast, manages finances, produces programs,
and organizes and attends all meetings. Co-Founder is also the president of your Board. Co-
Founder is currently the only compensated employee, although you may employ more individuals
as you grow. Co-Founder is compensated $x3 annually. You do not yet have a written employment
contract with Co-Founder. In Letter1 we asked you to describe how compensation for Co-Founder
was determined. We asked you to include details on the procedures that were followed as well as
any documents that were relied upon during the determination. You responded in Letter2 that
you took the following factors into consideration while determining compensation for Co-Founder:
nature and amount of work; qualifications; experience; and salaries paid to similar officers in
similar organizations. You listed four organizations that you used for compensation comparisons.

Your Bylaws included with your application were adopted on Date3. In Letter1 we asked you to
submit the bylaws that were adopted at the time of your formation and any subsequent amendment
to those bylaws. In Letter2 you stated that you did not have bylaws at the time of formation;
therefore, you did not have bylaws between Date1 and Date3.

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According to your Bylaws, all management powers are vested in your Board, which shall have
“charge, control, and management of [your] property, affairs, and funds . . . .” Duties of the
Board include “the transaction of all Organization business” and “[t]he employment of such
persons as it may deem necessary, and the fixing of duties, powers, and compensation of such
employees.” Your Bylaws provide that the Board may vote to decrease the number of directors to
one. Any vacancy on the Board shall be filled by majority vote of the remaining members. Each
director shall serve for a term of one year and may succeed himself or herself for an unlimited
number of terms. Thus, “[t]he Board shall be self-perpetuating, electing directors at its annual
meeting.” We asked you in Letter1 how you would ensure that your Board would pursue charitable
purposes if only one individual was appointed, the minimum prescribed number of members. You
responded in Letter2 that you have no intention of having only one director and that you added
that language because you believed it was a State requirement for non-stock corporations. You
also added that you would add more directors in the future.

You have adopted a Conflict of Interest Policy. Your Policy does not define a “conflict of
interest” but implies that it constitutes a business transaction with you in which a director,
officer, or volunteer is a party, either directly or indirectly. The Policy requires that such
transactions be promptly disclosed to the disinterested directors and officers, though it does not
define “disinterested.” The Policy provides that a director, officer, or volunteer is “indirectly” a
party to a transaction only if the other party to the transaction is an entity in which the director
has a material financial interest or of which the director is an officer, director, or general partner.

Your Board at the time of application was composed of two individuals: Founder and Co-
Founder. In Letter1 we asked you to explain how you would ensure that your Board will pursue
charitable purposes, especially because your Conflict of Interest Policy does not cover familial
relationships. In Letter2 you responded that you had since added a third board member,
Director, who is unrelated to Founder or Co-Founder. You also stated that Director works in the
field of automobile insurance and volunteers at various religious organizations. In Letter3 we
asked you for an updated list of your Board. You responded in Letter4 that the individuals on your
Board were the same and you had not added any other individuals.

Law:

Section 501(a) provides that an organization described in subsection (c) is exempt from income
taxation.

Section 501(c)(3) provides for the exemption from federal income tax of organizations that are
organized and operated exclusively for charitable, scientific or educational purposes, or for the
prevention of cruelty to children, provided no part of the organization’s net earnings inures to the
benefit of any private shareholder or individual.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations (regulations) provides that, in order
to be exempt as an organization described in § 501(c)(3), 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.

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Sections 1.501(a)-1(b)(1)(iii) and 1.501(c)(3)-1(b)(1)(v) provide that an organization described in
§ 501(c)(3) must submit with its application for exempt status a detailed statement of its proposed
activities.

Section 1.501(a)-1(b)(2) provides that the Service may require any additional information
deemed necessary for a proper determination of whether a particular organization is exempt
under § 501(a).

Section 1.501(c)(3)-1(c)(1) states that an organization will be regarded as “operated exclusively”
for one or more exempt purposes only if it engages primarily in activities which accomplish one
or more of such exempt purposes specified in § 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.

Section 1.501(c)(3)-1(c)(2) 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(c)(3)-1(d)(1)(ii) states that an organization is not organized or operated exclusively
for one or more tax-exempt purposes unless it serves a public rather than a private interest. To
meet this requirement, an organization must establish that it is not organized or operated for the
benefit of private interests, such as designated individuals, the creator or his family, shareholders
of the organization, or persons controlled, directly or indirectly, by such private interests.

Section 1.501(c)(3)-1(f)(1) provides that an organization applying for recognition of exemption
under § 501(a) as an organization described in § 501(c)(3) must establish its eligibility for
exemption. The Service may deny an application for exemption for failure to establish any of the
requirement for exemption in § 501(c)(3).

In New Dynamics Foundation v. United States, 70 Fed. Cl. 782, 802 (2006), the Court of
Federal Claims found that the Service properly denied tax-exempt status under § 501(c)(3) to a
nonprofit corporation that was organized to promote and contribute to charitable causes. In
reaching this conclusion, the court stated, “[i]t is well-accepted that, in initial qualification
cases... [any] gaps in the administrative record are resolved against the applicant.” Id.
Adding that “courts can draw inferences adverse to a taxpayer seeking exempt status where the
taxpayer fails to provide evidence concerning its operations, or where the evidence is vague or
inconclusive.” Id. quoting Kile v. Commissioner, 739 F.2d 265, 269 n.5 (7th Cir. 1984).

American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), described an

organization formed for charitable and educational purposes whose primary activity was to
operate a school. The school trained individuals for careers as political campaign professionals.
Prior to the formation of the organization, the National Republican Congressional Committee
(NRCC) sponsored programs designed to train candidates and to train and subsequently place
campaign professionals in Republican campaigns. The organization stated that it was an

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outgrowth of the programs operated by the NRCC. The organization did not participate or
intervene in any political campaign on behalf of any candidate. While applicants were not
required to formally declare their political affiliation to attend the organization's school, such
affiliation could be deduced from the campaign experiences and political references contained in
the applications. No graduate was known to affiliate with any domestic political party other
than the Republican Party. The court held that the organization’s activities did not exclusively
serve exempt purposes because it did not operate on a nonpartisan basis and it served private
interests more than incidentally. The court concluded that the organization conducted its
activities to benefit the private interests of Republican entities and candidates. Although the
candidates and entities benefited were not organization “insiders,” the court stated that the
conferral of benefits on disinterested persons who are not members of a charitable class may
cause an organization to serve a private interest. While the school had a legitimate educational
program, the court held that the school conducted its educational activities with the partisan
objective of benefiting the interests of the Republican Party.

Ohio Disability Association v. Commissioner, 98 T.C.M. (CCH) 462 (2009), involved an
organization that operated a pooled trust. One individual served as the organization’s sole
director, officer, employee, and member, and thus, was vested with all of the organization's
decision making power. The organization's bylaws included meeting and voting procedures.
However, it had only one member. The organization had a stated conflict of interest policy and
its articles of incorporation contained a prohibition against private inurement. However, there
were no procedures in place to enforce the conflict of interest policy, and there were no
personnel in place to ensure that private inurement would not occur. And although the
organization stated that the sole member would not receive compensation, its articles of
incorporation expressly authorized payment for services rendered to the corporation. The
Service denied exemption to the organization based on these factors, as well as the
organization's failure to adequately respond to various requests for additional information. The
court upheld the Service's determination finding that the organization “provided only
generalizations and conclusory statements in response to repeated requests . . . for more detail
regarding its proposed activities.” The court stated that such responses “d[id] not provide
sufficient detail to determine that [the organization would] be operated exclusively for charitable
purposes[]” and that “the record d[id] not demonstrate that there [was] oversight to prevent the
organization from being operated to benefit [its sole member] . . . .”

In Levy Family Tribe Foundation, Inc. v. Commissioner, 69 T.C. 615, 619 (1978), the Tax Court
found that an organization failed to qualify for recognition of exemption under § 501(c)(3) after
concluding that “[t]he record [was] replete with unsupported generalizations. These
explanations are too general and lack the facts necessary to establish public, rather than
personal, purposes of the organization.”

Section 4.01 of Rev. Proc. 2013-9, 2013-2 I.R.B. 225, provides that a favorable determination
letter or ruling will be issued to an organization only if its application and supporting documents
establish that it meets the particular requirements of the section under which exemption from
federal income tax is claimed. Section 4.03 provides that exempt status will be recognized in
advance of operations if proposed operations can be described in sufficient detail to permit a
conclusion that the organization will clearly meet the particular requirements of the section under
which exemption is claimed. A mere restatement of purposes or a statement that proposed
activities will be in furtherance of such purposes will not satisfy this requirement. The
organization must fully describe the activities in which it expects to engage, including the
standards, criteria, procedures or other means adopted or planned for carrying out the activities,
the anticipated sources of receipts, and the nature of contemplated expenditures. Where the
organization cannot demonstrate to the satisfaction of the Service that its proposed activities will
be exempt, a record of actual operations may be required before a ruling or determination letter
will be issued.

For an organization claiming the benefits of § 501(c)(3), “tax exemption is a privilege, a matter
of grace rather than right... . .” Christian Echoes Nat'l Ministry, Inc. v. United States, 470 F.2d
849, 857 (10th Cir. 1972), cert. denied, 414 U.S. 864 (1973). The applicant for tax-exempt
status under § 501(c)(3) has the burden of showing it “comes squarely within the terms of the
law conferring the benefit sought.” Nelson v. Commissioner, 30 T.C. 1151, 1154 (1958).

The Tax Court has stated that an application for tax-exempt status “calls for open and candid
disclosure of all facts bearing upon [an Applicant's] organization, operations, and finances so
that. . . [it] can be assured that it is not... an abuse of the revenue laws. If such disclosure is
not made, the logical inference is that the facts, if disclosed, would show that [Applicant] fails to
meet the requirements of section 501(c)(3).” Bubbling Well Church of Universal Love, Inc. v.
Commissioner, 74 T.C. 531, 535 (1980). See also Founding Church of Scientology v. United
States, 412 F.2d 1197, 1201 (Ct. Cl. 1969), cert. denied, 397 U.S. 1009 (1970). Furthermore,
the courts have repeatedly upheld the Service’s determination that an organization has failed to
establish exemption where the organization fails to provide requested information. “[Applicant]
has, for the most part, provided only generalizations in response to repeated requests by [the
Service] for more detail on prospective activities .... Such generalizations do not satisfy us that
[Applicant] qualifies for the exemption.” Peoples Prize v. Commissioner, 87 T.C.M. (CCH)
813 (2004).

Analysis:

Under the standard described in § 4.01 of Rev. Proc. 2013-9, the Service will not issue you a
favorable determination letter on exempt status unless your application and supporting
documents establish that you meet the particular requirements of § 501(c)(3). Thus, before the
Service recognizes your exemption, you must prove that you are organized and operated
exclusively for an exempt purpose and that no part of your net earnings inure to the benefit of
any private shareholder or individual.

As explained in the numerous judicial opinions cited above, to overcome the burden of proving
that you are an organization described in § 501(c)(3), you must describe your proposed
activities in enough detail to allow the Service to conclude that you will clearly meet the
requirements of § 501(c)(3). You have not overcome your burden of proof.

You stated that you would spend % of your time and resources on broadcasting activities.
Yet when we asked you for information about your broadcasts, including information regarding
their subject matter, you provided only cursory information—no more than a few words. We

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asked for the dates and locations of the broadcasts, but you provided none. We asked you to
provide the transcripts of your broadcast, but you did not do so. When we asked you for the
qualifications of persons that will contribute to or appear on your programs, you said merely that
most of the lecturers have studied many years in Islamic seminaries and have obtained secular
degrees. You made no attempt to describe particular qualifications of particular persons, nor
did you demonstrate the relevance of such “studies” and “degrees” to the particular programs on
which the lecturers would appear.

You stated that you would spend the remaining % of your time and resources on seminars,
publishing, and research, collectively. Yet when we asked you to reveal the subject matter of
your seminars, you did not do so. Instead, you merely indicated that you had not conducted any
seminars and had no plans to do so for the next two years. When we asked you to provide
copies of any publications and to describe your plans for future publications, you did not do so.
Instead, you merely indicated that you had not published anything yet and have made no plans
of publishing anything in the near future.

Though you were unable to describe your broadcasting activities with any precision and have
not conducted any seminars, publishing, or research as you proposed to do in your application,
you nevertheless incurred expenses of $x2 for Partial Year, a substantial portion of which you
allocated to satellite services, editing services, airline tickets, and travel. Owing to your seeming
dearth of activities over the same period (for example, it appears that your website has not been
updated since before Partial Year), it is uncertain whether such expenses were incurred in
furtherance of your exempt purposes.

Thus, while your application indicates your intention to produce or conduct an assortment of
television programs, research, publications, and seminars, you have been unable to describe
any of these except in the most vague and general of terms. When, in Letter1 and Letter3 we
requested additional details about the activities mentioned in your application, your answers
were generally scant and uninformative, and did not account for your sizable expenditures in
Partial Year. In sum, you have not provided sufficient detail to allow us to conclude that you will
be operated exclusively for exempt purposes within the meaning of § 501(c)(3).

Your inability to adequately explain your activities is particularly troubling in light of the fact that
such activities are controlled by two related persons, Founder and Co-Founder.

Section 1.501(c)(3)-1(c)(2) provides that you will not be considered as operated exclusively for
exempt purposes if your net earning inure to the benefit of private shareholders or individuals.
Furthermore, § 1.501(c)(3)-1(d)(1) provides that you will not be considered as operated
exclusively for exempt purposes within the meaning of § 501(c)(3) unless you serve a public
rather than a private interest. To satisfy this requirement, you must not be organized and
operated for the benefit of private interests, such as those of your creator or the creator's family.
See Amer. Campaign Acad., 92 T.C. at 1065-67. While an organization will not be denied

exemption merely because it is controlled by related individuals, such a situation provides an
obvious opportunity for abuse and calls for an open and candid disclosure of your organization
and operations. See Bubbling Well Church of Universal Love, Inc., 74 T.C. at 535.

10

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Founder and Co-Founder, as two of your three directors, control your operations and have the
power to set compensation for your President and sole compensated employee, Co-Founder.
While you have added an unrelated individual as your third director, it is questionable whether a
person who works in the field of automobile insurance will have a significant voice in the affairs
of a satellite television network. And although you have a Conflict of Interest Policy, it defines
neither “conflict of interest” nor “disinterested director.” Thus, it is unclear how such a policy
would apply to the familial relationship between Founder and Co-Founder to ensure that no
inurement or improper private benefit will occur. In sum, you have not demonstrated that there
are sufficient safeguards in place to prevent your net earnings from inuring to the benefit of
Founder or Co-Founder, or to prevent you from operating for their private benefit.

Conclusion:

You have not established that you are operated exclusively for exempt purposes within the
meaning of § 501(c)(3) or that no part of your net earnings will inure to the benefit of a private
shareholder or individual. Furthermore, you have failed to establish that you are operated to
serve a public rather than a private interest.

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.

Your protest statement should be accompanied by the following declaration:

Under penalties of perjury, I declare that I have examined this protest statement, including
accompanying documents, and, to the best of my knowledge and belief, the statement contains
all the relevant facts, and such facts are true, correct, and complete.

You also have a right to request a conference to discuss your protest. This request should be
made when you file your protest statement. An attorney, certified public accountant, or an
individual enrolled to practice before the Internal Revenue Service may represent you. If you
want representation during the conference procedures, you must file a proper power of attorney,
Form 2848, Power of Attorney and Declaration of Representative, if you have not already done
so. For more information about representation, see 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 Service will consider the failure to protest as a failure to exhaust
available administrative remedies. 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 Service.

11

RRKRRERERE

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 this address:

Internal Revenue Service

KREKKEKRREEE

RERKEEEKRKEE

1111 Constitution Avenue NW
Washington, DC 20224

You may also 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 O. Paz
Director, Rulings and Agreements