IRS revokes an organization's section 501(c)(3) exemption

View official IRS release (PDF)

Plain-English summary

The IRS issued a final adverse determination revoking an organization's federal income tax exemption under IRC § 501(c)(3), effective January 1, 2004. The IRS determined that the organization was not operated exclusively for charitable, educational, or other exempt purposes and did not primarily conduct activities that accomplished exempt purposes. The letter states that contributions are not deductible under IRC § 170 and directs the organization to file Forms 1120 for the affected tax periods and later years. The attached examination materials describe the organization's debt-management and credit-counseling activities and the IRS's basis for the adverse determination.

Ruling snapshot

• Question: Did the organization operate exclusively for purposes described in IRC § 501(c)(3)?
• Outcome: Revocation of the organization's section 501(c)(3) exemption, effective January 1, 2004.
• Key authorities: IRC §§ 501, 170, 507, 6104, 7428, and 6110.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Appeals Office
Person to Contact:

401 W. Peachtree St. NW

Atlanta, GA 30308 Employee ID Number:
Tel:
Release Number: 201335027 Fax:
Release Date: 8/30/2013 Refer Reply to:

Date: May 3, 2012
In Re:

Form Required to be Filed:
EIN:

Tax Period(s) Ended:

UIL:
0501.03-00

Certified Mail

Dear _

This is a final adverse determination regarding your exempt status under section
501(c)(3) of the Internal Revenue Code (IRC). It is determined that you do not qualify
as exempt from Federal income tax under IRC Section 501(c)(3) effective January 1,

2004.
Our adverse determination was made for the following reason(s):

Based upon examination of your records, it has been determined that you do not
meet the requirements of an organization described under section 501(c)(3). You
have not operated exclusively for charitable, educational or any other exempt
purposes. You did not engage primarily in activities that accomplish one or more of
the exempt purposes specified in section 501(c)(3).

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

You are required to file Forms 1120, U.S. Corporation Income Tax Return, for tax
periods stated in the heading of this letter and all tax years thereafter. File your return
with appropriate Internal Revenue Service Center per the instructions of the return. For
further instructions, forms, and information please visit www.irs.gov.

If you were a private foundation as of the effective date of revocation, you are

considered to be a taxable private foundation until you terminate your private foundation
Status under section 507(b) of the Code. In addition to your income tax return, you must
also continue to file Form 990-PF by the 15th day of the fifth month after the end of your

annual accounting period.

Processing of income tax returns and assessments of any taxes due will not be delayed
should a petition for declaratory judgment be filed under section 7428 of the Code.

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

We will notify the appropriate State officials of this action, as required by Code section
6104(c). You should contact your state officials if you have any questions about how
this determination may affect your state responsibilities and requirements.

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 is not able to reverse legally correct
tax determinations, nor extend the time fixed by law that you have to file a petition in the
U.S. Tax 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. If
you want Taxpayer Advocate assistance, please contact the Taxpayer Advocate for the
IRS office that issued this letter. You may call toll-free, 1-877-777-4778, for the
Taxpayer Advocate or visit www.irs.gov/advocate for more information.

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

Sincerely,

KAREN A. SKINDER
APPEALS TEAM MANAGER

Enclosure: Publication 892

2 of 2

7 "Form 886-A Schedule number or exhibit

S87 “(Rev January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
ORG formerly ORG-1 — EIN EIN 12/3 1/20XX; 20XX, 20XX

one ORG-2 - 2™

ORG - Organization name ORG-1 - 157 ORGANIZATION NAME
ORGANIZATION NAME ORG-3 = 3" ORGANIZATION NAME. ORG-4 = 4™
ORGANIZATION NAME ORG-5 = 5™ ORGANIZATION NAME XX - Date State -
state DIR-1 through DIR-3 - 1%, 277, & 37? DIR Vice President - vice
president Vice President-1 = 2" vice President CO-1, CO-2 & CO-3 =
157, 2" ¢ 382 COMPANIES RA-1 THROUGH RA-10 ='157 THROUGH 10™
ISSUES

1. Whether ORG (previously ORG-1 and ORG-2) (hereinafter referred to as ORG)
   operated exclusively for exempt purposes as described within IRC section 501(c)(3):

a. Whether ORG engaged primarily in activities which accomplish an exempt
purpose?

_ b. Whether more than an . insubstantial part of ORG activities were in furtherance
of non-exempt purposes?

c. Whether ORG was operated for the purpose of serving private rather than public
interests?

BACKGROUND

An examination of ORG (as it is now known) was conducted by the Secretary’s representative
for the taxable periods ending December 31, 20XX, 20XX, and 20XX, respectively.

ORG-3. (the organization’s original name) was incorporated 5/18/19XX.

The purpose as stated in the articles of incorporation were:

The corporation is organized exclusively for charitable, religious, educational and scientific
purposes, including, for such purposes, the making of distributions to organizations that qualify
as exempt organizations under Section 501 (c)(3) of the Internal Revenue Code of 1986 (or the
corresponding of any future United States Internal Revenue law). The specific purpose for which
the corporation is formed are counseling and fostering of consumer education on family money
management, budgeting services and the use of credit. Education concerning debt management.
To carry on a legal non-profit under authority of Sections 1702.01 through 1702.99 State
Revised Code. Organized and operating exclusively for charitable purposes, including for such

purposes as described above.

The Regulations of ORG-3 listed the members of the corporation as DIR-1 and DIR-2, and stated
that the Board of Trustees of the corporation shall be three or such greater numbers as shall be

fixed from time to time.

Form 886-A

Department of the Treasury ~ Internal Revenue Service

ee |

'

™ ,Form 886-A Schedule number or exhibit
(Rev. January 19XX) . EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
ORG formerly ORG-1 — EIN EIN. 12/3 1/20XX; 20XX, 20XX

The name of the corporation was changed to ORG-4 and this change was filed with the State of

State on May 2, 19XX, and signed by DIR-1 and DIR-2.

In a letter from Internal Revenue Service dated 5/1 7/19XX, ORG-4 received exemption from

Federal Income Tax as an organization described in section 501 (c)(3), and was determined to be
an organization described in sections 509(a)(I) and 170(b)(1)(A)(vi).

An amendment to the articles was filed with the State Secretary of State on 3/6/20XX, (signed by
DIR-1 and DIR-2), and changed the name of the corporation to ORG-2 and the purpose of the
corporation was changed to:

Couriseling and fostering of consumer education on family money management,
budgeting services and the use of credit. Education concerning debt management. To
carry on a legal non-profit organization under authority of Section 1702.01 Through
1702.99 State Revised Code. Organized and operating exclusively for charitable
purposes, including for such purposes described above.

-On 6/22/20XX, an amendment was filed with the State of State which again changed the name of |

the organization to ORG-5 and changed the purposes of the corporation to “Non profit credit
counseling for individuals”. (This was signed by DIR-3.and DIR-1).

On 9/22/20XX, an amendment was filed with the State of State which changed the name of the
organization to ORG-1 The purpose did not change. (This was signed by DIR-3).

On | 2/8/20XX, an amendment was filed with the State of State which changed the name of the
organization to ORG, and changed the purpose to:

To provide debt management assistance to all consumers as well as promote credit
education through budgeting tools, educational workshops and credit Counseling

services. (signed by DIR-3)

Officers and Directors of the Organization |

The following individuals were listed as officers, directors, trustees and key employees
on the Form 990 (no other individuals were listed). :

DIR-1, President, 20XX.

DIR-2, Treasurer, 20XX

DIR-3, Vice President, 20XX
President , 20XX, 20XX, 20XX, 20XX

Form 886-A

Department of the Treasury ~ Internal Revenue Service

: ’ ,Form 886-A Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS

Name of taxpayer Year/Period ended

12/3 1/20XX; 20XX, 20XX

ORG formerly ORG-1 — EIN EIN

. Vice President, Vice President, 20XX, 20XX
Vice President-1, Vice President, 20XX and 20XX

Form 990, Return of Organization Exempt From Income Tax, for the years 20XX, 20XX and
20XX, were all signed by DIR-3.

Related Organizations

DIR-3 is also President of CO-1, a State non-profit Corporation, which has Offices in State and
State. DIR-3 moved to State in the fall of 20XX. His wife, Vice President, is also in State. Some
of the expenses for ORG were paid by CO-1 and they share some internet sites. Also, some ORG

callers are referred to the State office of CO-1.
ACTIVITIES AND FUNDING

' Debt Management Program (also known as DMP)

A DMP is a plan whereby a client can consolidate their payments to creditors by making one
monthly payment to a company and then the various payments to creditors are made for them by
this company. The DMP program generally is spread out over a 3-5 year period. Only unsecured
debts can be included in a DMP. Most of the debts handled in a DMP are credit card debts, but
other unsecured debts can also be included such as medical expenses.

Some restrictions concerning the DMP are set up by the creditors, with the largest creditors
making the most demands. When a client enters into a DMP, a “proposal” is sent to each of their
creditors and the DMP is not complete until the creditors approve the DMP as set up. Sometimes
the amount of payment or some other adjustment is required by the creditors.

Some creditors require that all unsecured debt of a client be included in the DMP in order to be
approved. Therefore, in these situations, the client cannot negotiate one on one with one of their
creditors to set up a pay plan separate from the DMP. Some creditors will actually pull a credit
report to determine that all unsecured debt has been included in the DMP. Most creditors require
that the client stop using any credit cards while they are on the DMP program.

Most of the creditors pay a collection fee which is commonly known as “fair share contribution .
This fair share is paid to ORG in two ways. Either the fair share is deducted from the client’s
monthly payment before it is disbursed to the creditor, or the creditor sends a check directly to
ORG. This payment is determined by the individual creditors and is usually a percentage of what
is collected. Although reported on Form 990 as a charitable contribution, these fees are not
charitable contribution because services are provided and the fee is usually based on a percentage

of what is collected.

Form 886-A

Department of the Treasury — Internal Revenue Service

Schedule number or exhibit

S| Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
12/31/20XX; 20XX, 20XX

ORG formerly ORG-1 — EIN EIN

The benefits of a DMP, should a client qualify, is that the interest rates charged the client could
be lower than what they are paying currently and, many times the over limit and late fees will be
. dropped from the client’s account after they have been on the DMP for 90 days.

There is no charge for submitting the financial information to one of ORG’s employees to
determine if the client qualifies for the DMP. If the client enters into the DMP, there is a one
time set-up fee which is generally $ and is paid first by the client. There is also a monthly
processing fee which is included in each monthly payment.

ORG monthly processing fees are not based on the income level of the clients, but are based on
the maximum charges allowed by the states in which they operate.

ORG does not operate in every state. In 20XX, ORG did not sell debt management programs to
clients in State, State, State, State, State, State, State, State and State. Clients in some of these
States were referred to CO-1 (their related organization in State/State).

ORG state that client contact is usually by phone(_%) orintemet€ %). Only % is
' conducted face to face because most of their clients are out of state.

Funding

Sources of income are from creditors (known as fair share), DMP set up charges, DMP monthly
processing fees, miscellaneous DMP fees (insufficient funds, cancellation or change in DMP, .
etc.), and interest. ORG stated that they received a grant from CO-1 of $ in June 20XX. -
Although requested, no documentation was provided and this grant was not teported on Form

990 for the year 20XX.

For the 3 years under audit, all sources of funding (except for interest) were incorrectly reported
on Form 990, line Ia, as contributions, gifts, grants as direct public support. Instructions for
completion of Form 990 include instructions for types of receipts and completion of Line 1. The
instructions state that only those payments received, for which the payer (donor) does not receive
retail value from the recipient should be reported as donations. In general, do not report as
contributions any payments for a‘service, facility or product that primarily give some economic
or physical benefit to the payer... (See Instructions for Line 1, In General).

Internet Sites

_ Clients hear about ORG through their web sites, yellow page ads, google ads, and through
friends and family.

Many clients hear about ORG through their two main internet sites, website or website. (the later
started late in 20XX). There are also multiple sites (10, according to RA-1), including website.

Form 886-A

memes a |

Department of the Treasury ~ Internal Revenue Service

Schedule number or exhibit

S| Form 886-A
(Rev. January 19XX) EXPLANATIONS OF ITEMS 1
Name of taxpayer Year/Period ended
ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

which are designed to transfer clients back to one of their two main web addresses. Research into ~
the “* ” web site revealed that in 20XX, there were 5 pages (or tabs) as follows: a

ec ” cs ” “6 . ” “, ” and 73 ”
The site marketed ORG’s debt management plan. The free consultation page invited the client to
apply online for their debt management plan and provided a form to complete which included _~

_ client name, their phone number, creditor names, intérest, payment, etc. Household expenses
were not included. For the years 20XX, 20XX and through August 20XX there was little change
in the site. Exhibit A contains a sample of the web site at February 20XX.

‘In September 20XX, an Education tab was added and provided a list of articles listed by name.

The client selected (or clicked) on one of the articles to read it. However, the main thrust of the

web cite continued to be the advertisement of the DMP and offered a “Free evaluation in 15

minutes or less”. The “Home” page and “about us” page had several places where the reader

could “click’ and would be taken directly to the web application form. See Exhibit B. .

The web site website began in late 20XX. Copies of this web site at January 24, 20XX, are
attached. It did not contain any educational material and was similar to the other web site. See

Exhibit C.

Advertising and Marketing Expenses

In addition to the internet sites, ORG advertises in the Yellow Pages and also had google ads.
The Secretary’s representative requested copies of advertising on IDR #8 from all sources used.
Samples of ads placed in the local newspaper under employment ads were provided. No copies
of google ads were provided. Nor\ were any sample placements in the yellow pages provided.

The single largest expense for the organization, other than salaries in 20XX was advertising,
which amounted to $ (% of non payroll expense).

After DIR-1 and Vice President moved to State in 20XX, some of the advertising for ORG was |
then paid by the related organization in State, CO-1. This included the Google ads, maintenance |
of the internet site, etc.

Some of the payroll can also be attributed to marketing expenses. When asked what duties he
performs for ORG, DIR-3 explained that he pays the bills and does the advertising. He went on
to explain that Vice President did not do counseling in the years under audit; her duties entailed
getting the bills ready for payment, marketing, and special projects. (Interview conducted
3/28/20XX).

Form 886-A

Department of the Treasury — intemal Revenue Service

£

• Form 886-A Schedule number or exhibit
  (Rev. January 19XX) EXPLANATIONS OF ITEMS ;
  Name of taxpayer Year/Period ended
  ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

“IDR #14 requested a log of duties for DIR-1 and Vice President for the years under audit and a
break out by percentage of time spent on each category or duty. This IDR also requested a job
description and number of hours spent at any other company. The response stated that no logs or

percentages could or should ever be completed.

DIR-3-was paid $ in 20XX, $, plus $ in employee benefit plans in 20XX, and $ plus $ in
employee benefit plans i in 20XX. ' Vice President

DIR-3 was paid $ in 20XX, § plus $ in employee benefit plans in 20XX and $ plus $ in

. employee benefit plans in 20XX.

DMP Client Setup

• Some clients call directly to the ORG “800” number. Other clients submit web applications. The

web application asks for unsecured creditor information only. RA-2 explained on 6/19/XX, that
she gets a pop up notice to. let her know when a web application is received. She clicks on it and
prints it. RA-3 prints all web applications — unless she is on break. The client is called ASAP to
set an appointment and explain the program. Some web applications provide only a name and
phone number, some also provide the creditor information.

If the client can’t be reached right away, they go on a daily call log. Once reached, most clients
are set up with an appointment (phone), but sometimes they can talk immediately to the
employee assigned to take these calls. Many times there are several phone conversations during

the process.

The software program walks the ORG employee through the process. The caller is asked to’
provide ORG with their income and creditor information first (name of creditor, » balance,
percentage interest charged, etc). This is referred to as an “education review” or “debt review

by the ORG staff. .

The various creditor requirements are already input into the software, so the ORG employee uses
this information to determine what minimum payment each creditor requires and also what the

_ interest rate will be for that creditor on the DMP. It is noted that the household expenses (rent,

_Mortgage, utilities, groceries, etc). are not always obtained at this juncture. This information is

• sometimes obtained when the client returns the “client financial statement”, which is sent out to

the callers if they agree to sign up.

' DIR-3 was also paid $ by CO-1 in 20XX and listed as President on the Form 990 filed by that organization, He
was also paid $ in 20XX by CO-2 (response to IDR #16 received 9/11/20XX) Note: ORG’s Form 990, line 74c,
stated that-no officers, directors, trustees, or key employees listed on Form 990 receive compensation from any other

organizations, whether tax exempt or taxable.

Department of the Treasury — Internal Revenue Service Form 886-A

; Form 886-A Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
‘ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

If the caller does not qualify (currently. unemployed) or is not interested in the program, they are
not given a client number and their information goes into the “web application file” and is filed
by year and by the last name. (Information provided by RA- 2, June 1 9, 20XX. No file folder is
set up for a caller until they sign up on a DMP. .

If the caller qualifies and is interested in the program, they can begin the set up of the DMP by
giving permission over the phone and the set up fee of $ will be deducted on the agreed date.
They are given a client number and the web. application goes into their file( ‘software

program),

. The “initial package” is then sent out to qualifying callers. This paperwork is described below ;
and the signed documents must be returned before the first scheduled monthly DMP deduction.

A sample initial packet for 20XX was provided. It contained the following items.

1. Welcome letter with checklist of items that need to be returned

2. Creditor Information Release Form (requiring client signature)

3. The debt management agreement (requiring client signature)

4. Authorization for direct debit deduction (from client’s checking account)

5. Client Financial Statement (blank) — client provides income, monthly household
   expenses, and loan payments (secured loans, etc.), with the bottom line revealing what is
   available for DMP.

6. New client interview checklist (requiring client signature)

Item #3 above, the debt management agreement, states that the monthly DMP fee is a “charitable
contribution”.

RA-3, ORG employee, stated on 3/29/20XX that she will not send a copy of the budget analysis
or brochure to a client unless the client requests it”.

Then there are follow-up calls if the client fails to return the required documents.

Once the documents are received, the proposals go out to various creditors. Calls are made to the
creditors and back to the clients to agree to any adjustments required by the creditors. Once
everyone is in agreement, the DMP program begins for the clients and on a monthly (or every

two week) basis the client remits a payment (usually pulled electronically from their account) .
and then payments of various clients are “bundled” together and sent out to the creditors (usually

electronically).

Additional information is sent out at 30 days and 90 days. The clients also receive a monthly
statement which they are asked to review and then report any discrepancies to ORG.

And, finally, if any client fails to make their monthly payment while on the DMP program, there

Form 886-A

Department of the Treasury — Intemal Revenue Service

: Form 886-A : Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer — | Year/Period ended
ORG formerly ORG-1 — EIN EIN | 12/31/20XX; 20XX, 20XX

are follow-up calls.
Scripts

‘This is a training document used for new employees. It contains sample client calls and
", recommended responses. The 20XX script contained the following passages.

• The object of the information call is to first determine who the client is, where they are from,
  and how they heard about us. Second, we need to determine if the service we offer is what they
  are looking for. Finally, we need to get that individual on the phone with a counselor, as quickly
  as possible (page 3).
• Let me start by telling you a little about the services we offer. We are a non-profit organization
  focused on helping you get out of debt. If you are struggling with paying your debts, behind on
  _ payments, or possibly considering bankruptcy.. .our debt management program may work for
  you. (page 4)
• Page 5 starts with: Are you currently employed or have a monthly source of income? If yes,
  continue with the script. Ifno., Iam sorry, but at this time we are unable to assist you with debt
  management plan. You must have a consistent monthly source of income. I would be happy to
  answer any additional questions you may have. (refer to page 18).

Page 18 - 21 of the script provide answers to the following questions.

• What types of fees do you charge?
• I thought you were a non-profit organization, why do you charge fees?
• Will my credit cards be closed or cancelled?
  -Will I be able to re-open my credit card account(s) once I have paid off my
  balance?
• Do I have to have a minimum amount of debt to be enrolled?
  ‘Where are you located/how long have you been in busiriess?
• If I enroll, how long will it take for me to see reduced interest rates and eliminate
  late fees and over-the-limit charges? ,
• [have a Master Card or Visa (etc.) what type of interest reduction can you offer
  me on that card...or do you stop the interest? _
  ~ How long will it take to complete the program?
• How will this affect my credit rating?

Observed Client Sessions.

There are usually a series of several phone calls made in order to set up a client on the DMP
program. Rarely does a client come into the office for a face to face consultation. When the
client calls the “800” number for ORG they are presented with option one, which is “new
clients”, and option two which is “existing clients”.

Department of the Treasury — Intemal Revenue Service , Form 886-A

. ’ : ‘Form 886-A ; Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS :
Name of taxpayer Year/Period ended
ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

Client calls were observed on several days. The Secretary’s representative requested to observe
over several days in advance to get a good representation and so appointments could be
scheduled during those times. Some days were fruitful; other days little or no calls came in. The
complete write-up of these calls is attached as Exhibit D.

Some sample initial calls (not web site applications):

Incoming call to RA-4, ORG employee, 6/18/20XX. NEW CALLER

RA-4 introduced herself.
Client: Can you tell me about your services you offer.
RA-4: Yes, we offer a plan that includes creditor payments consolidated into one e payment and

• which may include reduced interest rates and remove over or late fees.

In another initial call, the program was explained as follows by RA-2 on 6/18/20XX. RA-3
_ answered the phone and identified herself and asked the caller if they were familiar with their.

program?

No

We are able to enroll your unsecured debt such as credit cards, medical debt unsecured loans,
collection debt. We work with the creditors to reduce or eliminate your interest. If you’re late in
payments we work with the creditors to get the accounts brought current and possibly stop or
reduce your late and over the limit fees. (RA-3 repeated this for me after the call was finished so

-it was complete).

The calls observed ranged from 1 minute to 35 minutes. The majority of the calls were 5 minutes
or less. The ORG employees do not have to follow the script word for word per Vice President-1
3/21/20XX. This was confirmed on the calls observed; the explanations to the clients were much |
briefer than the scripts. The following items were noted during the calls. (The complete detail of
the clients calls are included in Exhibit D attached).

• In one call only the clients income and creditor information is obtained. The client is
  told they qualify for the DMP program (however, no information on household expenses
  was obtained). They are then told a packet will be sent which will include a financial
  statement which needs to be completed in order to get income and household expenses.

• See Exhibit E, 3-21 -07, Caller #7.

« In another call the caller is told that there is a one time set up fee of $; When I give you.
your monthly payment it will include a monthly contribution that is tax deductible

(emphasis added).
The client responded: There’s a monthly fee?

Department of the Treasury — Internal Revenue Service Form 886-A

Schedule number or exhibit

‘Form 886-A
(Rev. January 19XX) . EXPLANATIONS OF ITEMS ;
‘Name of taxpayer Year/Period ended
12/3 1/20XX; 20XX, 20XX

ORG formerly ORG-J — EIN EIN

The response: That will include a monthly tax deductible contribution (emphasis added).
Do either one of you itemize on your taxes? See Exhibit E, 6-1 8-20XX, Caller #1,

• Caller #5 on 3-21 -XX, is a repeat customer. They are signed up on the DMP, but not
  given any kind of budget review or other counseling on their continuing problems with

debt.

Customer Complaints

in May 20XX, a customer complained to Better Business Bureau that when they called ORG -
(known as ORG-2 at this time) to cancel their DMP program they were told they would be -
charged $. The client put a stop payment on the $ with their bank; however ORG withdrew a
smaller amount of $ (to get around the $ stop payment). This procedure is explained to a client in
call #8 on 8/20/XX, see Exhibit D attached.

The customer also complained that they had been told their “contributions” were tax deductible
-and since a I O4OEZ was filed, they could not take this deduction and requested to be repaid the

$ contributions which they had paid ($ per month).

ORG redeposited the $ into the client’s account and stated that the client had used the “wrong tax
form” and that is why they couldn’t take the tax deduction; they would not refund the $ because

they. provided a service.

, Employee Background and Training

Most of the employees were interviewed to learn about their backgrounds, procedures, etc.

DIR-3, who i is President, has lived in State since late 20XX. He communicates with the office
manager by phone daily. He has been back to State 3 or 4 times with the last time being mid
20XX. DIR-1 handles licensing, marketing, and checks paid for general operations (operating
account). Per DIR-2 on 3/23/20XX, DIR-1 is not tied into the (DMP) computer system.

Vice President, was vice-president i in 20XX and 20XX, and worked at home (State since late
20XX). DIR-1 explained 3/28/XX, that in 20XX, 20XX, and 20XX, she handled grant projects,
marketing, special projects, and would get the bills ready for payment for DIR-1_—

Vice President-1 has an associate’s degree in business. She took new client calls in 20XX, as
well as performed other duties and continues to take new client calls when the principal
employees are busy. She also takes existing client calls. She became the office supervisor in
20XX and also became an officer of ORG in 20XX, and now handles the payroll.

Vice President-1 had hands on training and observation for 45 to 60 days when she came to

Form 886-A

Department of the Treasury — Internal Revenue Service

: y . ‘Form 886-A Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
12/31/20XX; 20XX, 20XX

ORG formerly ORG-1 ~ EIN EIN

ORG. There was no training manual. She believes there was some sort of script (which is a mock
conversation with a client beginning with an explanation of the DMP and possible questions and
answers). Also, there wére examples of the material given to new clients, etc.

RA-I, is the supervisor of the employees who receive new client calls as well as existing client
calls. She has a high school education and previous experience as the manager of a cash advance .
_ Store and district supervisor at the CO-3. She also still takes new client calls and existing client

calls, if needed.

RA-I is also responsible for the education arm of ORG and also prints out various reports for the
office including appointment lists, follow-up lists, planner reports, etc.

New client calls were handled by multiple people in the years 20XX, 20XX, and 20XX. RA-3,
RA-2 (20XX and hired again when RA-S left) and many others were hired. for this job (described

as counselor) and have since left the organization.

RA-5 has an associate degree in business and worked previously in a similar position at another
credit counseling organization. RA-3 has a high school education and worked previously in a
similar position for another credit counseling organization. -

Both RA-5 and RA-3 explained that they were trained by RA-1 on the computer and began by
sitting with RA-1 on the phones and listening to her and then they took calls and RA-I observed.
The only training material in house was the script. .

Customer Service calls (existing clients and creditor calls) are taken by RA-4 and two part time
employees,
Data entry (of the DMP’s) and operations of the electronic transfers to and from the trust bank

account is done by: , whose educational background is at State State University in
electrical/computer. A part time employee enters the new clients into the system to schedule their

payments.

RA-6 was office manager, but is now a program specialist and works out of her home in State.
We were told that RA- 7 sometimes takes callers in the evening. Both are tied into the software

system.

IT software is maintained by DIR-2, who was an officer in 20XX, 20XX. His educational
background in electrical engineering/computers is from State State University. .

And, finally there is a part time mail clerk, RA-8, and a receptionist, RA-9,

Department of the Treasury — Intemal Revenue Service Form 886-A

LE

. Form 886-A Schedule number or exhibit

(Rev. January 19XX) EXPLANATIONS OF ITEMS ;
Name of taxpayer Year/Period ended
ORG formerly ORG-1- EIN EIN 12/3 /20XX; 20XX, 20XX

Employee Certification

To be certified through AFCPE (Association of Financial Counseling and Planning Education) as
a certified financial counselor a person reads 3 books in conjunction with a study guide. Then
they are tested for certification. Once certified, they must take a workshop every two years.
Individuals are eligible to begin the study course after they have worked 1000 hours in

admissible financial counseling.

RA-I received certification from AFCPE in October 20XX. Vice President-1 and DIR-3 were
certified in 20XX and RA-3 and RA-4 were certified in the Fall of 20XX. RA-5 worked for a
year before becoming certified. RA-3 and the other individuals who took new client calls during
the years of the audit were not certified. _

Education and Outreach |

A questionnaire (Form 13769), signed by DIR-3 on March 25, 20XX. was completed and
returned to IRS. It indicated that the organization offers seminars taught by qualified instructors
which are advertised to the public. As part of the audit process, the Secretary’s representative
requested documentation of these seminars. None was provided. ;

On 3/23/XX, RA-1 explained that she is in charge of the education program for ORG. ORG
began offering a “tele course” to students in June 20XX. She stated there. is no test. A certificate
-of completion is given.. When asked about documentation, RA-1 explained that one person has

completed the course.

RA-1 also explained that ORG scheduled their first outreach seminar at the local public library in
December 20XX, conducted by her. It was advertised in the local paper and a notice was put up
on the library’s bulletin board. No one signed up for the seminar, however, some people who
were in the library stopped in and took some brochures. There was no sign in sheet provided as "
documentation for this seminar.

RA-I also explained that brochures or a budget book could be sent out to clients if they request
them, When asked how the clients would know to request anything, RA-1 explained that If the

‘counselor determined it is something that would help them, they might recommend it to them.

RA-8, the mail clerk who had started with ORG in February 20XX, stated on May 2, 20XX, that-
the postage is 63 cents when a budget worksheet is sent out. She then stated that she had sent 2

or 3 since she had started.

is a publication, which ORG states that they provide to their

clients. On IDR #11, issued 3/26/XX, the Secretary’s representative requested the name of the

• author and documentation as to the number of copies ordered, printed, and mailed during 20XX.

Department of the Treasury ~— Intemal Revenue Setvice Form 886-A

Form 886-A Schedule number or exhibit
" TRev, January 19XX) EXPLANATIONS OF ITEMS '

Name of taxpayer Year/Period ended

ORG formerly ORG-1 ~ EIN EIN 12/31/20XX; 20XX, 20XX |

The ORG response: DIR-1 and Vice President are the authors and the number of copies ordered,
printed, and mailed during 20XX is unavailable.

ORG (or ORG-2 as it was previously known) provided copies of newsletters which they state
were included with their DMP clients monthly statements from February 20XX to May 20XX. It
contained educational information about debts, grocery shopping, IRS tax tips, étc. It also
contained information about the DMP program. The February 20XX letter contained the
following statement:

' The docuiiiéntation provided for their education program included newsletters, videos, etc. which
ORG state they used for educational programs later in 20XX and beyond. Our audit did not
confirm or deny that these were offered to the general public as they were beyond the years of

our audit.
Statistics

Sales and call statistics are shared with the ORG employees on a weekly basis, which also
includes month to date figures, in a report known as “Planner Statistics”. The call results are
broken down by employee and then by total. As an example, the Planner Statistics for 10/29/XX,

reported the following month to date totals.

Total # of calls taken: |

Total # of calls made:

‘Total # of Info calls:

Debt Reviews:

Signs (client agreed to DMP)
Startups paid _

Debt review vs info calls % %
Signs vs reviews % %
Startups pd vs reviews % %
Startups vs signs % %
Cancellations (includes who completed the program)
Total active (clients)
Monthly Income $

There is also a call tracking report listing each employee, the number of calls taken, the number
of calls made, and call duration.

Department of the Treasury — Intemal Revenue Service Form 886-A

«Form 886-A

Schedule number or exhibit .

(Rev. January 19XX) EXPLANATIONS OFITEMS — ;
Name of taxpayer ) Year/Period ended
ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

LAW

‘ IRC 501(c)(3)

Section 501(a) of the Internal Revenue Code provides that an organization described in section
501(c) (3) is exempt from income tax. Section 501 (c)(3) of the Code exempts from federal
income tax corporations organized and operated exclusively for charitable, educational, and
other purposes, provided that no part of the net earnings inure to the benefit of any private
shareholder or individual. The term charitable includes relief of the poor and distressed. Section

1.501(c) (3)-i (d) (2), Income Tax Regulations.

Section 1 .501(c)(3)-1 (a) of the Treasury Regulations provides for organizational and
operational tests. (1) In order to be exempt as an organization described in section 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. (2) The term “exempt purpose or purposes”, as used in this
section, means any purpose or purposes specified in section 501 (c)(3), as defined. and elaborated

in paragraph (d) of this section.”

a)

Section 1 .501 (c)(3)-1 (c)(1) of the Treasury 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).
An organization will not be so regarded if more than an insubstantial part of its activities is not in

furtherance of an exempt purpose.

The term educational includes (a) instruction or training of the individual for the purpose of
improving or developing his capabilities and (b) instruction of the public on subjects useful to
the individual and beneficial to the community. Treas. Reg. § 1 .501(c)(3)-1 (d)(3). In other
words, the two components of education are public education and individual training.

Educational purposes include instruction or training of the individual for the purpose of
improving or developing his capabilities and instruction of the public on useful and beneficial
subjects. Treas. Reg. § 1 .501 (c)(3)-1 (d)(3). oO

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 purposes, 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 RA-5d out by a university.

In American Institute for Economic Research v. United States. 302 F. 2d 934 (Ct. Cl. 1 962), the

Department of the Treasury — Internal Revenue Service Form 886-A

Schedule number or exhibit

a+ « Form 886-A
_ (Rev. January 19XX) EXPLANATIONS OF ITEMS !
Name of taxpayer Year/Period ended

12/31/20XX; 20XX, 20XXK

ORG formerly ORG-1 — EIN EIN

Court considered the status of an organization that provided analyses of securities and industries
and of the economic climate in general. The organization sold subscriptions to various
periodicals and services providing advice for purchases of individual securities. Although the
court noted that education is a broad concept, and assumed for the sake of argument that the

_ organization had an educational purpose, it held that the organization had a significant non-
exempt commercial purpose that was not incidental to the educational purpose and was not

entitled to be regarded as exempt.

An organization must establish that it serves a public rather than a private interest and “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.” Treas. Reg. § 1 501 (c)(3)-1 (d)(1 )(ii).

Prohibited private interests include those of unrelated third parties as well as insiders. Christian

Stewardship Assistance. Inc. v. Commissioner. 70 T.C. 1037 (1978); American Campaign
Academy v. Commissioner. 92 T.C. 1053 (1989). Private benefits include an “advantage; profit;

fruit; privilege; gain; [or] interest.” Retired Teachers Legal Fund v. Commissioner. 78 T.C. 280,
286 (1982). 7

The Service has issued two rulings holding credit counseling organizations to be tax exempt.

Rev. Rul. 65-299, 1965-2 C.B. 165, granted exemption to a 501(c)(4) organization whose’
purpose was to assist families and individuals with financial problems and to help reduce the
incidence of personal bankruptcy. Its primary activity appears to have been meeting with people
in financial difficulties to “analyze the specific problems involved and counsel on the payment of
their debts.”

The organization also advised applicants on proration and payment of debts, negotiated with
creditors and set up debt repayment plans. It did not restrict its services to the needy. It made no
charge for the counseling services, indicating they were separate from the debt repayment
arrangements. It made “a nominal charge” for monthly prorating services to cover postage and
supplies. For financial support, it relied upon voluntary contributions 1 from local businesses,

lending agencies, and labor unions.

Rev. Rul. 69-441, 1969-2 C.B. 115, granted 501 (c)(3) status to an organization with two
functions: it educated the public on personal money management, using films, speakers, and
publications, and provided individual counseling to “low-income individuals and families.” As
part of its counseling, it established budget plans, i.e., debt management plans, for some of its
clients. The debt management services were provided without charge. The organization was
supported by contributions primarily from creditors. By virtue of aiding low income people,
without charge, as well as providing education to the public, the organization qualified for

section 501 (c)(3) status.

Department of the Treasury — Internal Revenue Service Form 886-A —

a

• *Form 886-A Schedule number or exhibit

(Rev. January 19XX) EXPLANATIONS OF ITEMS ;

Name of taxpayer Year/Period ended

12/31/20XX; 20XX, 20XX

ORG formerly ORG-1 — EIN EIN

In the case of Consumer Credit Counseling Service of State. Inc. v. U.S.. 44 A.F.T.R.2d 78-5052

(D.D.C. 1978), the District Court for the District of Columbia held that a credit counseling
organization qualified as charitable and educational under section 501 (c)(3). It fulfilled
charitable purposes by educating the public on subjects useful to the individual and beneficial to
the community. Treas. Reg. § 1 .501 (c)(3)-1 (d)(3)(i)(b). For this, it charged no fee. The court —
found that the counseling programs were also educational and charitable; the debt management
and creditor intercession activities were “an integral part” of the agencies’ counseling function
and thus were charitable and educational. Even if this were not thé case, the court viewed the
debt management and creditor intercession activities as incidental to the agencies’ principal

~ functions, as only approximately 12 percent of the counselors’ time was applied to.debt
management programs and the charge for the service was “nominal.” The court also considered
the facts that the agency was publicly supported and that it had a board dominated by members
of the géneral public as factors indicating a charitable operation. also. Credit Counseling Centers
of State. Inc. v. United States. 79-2 U.S.T.C. 9468 (D.D.C. 1979), in which the facts and legal

analysis were virtually identical to those in Consumer Credit Counseling Centers of State. Inc. v.

United States. discussed immediately above.

The organizations included in the above decision waived the monthly fees when the payments

• would cause a financial hardship. The professional counselors employed by the organizations
  spent about 88 percent of their time in activities such as information dissemination and
  counseling assistance rather than those connected with the debt management programs. The
  primary sources of revenue for these organizations were provided by government and private
  foundation grants, contributions, and assistance from labor agencies and United Way.

Outside the context of credit counseling, individual counseling has, in a number of instances, -
been held to be a tax-exempt charitable activity. Rev. Rul. 78-99, 1978-1 C.B. 152 (free —
individual and group counseling of widows); Rev. Rul. 76-205, 1976-1 C.B. 154 (free counseling
and English instruction for immigrants); Rev. Rul. 73-569, 1973-2 C.B. 179 (free counseling to
pregnant women); Rev. Rul. 70-590, 1970-2 C.B. 116 (clinic to help users of mind-altering
drugs); Rev. Rul. 70-640, 1970-2 C.B. 117 (free marriage counseling); Rev. Rul. 68-71, 1968-1
C.B.249 (career planning education through free vocational counseling and publications sold at a
nominal charge). Overwhelmingly, the counseling activities described in these rulings were
provided free, and the organizations were supported by contributions from the public.

Charitable Contributions

The term “charitable contribution”, as used in section 170 of the Code, has been held to be
synonymous with the word “gift.” See Channing v. United States, 4 F. Supp. 33 (D. Mass. 1933),
aff'd percuriam, 67 F.2d 986 (1st Cir. 1933), cert. denied, 291 U.S. 686 (1934). A gift for
purposes of section 1 70 is a voluntary transfer of money or property that is made with no

Department of the Treasury — Intemal Revenue Service Form 886-A

Form 886-A | Schedule number or exhibit
(Rev. January 19XX) EXPLANATIONS OF ITEMS 1

Name of taxpayer Year/Period ended

ORG formerly ORG-1 — EIN EIN 12/31/20XX; 20XX, 20XX

expectation of procuring a commensurate financial benefit in return for the transfer. H.R. Rep.
1337, 83rd Cong., 2d Sess. A44 (1954); S. Rep. No. 1622, 83rd Cong., 2d Sess. 196 (1954).

TAXPAYERS POSITION
“ORG state they had an educational program during the years under examination.
GOVERNMENTS POSITION

In order to keep tax exempt status as an organization described in 501 (c), an organization must
demonstrate that it is organized and operated in a manner which would continue to classify them
as such.

' In 20XX, the ORG board consisted of 3 employees who were officers of the organization. In
20XX and 20XX, ORG had only two officers (husband and wife) who formed the board — again
employees of the organization. Therefore, during the years of the audit there was no
representation on the board that would include a variety of segments of the community such as
religious organizations, civic groups, labor unions, business groups or educational institutions.
The board members are all officers and employees of the organization, and therefore had a -
financial interest in the organization.

To determine whether an educational/counseling program existed during the years of the audit,
many aspects of the operations of ORG were reviewed to determine their educational/counseling

_ methodology, if any.

The employee’s previous employment and educational background were reviewed to determine
if any was in the field of education — none was found. The basic training given to employees
_ who took new client calls was centered on the sale of the DMP program.

It is true that after employed for 6 months to a year, some individuals had completed self study in
financial counseling, but others had not.

The next step was to see if the practices of ORG provided significant education/counseling in
their interaction with their clients. This was done through interviews with the employees, review
of the script used, documentation of client records, and observing client calls.

On 8/19/20XX, RA-2 explained that a caller is not given a client number unless they enter the
DMP program (see Exhibit D, after caller 6). When we requested to see the budgets of some of
the people who had called in to ORG, we were told that two of the callers were not given the
choice of completing a budget because “they had secured debt, or the wrong kind of debt”.

So it is the practice of ORG to not offer a debt review to callers if they have debt which cannot

Department of the Treasury — Intemal Revenue Service Form 886-A
‘ :

¢ * “Form 886-4 Schedule number or exhibit

(Rev. January 19XX) EXPLANATIONS OF ITEMS 5

Name of taxpayer Year/Period ended

ORG formerly ORG-1 — EIN EIN

12/31/20XX; 20XX, 20XXK

be entered into the DMP program or are unemployed. As a matter of fact, even though the

budget could be an educational tool, it is not the practice of ORG to mail the completed budget

to anyone -- including their DMP clients. And though we saw complete budgets offered to clients
on observed client calls, it was. the practice during the years of the audit to mail a financial
statement to the clients to complete and mail in and this was only mailed out in the packets of
clients who were prequalified on the phone for the DMP program.

Conflicting information has been provided by ORG. On the questionnaire (Form 13769), signed
by DIR-3 on March 25, 20XX, it is stated that the organization offers seminars taught by
qualified instructors which are advertised to the public. No documentation of any of these
seminars was produced. As a matter of fact, when the Secretary’s representative talked with RA-
1 (in charge of education), she indicated that the first community seminar was conducted in
December 20XX, and that the tele-course was ‘begun i in June 20XX and only had one certificate

of completion through March 20XX. _

Were brochures and budget tools distributed to clients? Documentation of this practice is hazy
and questionable. The newsletter that went out some months did contain helpful information.
But, overall, the distribution of brochures does not allow for interaction to see if people actually
read what was S provided, or if they even understand what a budget is.

Only the DMP was advertised (except for the one workshop held in December 20XX). The
majority of clients learn about ORG through their web site which concentrated on the sale of the
DMP through a “15 minute evaluation”. How can any counseling/education be offered in 15
minutes when most of this time is spent getting the clients to provide income and unsecured debt
information? This 15 minutes evaluation involves obtaining income and creditor information
only to determine if they qualify for the DMP program. When first-contact is made to the client
via a phone call the client is intent only on the DMP because that is what is advertised. .

ORG employees did not consistently interview clients about their education level, buying habits,
any significant past or anticipated changes in their earnings or expenses OF the reason for those |
changes. The ORG employee never asked how many people were in the household on the calls’
observed (see client documentation #3 in Exhibit E where the number in the household is entered
as “‘0”) There was a lack of significant discussion on the advantages or disadvantages of various
options, and recommendations for which options are best suited to meet the client’s individual
needs, goals or circumstances. The sample client files did not include an “action plan” for the

client based on their financial circumstances.

In IDR #14, the Secretary’s representative asked for some of the client documentation for the

sessions observed. RA-10 had completed a web application (caller #8 on May 18, 20XX), yet in

the response to our request for documentation, we were told there was no web application. This

• caller had no.source of.income and ORG stated that no documentation was sent or signed. They

Department of the Treasury — Intemal Revenue Service Form 886-A

@ et:

»

“Form 886-A Schedule number or exhibit

(Rev. January 19XX) EXPLANATIONS OFITEMS «| ,

_ORG formerly ORG-1 - EIN EIN

Name of taxpayer Year/Period ended

12/3 1/20XX; 20XX, 20XX

state a budget tracker was mailed; however, there is nothing in the client documentation that
states this. (See Exhibit E, client sample #1 documentation).

' The documentation for a client who signed up on the DMP is included in Exhibit E also (client

‘sample #2 documentation). There is nothing in the file to indicate what caused the client to have

debt problems, there is no action plan for this client, and the response by ORG did not indicate
that any educational material was sent to the client.

. Most of the daily operations of ORG employees involved the maintenance of the debt

management program. This includes setting up the DMP’s, correspondence with the creditors,
initiating and maintaining the monthly electronic money transfers from the clients to the
creditors, maintaining the web sites, and marketing of the DMP.

. Follow-up calls to clients who have failed to make a payment are centered on petting the client .

back on the DMP. The client interaction on call #8 on 3-21-20XX (Exhibit D) did not include
asking the client the cause of the missed payment or if their circumstances had changed. There

was no counseling observed.

There was no educational program established and running during the years of the audit. And the
final and most telling evidence was obtained during the client sessions observed. These calls did
not provide evidence of significant counseling/education to the clients. As a matter of fact, the
clients were provided with incorrect information when they were told they could itemize their
DMP fees as charitable deductions on their tax returns.

One of the first phone calls observed did not complete a full budget, with household expenses
included. Yet they were told they qualified for the DMP and an initial packet would be sent to
them. Once the secretary’s representative mentioned this, the rest of the phone calls included the
household expenses. But when one looks at the initial package sent to the clients, it is obvious
that the client normally completes the “financial statement” and returns it only when approved

for the DMP program.

_ There was no documentation or observation that ORG operates primarily in activities which

accomplish an exempt purpose nor does it operate exclusively for religious, charitable, scientific,

testing for public safety, literary, or educational purposes, or to foster national or international

-amateur sports competition as specified in Internal Revenue Code 501 (c)(3).

ORG has not demonstrated that it serves a charitable class of individuals. Individuals who have
debt problems are not a charitable class of individuals. ORG’s fees are not based on the income
level of the clients, but based on the maximum allowable under state law. ORG states that, %
of clients were permitted to waive their monthly service fees, however, this percentage is not

significant. In the case of Consumer Credit Counseling Service of State. Inc. v. U. S..

44A.F.T.R.2d 78-5052 (D.D.C. 1978), no fees were charged.

Department of the Treasury — Intemal Revenue Service Form 886-A

Schedule number or exhibit

‘Form 886-A |
(Rev. January 19XX) EXPLANATIONS OF ITEMS ;

te gic

Name of taxpayer Year/Period ended

12/31/20XX; 20XX, 20XXK

ORG formerly ORG-1 — EIN EIN

The main source of funds by ORG is from creditors, which. are based on a percentage of the .
debts collected for them by ORG. The remaining funds are from client fees. There weré no
grants from United Way or other agencies which were ee on the educational/counseling

_ activities of ORG.

All their funds are from services provided, including the funds from creditors. Since services are
provided, these funds cannot be classified as gifts or contributions.

ORG activities reveal that they have a significant commercial purpose which serves private
rather than public interests. The client calls are essentially sales calls.

CONCLUSION

In summary, ORG was not operated exclusively for exempt purposes, because it did not engage
primarily in activities that accomplish an exempt purpose, more than an insubstantial part of
ORG activities.are in furtherance of a non-exempt purpose, and ORG was operated for the
purpose of serving a private benefit rather than public interests.

Accordingly, it is determined that ORG is not an organization described in section 501 (c)(3),
and is not exempt from income tax under section 501, effective January 1,20XX. __

Department of the Treasury — Internal Revenue Service _ Form 886-A

| |

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