Housing rehabilitation program denied exemption

Plain-English summary

The IRS denied IRC § 501(c)(3) recognition to an organization that planned to buy, rehabilitate, and sell single-family homes to low- and moderate-income buyers. The organization did not identify target areas, provide enough information about costs and sale prices, offer down-payment assistance, participate in government housing programs, or adopt affordability restrictions. The IRS also found private-benefit concerns because all three directors were related, director compensation was planned, and the governing documents did not prohibit private inurement. The determination matters because housing activities qualify as charitable only when their facts show relief of the poor, community improvement, or another recognized exempt purpose.

Ruling snapshot

• Question: Does the proposed housing rehabilitation program qualify for IRC § 501(c)(3) exemption?
• Outcome: Denied
• Key authorities: IRC §§ 501(a), 501(c)(3), 170, 6110, 7428; Treas. Reg. §§ 1.501(c)(3)-1(a)(1), (c)(1), (c)(2), (d)(1)(ii); Rev. Proc. 96-32

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

Release Number: 201415004 Contact Person:
Release Date: 4/11/2014
Date: January 13, 2014
UIL Code: 501.03-00

Identification Number:

Contact Number:

Employer identification Number:
Form Required To Be Filed:

Tax Years:

Dear

This is our final determination that you do not qualify for exemption from Federal income tax as
an organization described in Internal Revenue Code section 501(c)(3). Recently, we sent you a
letter in response to your application that proposed an adverse determination. The letter
explained the facts, law and rationale, and gave you 30 days to file a protest. Since we did not
receive a protest within the requisite 30 days, the proposed adverse determination is now final.

Because you do not qualify for exemption as an organization described in Code section
501(c)(3), donors may not deduct contributions to you under Code section 170. You must file
Federal income tax returns on the form and for the years listed above within 30 days of this
letter, unless you request an extension of time to file. 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 Code section 6110, after deleting certain identifying information. Please read
the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, 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

2
1-800-829-1040 or the IRS Customer Service number for businesses, 1-800-829-4933. The
IRS Customer Service number for people with hearing impairments is 1-800-829-4059.

Sincerely,
Karen Schiller

Acting Director, Exempt Organizations
Rulings and Agreements

Enclosure
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: October 29, 2013 Contact Person:

Identification Number:
UIL: 501.03-00

Contact Number:

FAX Number:

Employer Identification Number:

Director 2:
Director 3:
x:

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 do not qualify for exemption under § 501(c)(3). The basis for our conclusion is set forth
below.

FACTS

You incorporated as a nonprofit corporation under State law on Date 1. You filed Form 1023,
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue
Code, on Date 2.

Your Articles of Incorporation provide that your purpose is “Charitable, Educational and
Scientific under Section 501(c)(3) of the Internal Revenue Code.” More specifically, you are
“organized exclusively for Charitable, Educational and Scientific purposes under section
501(c)(3) of the Internal Revenue Code, or corresponding section of any future federal tax
code.” Additionally, your Articles provide that:

e No substantial part of your activities “shall be the carrying on of propaganda, or
otherwise attempting to influence legislation’;

2

e You “shall not participate in, or intervene in (including the publishing or distribution of
statements) any political campaign on behalf of or in opposition to any candidate for
public office”;

e You “shall not carry on any other activities not permitted to be carried on (a) by a
corporation exempt from federal income tax under section 501(c)(3) of the Internal
Revenue Code, or the corresponding section of any future federal tax code”; and

e Upon dissolution, your “assets shall be distributed for one or more exempt purposes
within the meaning of section 501(c)(3) of the Internal Revenue Code or the
corresponding section of any future federal tax code.”

Your Articles do not include a provision prohibiting your net earnings from inuring to the benefit
of your members, trustees, officers or other private persons.

Activities

You state that you are not currently operating pending recognition of your tax-exempt status.
However, you state that your only activity “will be participating in the purchase of single family
homes and rehabilitation [sic] them then sell them to low and moderate income persons.”
Specifically; you intend to buy properties either at auction or directly from the seller; rehabilitate
the property “to comply with local building and occupancy standards and/or code”; and sell to
“low-income” or “moderate-income” persons at market rates.

You did not provide any information regarding how you intend to choose properties for
rehabilitation. Additionally, you provide no information about your anticipated rehabilitation
costs, other than that you do not intend to use volunteer labor to perform rehabilitations.
Furthermore, you do not state whether you will profit on the sale of your rehabilitated properties.

You state that you will use the U.S. Department of Housing and Urban Development (HUD)
definitions of “low-income” and “very low-income” for determine eligibility for your housing.
Additionally, you make the following certifications:

1. With respect to each housing project,
   a. At least 75% of the units will be occupied by residents that qualify as “low-
   income” as defined by HUD.
   be. At least 20% of the units will be occupied by residents that qualify as “very low-
   income” as defined by HUD or 40% of the units will be occupied by residents that
   do not exceed 120% of the area’s “very low-income” limit.
   The housing project(s) will actually be occupied by the poor and/or distressed residents.
   The housing project(s) will be affordable to the charitable beneficiaries.
   If the housing project(s) consist of multiple buildings, each building will meet the
   “requirements described above in (1), (2), and (3).

WN

You state that purchasers will fund the purchase through a lender of their choice; you will not
provide any down payment assistance. You do not participate in any government housing
programs designed to provide affordable housing or homeownership programs designed to
provide homeownership opportunities for families that cannot otherwise afford to purchase safe
and decent housing. Additionally, you do not intend to partner with any existing § 501(c)(3)
organizations that participate in these programs. Furthermore, you do not state whether you will
limit mortgage payments in order to ensure that its rehabilitated properties are affordable to low-

3

income residents or whether you will impose any affordability covenants or restrictions that will
run with the land.

You intend to conduct this activity in State 1, State 2, and State 3, with no focus on any
particular é area of these states. You do not intend to charge a fee for your services. You state
that you will spend 80% of your time and money conducting this activity. You will devote the
remaining 20% of your time to “enjoying life (i.e., golfing, hiking, biking, sailing).”

Governance

Your Board of Directors may have between three (3) and fifteen (15) directors. The Bylaws
provide that three directors—Director 1, Director 2, and Director 3—compose your first Board of
Directors. These individuals also serve as your officers: Director 1 is President, Director 2 is
Treasurer, and Director 3 is Secretary. All three directors are related by blood; Director 3 is
Director 1 and Director 2's father. You failed to provide resumes for these individuals when
requested.

The directors' terms are indefinite, but directors may be removed for cause by a vote of two-
thirds (2/3) of the full Board of Directors. Furthermore, the Bylaws state that the “Directors shall
receive a salary or compensation for their services” (emphasis added). You anticipate paying
directors $x for its first three operational years. When asked how you determined that this
amount was reasonable, you stated that “since this is a start up business with limited activity we
determined that [x] would be appropriate.”

You have adopted a conflict of interest policy. The purpose of your policy is to protect your
interests when you contemplate entering into a transaction or arrangement that might benefit
the private interests of an officer or director. Your policy defines “interested person” as any
director, principal officer, or member of a committee with governing board delegated powers,
who has a direct or indirect financial interest. A person has a financial interest if the person has,
directly or indirectly, through business, investment, or family:

a) an ownership or investment interest in any entity with which Applicant has a transaction
or arrangement,

b) a compensation arrangement with Applicant or with any entity or individual with which
Applicant has a transaction or arrangement, or

c) a potential ownership or investment interest in, or compensation arrangement with, any
entity or individual with which Applicant is negotiating a transaction or arrangement.

When asked to provide copies of the directors’ annual conflict of interest disclosures, you
refused, stating that the directors had not completed disclosure forms because you “[are] newly
form [sic].”

Income & Expenses

Your only source of expected income is the sale of real estate. You specifically state that you
will not receive any gifts, grants, or contributions. Additionally, you state that your initial source
of funding will be lines of credit “and/or savings.” However, you failed to provide a balance

4
sheet showing your assets and liabilities. Accordingly, the source of “savings” is unknown.

Your only €Xpenses are officer and director compensation and occupancy. You do not indicate
any program expenses or other expenses related to the accomplishment of your exempt
purposes.

LAW

I.R.C. § 501(a) provides that an organization described in § 501(c) shall be exempt from
taxation under this subtitle unless such exemption is denied under § 502 or § 503.

II.R.C. § 501(c)(3) describes corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable, scientific, or educational purposes,
no part of the net earnings of which inures to the benefit of any private shareholder or individual,
no substantial part of the activities of which is carrying on propaganda, or otherwise attempting,
to influence legislation, and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of (or in opposition to)
any candidate for public office.

Treas. Reg. § 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an organization
described in II.R.C. § 501(c)(3), an organization must be both organized and operated
exclusively for one or more of the purposes specified in that section. If an organization fails to
meet either the organizational or operational test, it is not exempt.

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

Treas. Reg. § 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.

Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more of exempt purposes unless it serves a public rather than a private
interest. Thus, to meet the requirement of this subdivision, it is necessary for an organization to
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.

Treas. Reg. § 1.501(c)(3)-1(d)(2) provides that the term “charitable” is used in II.R.C. § 501(c)(3)
in its generally accepted legal sense and includes, among other things, lessening the burdens of
government, relief of the poor and distressed or of the underprivileged, advancement of
education or science, erection or maintenance of public buildings, monuments, or works, and
promotion of social welfare by organizations designed to accomplish any of the above purposes,
or to defend human and civil rights secured by law.

Rev. Rul. 68-17, 1968-1 C.B. 247, held that an organization formed to conduct a model

5

demonstration housing program for low-income families and disseminate information about the
results of the program qualified for recognition under § 501(c)(3). The organization’s
membership consisted of other nonprofit institutions, neighborhood groups, and individuals.
The object of the demonstration program was to test the feasibility, cost, procedural and
financial aspect of providing housing for low-income families through the acquisition,
rehabilitation, and resale or lease of residential structures in a deteriorating neighborhood.
Local government officials and departments cooperated in the program by preparing renewal
plans and transferring properties taken through tax foreclosure to the organization at cost. The
organization sold or leased homes rehabilitated by the organization in the model demonstration
program to low-income or displaced families on a nonprofit basis. The organization did no new
construction. A grant from the Department of Housing and Urban Development (HUD) provided
part of the financing for the organization’s project. The organization obtained supplemental
financing from public contributions and the sale of interest-bearing obligations. The ruling held
that the organization performed charitable activities because its demonstration program
combated community deterioration.

Rev. Rul. 70-585, 1970-2 C.B. 115, held generally that an organization formed for charitable
purposes and accomplishing those purposes through a program of providing housing for low
and, in certain circumstances, moderate income families qualifies for recognition under §
501(c)(3).

Situation 1 involved an organization formed to provide new home construction and the
renovation of existing homes for sale to low income families on long-term, low-payment plans. It
purchases homes for renovation and lots for building new homes throughout the city in which it
is located. It builds new homes for sale to low income families who qualify for loans under a
Federal housing program and who cannot obtain financing through conventional channels. It
also aids financially those families eligible for the loans that do not have the necessary down
payment. Rehabilitated homes are made available to families who cannot qualify for any kind of
mortgage loan. The cost of these homes is recovered, if possible, through very small periodic
payments. The organization derives its operating funds through Federal loans and contributions
from the general public. Where possible, renovations are made with volunteer help. The
organization performed charitable activities because it relieved the poor and distressed by
providing homes for low income families who otherwise could not afford them.

Situation 2 involved an organization formed to ameliorate the housing needs of minority groups
by building housing units for sale to persons of low and moderate income on an open
occupancy basis. Housing units were sold at or below cost to low or moderate income families
or rented, with options to purchase, to families who could not afford to purchase. Preference
was given to families previously located in ghetto areas. The organization was financed by
contributions from the general public and by funds obtained under Federal and State housing
programs. The ruling held that the organization engaged in charitable activities because its
activities were designed to eliminate prejudice and discrimination and to lessen neighborhood
tensions.

Situation 3 involved an organization formed to formulate plans for the renewal and rehabilitation
of a particular area in a city as a residential community. Studies of the area showed that the
median income level in the area were lower than in other sections of the city and the housing
located in the area is generally old and badly deteriorated. The organization’s membership was
composed of the residents, businesses, and community organizations in the area. The

6

organization cooperated with the local redevelopment authority in providing residents of the
area with decent, safe, and sanitary housing without relocating them outside the area. The
organization is supported by Federal funds, membership fees, and contributions. The ruling
held that the organization engaged in charitable activities because its activities combated
community deterioration by assisting in the rehabilitation of an old and run-down residential
area.

Situation 4 involved an organization formed to build new housing facilities for the purpose of
helping families to secure, decent, safe, and sanitary housing at prices they can afford. Its
membership is composed of community organizations that are concerned with the growing
housing shortage in the community. A study of the area shows that because of the high cost of
land, increased interest rates, and the growing population, there is a shortage of housing for
moderate income families in the community. The organization planned to erect housing that
would be rented at cost to moderate income families. The organization is financed by mortgage
money obtained under Federal and State programs and by contributions from the general
public. The ruling held that the organization did not perform charitable activities because the
organization’s program was not designed to provide relief to the poor or to carry out any other
charitable purpose.

Rev. Proc. 96-32, 1996-1 C.B. 717, sets forth a safe harbor under which organizations that
provide low-income housing will be considered charitable under § 501(c)(3) for relieving the
poor and distressed, and describes the facts and circumstances test that will apply to determine
whether organizations that fall outside the safe harbor relieve the poor and distressed. It also
clarifies that housing organizations may rely on other charitable purposes to qualify for
recognition of exemption. The safe harbor requires that the housing be affordable to the
charitable beneficiaries. In the case of rental housing, this requirement will ordinarily be
satisfied by the adoption of a rental policy that complies with government-imposed rental
restrictions or otherwise provides for the limitation of the tenant’s portion of the rent charged to
ensure thatthe housing is affordable to low-income and very low-income residents. In the case
of homeownership programs, this requirement will ordinarily be satisfied by the adoption of a
mortgage policy that complies with government-imposed mortgage limitations or otherwise
makes the initial and continuing costs of purchasing a home affordable to low and very low-
income residents. Facts and circumstances that demonstrate relief of the poor may include, but
are not limited to, the following:

(1) A substantially greater percentage of residents than required by the safe harbor with
incomes up to 120 percent of the area’s very low-income limit.

(2) Limited degree of deviation from the safe harbor percentages.

(3) Limitation of a resident's portion of rent or mortgage payment to ensure that the
‘housing is affordable to low-income and very low-income residents.

(4) Participation in a government housing program designed to provide affordable
housing.

(5) Operation through a community-based board of directors, particularly if the selection
process demonstrates that community groups have input into the organization's
operations.

(6) The provision of additional social services affordable to the poor residents.

(7) Relationship with an existing § 501(c)(3) organization active in low-income housing
for at least five years if the existing organization demonstrates control.

(8) Acceptance of residents who, when considered individually, have unusual burdens
such as extremely high medical costs which cause them to be in a condition similar
to persons within the qualifying income limits in spite of their higher incomes.

(9) Participation in a homeownership program designed to provide homeownership
opportunities for families that cannot otherwise afford to purchase safe and decent
housing.

(10) Existence of affordability covenants or restrictions running with the property.

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 private benefit, if substantial in nature, will destroy an
organization’s tax-exempt status regardless of the organization’s other charitable purposes or
activities.

RATIONALE

An organization seeking tax-exempt status under § 501(c)(3) must be organized and operated
exclusively of charitable or other exempt purposes with no part of its net earnings inuring to the
benefit of any private shareholder or individual. Treas. Reg. § 1.501(c)(3)-1(a)(1). The
presence of a single non-exempt purpose, if substantial in nature, will destroy exemption under
I.R.C. § 501(c)(3) regardless of the number or importance of any other exempt purposes. Better
Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945); see Treas. Reg. §
1.501(c)(3)-1(c)(1). Based on the information and supporting documentation, you do not qualify
for recognition under § 501(c)(3) because you operate for one or more substantial nonexempt
purpose.

1. Operational Test

An organization seeking recognition under § 501(c)(3) must operate exclusively for one or more
exempt purposes. Treas. Reg. § 1.501(c)(3)-1(a)(1). An organization operates exclusively for
one or more exempt purposes if it engages primarily in activities that accomplish one or more of
such exempt purposes. Treas. Reg. § 1.501(c)(3)-1(c)(1). Therefore, in order to be recognized
under § 501(c)(3), you must engage primarily in activities that accomplish one or more exempt
purposes.

Your only activity is buying and rehabilitating houses for resale to low- and moderate-income
individuals. In certain circumstances, this activity may be a charitable activity within the
meaning of § 501(c)(3). See Treas. Reg. § 1.501(c)(3)-1(d)(2). For example, Rev. Rul. 68-17
describes an organization that rehabilitated properties in a deteriorating neighborhood and sold
or leased those properties to low-income or displaced families on a nonprofit basis. The ruling
determined that the organization's activities were charitable because those activities combated
community deterioration. See also Rev. Rul. 70-585, Situation 3. Rev. Rul. 70-585 describes

8

four situations in which providing housing to low- and, in some cases, moderate-income families
may qualify for recognition under § 501(c)(3). Specifically, Situation 1 describes an organization
that renovated existing homes and then sold those homes to low-income families that could not
qualify for any kind of mortgage loan. The organization recovered the cost of the homes, if
possible, through very small periodic payments. Wherever possible, the organization made
renovations with volunteer help. The ruling determined that the organization performed a
charitable activity because it relieved the poor and distressed. Situation 2 describes an
organization that ameliorated the housing needs of minority groups by building housing units for
sale to persons of low and moderate income on an open occupancy basis. The organization
constructed housing units available to members of minority groups with low and moderate
incomes who were unable to obtain adequate housing because of local discrimination. The
organization sold the housing units at or below cost to these families or rented, with options to
purchase, to families who could not afford to purchase. The ruling determined that the
organization performed a charitable activity because it eliminated prejudice and discrimination
and lessened neighborhood tensions.

Unlike the organizations described in Rev. Rul. 68-17 and Rev. Rul. 70-585, your housing
rehabilitation program fails to combat community deterioration, eliminate prejudice and
discrimination, lessen neighborhood tensions, or provide relief to the poor and distressed or
underprivileged. First, you do not target any specific areas in State 1, State 2, or State 3 for
rehabilitation, including areas with actual or potential deterioration or in which prejudice and
discrimination exist. Second, you do not intend to use volunteers to rehabilitate your properties.
Third, you intend to sell your properties at market rates. Market rates may be at or below cost,
but you provide no information about your anticipated purchase prices or rehabilitation costs.
Whether you will profit from the sale your rehabilitated properties is unknown. Fourth, you do
not intend to provide down payment assistance. Rather, you expect your purchasers to obtain
conventional financing to purchase your properties. Finally, your only source of income will be
from the sale of properties. You state that you will not receive public contributions or apply for
federal, state, or local government grants.

You certify that you will meet the requirements of the safe harbor provided by Rev. Proc. 96-32,
but fail to provide sufficient information about your intended operations to determine whether
you will actually satisfy those requirements. Furthermore, the facts and circumstances do not
establish that your activities relieve the poor and distressed. First, beyond your certification, you
do not indicate how you will choose purchasers for your rehabilitated properties. Second, you
do not indicate whether the purchasers’ mortgage payments will be limited in order to ensure
that the housing is affordable to low-income residents or whether you will impose any
affordability covenants or restrictions that will run with the land. Third, you do not participate in
any government housing programs designed to provide affordable housing or homeownership
programs designed to provide homeownership opportunities for families that cannot otherwise
afford to purchase safe and decent housing. Fourth, you do not operate through a community-
based board of directors. Rather, all of your directors are related by blood. Finally, you do not
indicate whether you have any relationships with existing § 501(c)(3) organizations active in
low-income housing for at least five years. For these reasons, your housing rehabilitation
activity is not a charitable activity within the meaning of § 501(c)(3). You spend 80% of your
time and money conducting this activity. Accordingly, you are not operated exclusively for one
or more exempt purpose.

2. Private Benefit and Inurement

Additionally, 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 or if it
serves a public rather than private interest. Treas. Reg. § 1.501(c)(3)-1(c)(2) & § 1.501(c)(3)-
1(d)(1)(ii). The organization seeking recognition bears the burden of establishing that it is not
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).

You failed to establish that you are not operated for the benefit of your creator or his family.
First, your Articles do not prohibit your net earnings from inuring to the benefit of your members,
trustees, officers, or other private persons. Second, you have three board members, all related
by blood. The directors serve indefinite terms and may only be removed for cause with a vote
of two-thirds of the remaining directors, all of whom are related. Third, your Bylaws require
board members to be compensated for their services, but when asked how you will ensure that
your directors’ salaries are reasonable, you provided no explanation. Furthermore, officer,
director, or trustee compensation is one of your two anticipated expenses. You do not
anticipate any program service or other expenses related to the accomplishment of your exempt
purposes. Finally, you have adopted a conflict of interest policy to protect your interests when
you contemplate entering into transactions or arrangements that might benefit the private
interests of an officer or director. However, your policy is nearly meaningless because all of
your directors are related by blood. The policy provides that, if one family member has a direct
financial interest in a transaction, arrangement, or compensation agreement, all other family
members have an indirect financial interest. Accordingly, no disinterested directors exist to vote
on any such transaction, arrangement, or compensation agreement. Therefore, you have failed
to establish both that your net earnings will not inure to the benefit of private shareholders or
individuals or that you will serve public rather than private interests.

CONCLUSION

Based on the above, we have determined that you fail to meet the requirements necessary to
be recognized as a tax-exempt organization under § 501(c)(3). 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.

This declaration must be signed by an elected officer, a member of the board of
directors, or a trustee rather than an attorney or accountant.

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

10

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 Internal Revenue Service (IRS) 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 IRS.

If you do not intend to protest this determination, you do not need to take any further action. If
we do not hear from you within 30 days, we will issue a final adverse determination letter. That
letter will provide information about filing tax returns and other matters.

Please send your protest statement, Form 2848 and any supporting documents to this address:

Internal Revenue Service
TE/GE (SE:T:EO:RA:T3)

1111 Constitution Ave, N.W.
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,

Karen Schiller

Acting, Director,

Exempt Organizations
Rulings and Agreements