Exemption denied for a community-organizing support organization

Plain-English summary

The IRS denied tax-exempt status under IRC § 501(c)(3) to an organization formed to train, fund, and support community-organizing groups. The organization planned to provide leadership development, technical assistance, fundraising, and policy-related education, including support for a related organization. The IRS concluded that these activities substantially furthered social-welfare and lobbying purposes rather than operating exclusively for charitable or educational purposes. The IRS also found that the organization was an “action” organization because its planned activities included developing policy recommendations, supporting ballot initiatives, and teaching organizing and lobbying methods. The determination matters because it shows how the IRS distinguished educational instruction from mobilization and legislative advocacy on the facts presented.

Ruling snapshot

• Question: Does the organization qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3), § 501(h), § 170, § 6104(c); Treas. Reg. §§ 1.501(c)(3)-1, 1.501(h)-1

Full text (IRS public release)

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Contact Person:
Release Number: 201415007

Release Date: 4/11/2014 Identification Number:

Date: January 15, 2014

UIL Code: 501.03-25 Contact Number:
501.35-00
501.38-00 Employer Identification Number:
501.38-01

501.38-02 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.

Since you do not qualify for exemption as an organization described in Code section 501(c)(3),
donors may not deduct contributions to you under Code section 170. You must file Federal
income tax returns on the form and for the years listed above within 30 days of this letter, unless
you request an extension of time to file.

We will make this letter and our proposed adverse determination letter available for public
inspection under Code section 6110, after deleting certain identifying information. Please read
the enclosed Notice 437, Notice of Intention to Disclose, and review the two attached letters that
show our proposed deletions. If you disagree with our proposed deletions, you should follow
the instructions in Notice 437. If you agree with our deletions, you do not need to take any
further action.

In accordance with Code section 6104(c), we will notify the appropriate State officials of our
determination by sending them a copy of this final letter and the proposed adverse letter. You
should contact your State officials if you have any questions about how this determination may
affect your State responsibilities and requirements.

Letter 4038(CG) (11-2005)
Catalog Number 47632S

2

If you have any questions about this letter, please contact the person whose name and
telephone number are shown in the heading of this letter. If you have any questions about your
Federal income tax status and responsibilities, please contact IRS Customer Service at
1-800-829-1040 or the IRS Customer Service number for businesses, 1-800-829-4933. The
IRS Customer Service number for people with hearing impairments is 1-800-829-4059.

Sincerely,

Kenneth Corbin
Director, Exempt Organizations

Enclosure
Notice 437
Redacted Proposed Adverse Determination Letter
Redacted Final Adverse Determination Letter

Letter 4038 (CG) (11-2005)
Catalog Number 476328

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

Date: November 6, 2013 Contact Person:
Identification Number:
Contact Number:
FAX Number:
Employer Identification Number:

LEGEND: VIL:

B = Board Member 501.03-25

L = Project 501.35-00

N = Related Organization 501.38-01

P = Sate 501.38-00

Q= Date 501.38-02

Dear

We have considered your application for recognition of exemption from federal income tax
under Internal Revenue Code section 501(a). Based on the information provided, we have
concluded that you do not qualify for exemption under Code section 501(c)(3). The basis for
our conclusion is set forth below.

Issues

Do you qualify for exemption under section 501(c)(3) of the Code?

No, for the reasons stated below.

Facts

You were incorporated in the state of P on date Q.

Letter 4036 (CG) (11-2011)
Catalog Number 47630W

Your Articles of Incorporation and Bylaws list your mission as follows:

=" Support community organization formed particularly to work in and assist low
and moderate-income communities and communities of color as well as those
organizations that work on climate justice;

= Foster best practices in community organizing and work to develop new
organizing techniques and methodologies;

*" Bea hub of innovative ideas, including supporting research and developing
public policy recommendations and disseminating those results with the hope of
influencing policy makers;

" Provide fundraising, media, policy and other technical assistance to community
organizations, including raising funds and re-granting those funds to community
organizations that are described in Section 501(c)(3) and exempt from taxation
under Section 501(a) or that will use those funds only for purposes consistent
with Section 501(c)(3);

= Provide leadership training and support as well as organizer (sic) training to
individuals and organizations with an emphasis on organizing for power rather
than consensus.

Your application initially listed the above as your activities, plus assisting organizations that work
on women’s and LGBT equality and providing a range of requested technical and organizational
support to the organizations with a special emphasis on those serving low and moderate income
neighborhoods. You later summarize your purpose as “providing training, leadership
development, technical assistance and other kinds of support to community organizing as a field
in general and to specific organizations engaged in community organizing.”

You are currently housed within another charitable organization where a variety of other
nonprofit, social justice organizations are housed. You will work with these organizations. You
have a close relationship with N. At the time your application was submitted, N had submitted a
1024 application requesting exemption under section 501(c)(4) of the Code as a social welfare
organization. You will provide leadership training, funds, and technical assistance to N. You
have a contract with N to share resources, such as staff, office supplies, and office space to
maximize both organizations’ ability to achieve their missions with available resources. This
contract states you and N will have a common mission and that this agreement will allow you to
share the above resources to allow activities to be conducted in the most economical fashion.
You will provide for the accurate allocation of resource costs based on each party’s (you and N)
use of those resources. You subsequently state that although you and N sometimes work in
alliance, you are very different organizations. While N is a community organizing organization,
you will conduct charitable activities in the form of education, debate, and training. When you
collaborate with N, you will only conduct the work permitted under section 501(c)(3).

Your Bylaws state that you shall have at least 5 directors. Your Bylaws also state that two of
your directors shall be named by your related organization, N. Also, if you have a cost sharing
agreement with any other organization, they will also have the right, if they chose, to seat two
representatives of their organization on your board. The remaining board members will be
selected from members of the community interested in advancing your mission. B, your
executive director, is also the executive director of N. B works around 10 hours a week for you,

Letter 4036(CG) (11-2005) 2
Catalog Number 47630W

and between 20 and 60 hours at N. B has worked in community organizing for almost 20 years,
and has trained hundreds of entry-level and management level community organizers. You
state the rest of your board will be separate from the board of N, although a separately
submitted list of board members indicates 2 of 6 additional board members also are involved
with N.

You will help community organizations to be established, trained, and properly administered, but
state you will not do any of their work for them if it does not comply with your tax exempt status.
You indicated the community organizations, such as N, need assistance with leadership
development and raising resources to help achieve their goals. You state, “There needs to be
an organization which is spending its resources and energy figuring out leadership development
and messaging strategies for groups that are spending most of their resources involved in
community organizing.” Aside from N, you have also considered providing support to other
organizations, which have held a conference that combines racial, economic, and climate justice
activists. In the future, you would consider providing charitable infrastructure to similar
organizations and conferences.

You explain that this is a unique time for community organizing, and “while you will not likely be
the organization that engages in multiple types of community organizing efforts, you will seek to
be a hub to develop, and share new ideas and provide education.” An example of this is that
you may provide education and training on methodologies to other organizations that conduct
community organizing by knocking on doors in neighborhoods. You may also undertake efforts
to teach interested residents how to talk to the media about issues that interest them and how to
knock on doors in the neighborhood to bring neighbors together to discuss issues of community
interest and concern. In effect, you will provide training in methods of organizing and lobbying
that other organizations can use. You will also have forums for key stakeholders to have
conversations about how to improve neighborhoods, allowing individuals to share ideas and
hear the ideas of others. Lastly, you may provide assistance to immigrant parents with students
in public schools, training them to participate in ways to improve their schools, such as a PTA.

Another example of how you might use organizing techniques is a collaborative of six unnamed
section 501(c)(3) organizations currently engaged in a volunteer signature gathering effort. You
would like to provide ideas to the collaborative on what organizing methodologies would best
suit their efforts now and in the future. You have a line item in your budgets for a grant
proposal, which results from work you may contract with other organizations to conduct on their
behalf, so long as it is educational or charitable in nature. You describe this as a potential
project where you could raise funds from other organizations in return for gathering signatures
for various ballot initiatives. However, a subsequent response indicated you were not asked to
be part of this particular project.

You completed Form 5768, electing to have your legislative activities measured by expenditures
as defined by section 501(h) of the Code. You will primarily be a service organization and
leadership training organization, but you may conduct some lobbying activities, both direct and
grassroots. You will not engage in partisan political advocacy, and if you give funds to an
organization which does engage in political advocacy, you will carefully distinguish between
your work and the work of the organization that does conduct political advocacy. You will keep
clear records so that you can identify lobbying expenditures consistent with section 501(h). You

Letter 4036(CG) (11-2005) 3
Catalog Number 47630W

have no plans to engage in ballot initiative work of your own, but that may change in the future.
However, you will “remain aware of IRS’ limitations on section 501(c)(3) charities involved in
lobbying activities, and would at all times remain strictly nonpartisan, and within the expenditure
limitations.” You indicate that to ensure activities are exclusively charitable and educational:
you confer with your knowledgeable and experienced board and outside counsel before
beginning projects.

Your funds come primarily from gifts, grants, and contributions. A substantial amount of your
expenses relate to salaries, compensation, and professional fees. Other expenses include
equipment, facility, and administrative costs. Your ability to implement your vision has been
hampered by a poor fundraising environment. However, you provided several examples of
fundraising letters requesting funds from other organizations to support your mission. The
letters discuss both your and N’s activities. You indicate because these letters of inquiry are
meant to be brief, you cannot include the details and processes by which you and N will work
together on projects for which funds are sought.

One such letter describes a project, L. L, as described in the request, “will be managed,
administered and supported by L’s Leadership Team, a group of dues-paying low-and
moderate-income N members who devote significant time to the development organization and
to the project.” It then clarifies that you support organizations, such as N. The grant proposal
contains project budgets, which list revenue sources as foundations, donors, union
contributions, contracted federal and local issue work, and other sources.

Another fundraising letter lists several approaches to fulfilling your mission, including “building a
solid core of leaders, preferably among those who come out of labor unions.” Also, it states that
as you organize individuals, you will have a strategy on job creation, such as freeing up local
and state resources and creating jobs from the resources. Third, it states another approach will
focus on aspirational legislation because “ballot measures can be a tool for moving ideas and
starting a debate about what might be possible at the local level.”

A third fundraising letter indicates you are submitting a letter of inquiry for support in your
attempts to organize unemployed and underemployed workers. You subsequently explain that
organizing workers means that you will contact individuals with low wage jobs to gather feelings
and thoughts about workplaces and tell them how others in similar situations are coming
together to talk about how to improve lives and workplaces.

You will make grants and re-grants of funds to other community organizations. This is
necessary because it is almost impossible to find financial help for office operations and general
advice. Currently, N is the organization that you plan to provide assistance to, but you plan to
expand as soon as funding permits.

You will grant funds to N or another organization where the funds would be restricted to the
purposes of the grant proposal. N, or other recipients, will be required to submit a proposal with
budgets, interim and final grant reports, and a clear explanation of how it intends to use funds
for charitable and educational purposes. If you believe that funds will not be used to fulfill the
purposes of the grant, you will not give the funds. You also will receive funds from other
foundations that wish to support the charitable and educational programs of N. You would then

Letter 4036(CG) (11-2005) 4
Catalog Number 47630W

provide the funds to N, so long as you felt N could carry out the purposes of the grant. You
have not provided much support to date because you lack funding and staff. You estimate that
you will spend less than 10% of your time on raising funds for N or any other organization.

Law

Section 501(c)(3) of the Internal Revenue Code provides, in part, for the exemption from federal
income tax of organizations organized and operated exclusively for charitable, religious or
educational purposes, no part of the net earnings of which inures to the benefit of any private
shareholder or individual.

Section 1.501(c)(3)-1(a)(1) of the Income Tax Regulations states that in order to qualify under
section 501(c)(3) of the Code, an organization must be both organized and operated exclusively
for one or more exempt purposes. If an organization fails to meet either the organizational or the
operational test, it is not exempt.

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

Section 1.501(c)(3)-1(c)(3)(ii) provides that an organization is not operated exclusively for one
or more exempt purposes if it is an “action” organization as described therein. An organization is
an action organization if a substantial part of its activities is attempting to influence legislation by
propaganda or otherwise. For this purpose, an organization will be regarded as attempting to
influence legislation if the organization (a) Contacts, or urges the public to contact, members of
a legislative body for the purpose of proposing, supporting, or opposing legislation or (6)
Advocates the adoption or rejection of legislation.

Section 1.501(c)(3)-1(d)(2) provides a definition of the term “charitable” used in section
501(c)(3) of the Code that includes relief of the poor and distressed or of the underprivileged;
advancement of religion; advancement of education or science; erection or maintenance of
public buildings, monuments or works; lessening the burdens of government and promotion of
social welfare by organizations designed to accomplish any of the above purposes. The fact that
an organization in carrying out its primary purpose, advocates social or civic changes or
presents opinion on controversial issues with the intention of molding public opinion or creating
public sentiment to an acceptance of its views does not preclude such organization from
qualifying under section 501(c)(3) so long as it is not an “action” organization.

Section 1.501(c)(3)-1(d)(3)(i) describes the meaning of “educational” to include a) the instruction
or training of the individual for the purpose of improving or developing the individual’s
capabilities; or b) the instruction of the public on subjects useful to the individual and beneficial
to the community. It also provides, in part, that an organization may be educational even though
it advocates a particular position or viewpoint so long as it presents a sufficiently full and fair
exposition of the pertinent facts as to permit an individual or the public to form an independent
opinion or conclusion. On the other hand, an organization is not educational if its principle

Letter 4036(CG) (11-2005) 5
Catalog Number 47630W

function is the mere presentation of unsupported opinion.

Section 1.501(h)-1(a)(4) provides, in part, that a public charity that elects the expenditure test
may nevertheless lose its tax exempt status if it is an action organization under

section 1.501(c)(3)-1(c)(3)(ii), (iii) or (iv). A public charity that does not elect the expenditure test
remains subject to the substantial part test. The substantial part test is applied without regard to
the provisions of Code sections 501(h) and 4911 and the related regulations.

Rev. Rul. 60-193, 1960-1 C.B. 195. An organization is not operated exclusively for educational
purposes where its activities are primarily directed toward encouraging business men and
women to become more active in politics and government, and in promoting business, social, or
civic action, as distinguished from the cultivation, development, or improvement of the
capabilities of the individual through instruction or training. The ancillary gathering and/or
disseminating of information through publications, workshops or other media as a means of
accomplishing such an objective does not of itself give it an educational character for exemption
purposes.

Rev. Rul. 71-530, 1971-2 C.B. 237. A nonprofit organization formed to represent the public
interest at legislative and administrative hearings on tax matters qualifies for exemption under
section 501(c)(4) of the Code. Through presentations by qualified witnesses on pending or
proposed tax legislation, the organization is promoting the common good and general welfare of
the community by assisting legislators and administrators concerned with tax policy.

Rev. Rul. 78-305, 1978-2 C.B. 172, The presentation of seminars, forums, and discussion
groups is a recognized method of educating the public. See section 1.501(c)(3)-1(d)(3)(ii) of the
regulations. By disseminating information relating to the role of homosexuals in society, the
organization is furthering educational purposes by instructing the public on subjects useful to the
individual and beneficial to the community. The method used by the organization in
disseminating materials is designed to present a full and fair exposition of the facts to enable the
public to form an independent opinion or conclusion. The fact that the organization's materials
concern possibly controversial topics relating to homosexuality does not bar exemption under
section 501(c)(3) of the Code, so long as the organization adheres to the educational
methodology guidelines of section 1.501(c)(3)-(1)(d)(3) of the regulations.

Rev. Rul. 80-278, 1980-2 C.B. 175, In making the determination of whether an organization's
activities are consistent with exemption under section 501(c)(3) of the Code, the organization's
activities will be considered permissible if: (1) The purpose of the organization is charitable; (2)
the activities are not illegal, contrary to a clearly defined and established public policy, or in
conflict with express statutory restrictions; and (3) the activities are in furtherance of the
organization's exempt purpose and are reasonably related to the accomplishment of that
purpose. The organization’s program of litigation as party plaintiff under state and federal
environmental statutes furthers the organization's exempt purposes and is reasonably related to
the accomplishment of the charitable purposes for which the organization was formed, to
preserve and protect the natural environment for the benefit of the public.

Letter 4036(CG) (11-2005) 6
Catalog Number 47630W

Rev. Proc. 86-43, 1986-2, C.B. 729, section 501(c)(3) of the Code provides for exemption from
federal income tax for organizations that are organized and operated exclusively for purposes
specified in that section, including educational purposes. Section 1.501(c)(3)-1(d)(3) of the
regulations provides that the term “educational” relates to a) the instruction or training of the
individual for the purpose of improving or developing his capabilities; or b) the instruction of the
public on subjects useful to the individual and beneficial to the community. Under this regulation,
an organization may be educational even though it advocates a particular position or viewpoint,
so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an
individual or the public to form an independent opinion or conclusion. However, an organization
is not educational if its principal function is the mere presentation of unsupported opinion.

Rev. Proc. 2013-9, 2013-2 I.R.B. 283, in section 4.03 provides that exempt status may be
recognized in advance of the organization’s operations if its proposed operations are described
in sufficient detail to permit a conclusion that it will clearly meet the particular requirements for
exemption pursuant to the section of the Code under which exemption is claimed. Section
4.03(2) states that the organization must fully describe all of its activities.

In Better Business Bureau v. United States, 326 U.S. 279 (1945), the Supreme Court stated that
the presence of a single nonexempt purpose, if substantial in nature, will preclude exemption
under section 501(c)(3) of the Code, regardless of the number or importance of statutorily
exempt purposes. Thus, the operational test standard prohibiting a substantial non-exempt
purpose is broad enough to include inurement, private benefit, and operations that further
nonprofit goals outside the scope of section 501(c)(3).

Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849 (10th Cir. 1972); cert
denied, 414 U.S. 864 (1973), ruled that Christian Echoes National Ministry was engaged in
attempting to influence legislation, even if there is no legislation pending at that time, when the
organization urged individuals to become involved in politics and require their representatives in
Congress to support prayer in public schools and to oppose foreign aid.

Regan v. Taxation With Representation of Washington, 461 U.S. 540 (1983) A nonprofit
corporation organized to promote its view of the "public interest" in the area of federal taxation
was formed to take over the operations of two other nonprofit organizations, one exempt under
section 501(c)(3) of the Code and the other under section 501(c)(4). The Service denied section
501(c)(3) status for the newly formed organization, concluding that a substantial part of its
operation involved lobbying.

American Science Foundation v. Commissioner of Internal Revenue, T.C. Memo 1886-556: In
order to gain exempt status, petitioner must develop an administrative record that permits the
reasonable conclusion, based on facts in the record, that the organization will meet the
necessary operational requirements of the exemption.

Ohio Disability Association v. Commissioner of Internal Revenue, T.C. Memo 2009-261; Denial
is justified because responses to requests for additional information failed to supplement the
initial application or clarify purposes and activities, and generalizations did not provide sufficient
detail to determine that the organization would be operated exclusively for exempt purposes.

Letter 4036(CG) (11-2005) 7
Catalog Number 47630W

Application of Law

Purpose to benefit other organizations — not exclusively exempt

Internal Revenue Code section 501(c)(3) provides federal income tax exemption for
organizations organized and operated exclusively for charitable, religious, educational, scientific
or literary purposes. You are not as described in Code section 501(c)(3) because you are not
operated exclusively for charitable and/or educational purposes. The purposes listed in your
Articles of Incorporation include developing organizing techniques, disseminating research to
influence policy makers, and providing fundraising, media, and other assistance to community
organizations, which are not exclusively educational and charitable. With these purposes you
are similar to the organization described in Revenue Ruling 71-530, which is exempt under
Section 501(c)(4). Just as this organization was formed to promote the common good and
general welfare of the community, you promote the social welfare of the community by providing
training, support and technical assistance to community organizing organizations. You explain
you are needed because it is nearly impossible for community organizing groups to find fiscal
support, office operation assistance, and general advice, all of which you will do. You are
furthering the social welfare purposes of the community organizing groups by helping them to
become established, trained and properly administered.

You summarize your purposes as providing support to community organizing as a field, and to
specific organizations engaged in community organizing. More than an insubstantial part of
your activities is devoted to the non-exempt purpose of promoting social welfare by supporting
community organizing organizations engaged in social welfare. Therefore, you are not as
described in section 1.501(c)(3)-1(c)(1) of the regulations because you do not operate
exclusively for one or more exempt purposes.

Although you understand the need to differentiate yourself, your purposes and activities from N,
your related organization, you have not established a clear and definite differentiation between
your activities and purpose and the activities and purposes of your related organization, N. You
appear to be operating for the benefit of N in order to confer the benefits of tax exemption under
section 501(c)(3). For example, you share resources with N, including staff, supplies, and office
space. In addition, your executive director, B, is also the executive director of N, and N has the
power to appoint two representatives of your board. N is described by you as a community
organizing organization, and you describe your purposes as providing training, development,
and support to community organizations and community organizing groups. You will also act as
a financial supporter for N. You do not adequately separate the activities of the two
organizations. Your fundraising letters show you solicit grants for specific projects of N, such as
L, or that further purposes of N that are not clearly within the scope of exempt activities under
section 501(c)(3). You have acknowledged the need to establish a clear differentiation between
N as a section 501(c)(4) organization and you as an organization operating under section
501(c)(3). You have stated several times that you are different organizations and that you only
further the charitable and educational purposes of N. However, creating community organizing
models, training leaders for community organizing groups, providing training on mobilization
techniques, and providing fundraising and technical support to community organizing groups
serves to substantially further N’s social welfare purposes, rather than serve exclusively
educational purposes. Your close relationship with N makes it difficult to distinguish your
activities from those of N. The information you submitted fails to dispel the conclusion that you

Letter 4036(CG) (11-2005) 8
Catalog Number 47630W

are operated for the benefit of N. Therefore, you are like the organization in Better Business
Bureau v. Commissioner, as the presence of these substantial non-exempt purposes precludes
exemption under section 501(c)(3).

Exclusive section 501(c)(3) exempt purpose not demonstrated

You do not meet the provisions of section 1.501(c)(3)-1(a)(1) of the regulations because you fail
the operational test by substantially promoting social welfare purposes rather than exclusively
charitable or educational purposes.

As noted in American Science Foundation v. Commissioner exempt status can be recognized in
advance of operations if proposed operations can be described in sufficient detail to permit a
conclusion that the organization will clearly meet the requirements of section 501(c)(3).
Sufficient information has not been submitted during the application process to lead to the
conclusion that you are in compliance with the organizational and operational requirements of
IRC section 501(c)(3). Your application and subsequent submissions fail to adequately
describe your intended activities as required by Rev. Proc. 2013-9. Although you were
specifically asked for such details, you failed to submit an adequate explanation of how you
would carry out your various plans. Instead, you stated that it would depend on funding and
need, and provided generalizations that did not clarify your purposes and activities. The
decision in Ohio Disability Association v. Commissioner of Internal Revenue found such
generalizations insufficient to support a determination of operation for exclusively exempt
purposes. Some of your responses conflicted with each other. For example, at different times
you stated that you would perform fundraising for N (and another non-charitable organization);
you also stated that although you and N will work in alliance, you will only conduct work
permitted under section 501(c)(3). However, fundraising for non-charitable organizations is not a
charitable activity. You submitted no supporting documentation, business plan, contracts, grant
applications, or other materials that explain how you will implement your planned activities.
Furthermore, you provide a range of support to organizations with special emphasis on those
serving low and moderate income neighborhoods. These organizations may or may not be
charitable. Also, the provision of support to moderate income persons generally does not benefit
a charitable class.

You have not demonstrated an exclusively educational purpose, and you do not meet the
provisions of section 1.501(c)(3)-1(d)(3)(i) of the regulations because, in your educational
efforts, your emphasis and focus is not on the presentation of an exposition of pertinent facts in
order to permit the formation of an independent opinion or conclusion. Rather, you seek to
educate individuals to enable them to be more active and effective in influencing public policy
makers. For example, you will provide assistance to community organizations such as N, which
spend most of their resources involved in community organizing. The assistance you will
provide includes leadership development and raising resources to further the goals of the
community organizing groups. Thus, your purpose is to further the social welfare purposes of
the community organizing groups, rather than exclusively educational purposes. You are like the
organization in Regan vs. Taxation with Representation of Washington, because you are
operating to promote your view of social justice through encouraging individuals and
organizations to mobilize in order to cause change. A substantial amount of your information is
gathered through meetings of individuals of similar backgrounds and situations. Your

Letter 4036(CG) (11-2005) 9
Catalog Number 47630W

educational activities advocate for a specific position, which, combined with supporting
community organizing groups, serves to influence the public, rather than educate them.
Through your promotion of community organizing and social justice, you cannot be considered
to be operated for an exclusively educational purpose.

You have not submitted copies of educational materials or shown that you have performed
educational activities (training, seminars, conferences) to educate the public. You have provided
no evidence that you have conducted educational activities as defined in the regulations
(section 1.501(c)(3)-1(d)(3)(i). You have failed to provide a sufficient basis to determine that you
are operated exclusively for exempt purposes.

Advocacy — “Action” organization

As noted in Rev. Rul. 60-193 an organization is not operated exclusively for educational
purposes where its activities are primarily directed toward encouraging greater involvement in
politics and government and in promoting civic action. Examples given of your educational
programs include teaching individuals and other organizations how to knock on doors to bring
individuals together to discuss community issues and how to talk to the media about issues. In
addition, a potential educational program, will only begin after research on different community
organizing models is conducted. Potential topics to be taught also include public speaking, how
to build community relationships, and writing to give a voice to the community. Thus, your
programs are similar to those of the organization in Revenue Ruling 60-193, and are promoting
civic action by developing community organizing techniques.

Advocacy can be considered educational under the criteria stated in Revenue Procedure 86-43,
so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an
individual to form an independent opinion or conclusion. Your purposes include developing
public policy recommendations to influence policy makers. Examples of this purpose are seen
in your fundraising letters. One letter of inquiry explains you will organize unemployed and low
wage workers to gather ideas and discuss how to improve their workplaces. Another promotes
your goals as wanting to build a core of leaders, preferably those who come from labor unions.
You also explain you will have a strategy on job creation and how to create jobs, and will focus
on ballot initiatives as a tool to start debates.

Although you have completed Form 5768 to make the expenditure test election, as provided in
section 1.501(h)-1(a)(4) of the regulations, election of the expenditure test will not preclude
disqualification of tax exemption of an “action” organization.

Your fundraising letters indicate that you plan to focus on aspirational legislation, because ballot
initiatives are a useful tool. Another potential project you described was participating in a
signature collecting effort to further ballot initiatives. Your purposes also include disseminating
information to influence policy makers, which is demonstrated when you provide training in
methods of organizing and lobbying that other organizations can use in developing public policy
recommendations. You are distinguishable from the organization involved in Revenue Ruling
78-305 which disseminated materials in a manner designed to present a full and fair exposition
of facts to enable the public to form an independent opinion or conclusion. In your projects you
plan to bring individuals together to talk about labor needs, personal employment needs,
standards for work and pay, etc. With the results of the conversations, you hope to develop

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public policy recommendations. The intention of developing public policy recommendations
shows your program has the overall purpose of integrating participant ideas into one specific
legislative opinion, rather than presenting the full and fair exposition of facts to promote the
formation of independent opinions.

These efforts represent more than insubstantial attempts to influence legislation. In addition to
providing training, leadership development, technical assistance and other kinds of support to
community organizing organizations, you will also teach the public and community organizing
organizations how to speak to the media when addressing their interests. You are similar to the
organization in Christian Echoes National Ministry v. United States, where the court held that
when an organization encourages members of the public to support specific issues and urges
them to contact their legislative representative(s) to vote to support or oppose specified
positions, the organization is attempting to influence legislation. This same decision also found
that an organization that attempts to influence public opinion promoting legislation on a
particular issue may still be attempting to influence legislation, even if there is no legislation
pending on that particular issue at that time. More than an insubstantial portion of your activities
consists of indirect attempts to influence legislation. These are the characteristics of an “action”
organization as described in section 1.501(c)(3)-1(c)(3)(ii) of the regulations. Such an
organization is not operated exclusively for exempt purposes under section 501(c)(3) of the
Code and does not qualify for tax-exempt status as provided in section 1.501(h)-1(a)(4) of the
regulations.

Applicant’s Position

Your position is that you are formed for exclusively educational and charitable activities, which
you support with several citations. You cite Section 1.501(c)(3)-1(d)(3)(i)(a) of the regulations,
stating that your activities are for the instruction or training of the individual for the purpose of
improving or developing his or her capabilities or the instruction of the public on subjects
beneficial to the community. You also cite Section 1.501(c)(3)-1(d)(2) of the regulations, stating
that the fact that an organization in carrying out its primary purpose, advocates social or civic
changes or presents opinion on controversial issues with the intention of molding public opinion
or creating public sentiment to an acceptance of its views does not preclude such organization
from qualifying under section 501(c)(3). You cite Revenue Procedure 86-43, stating that
consistent with this Procedure, an organization may be educational even though it advocates a
particular position or viewpoint. You also cite Revenue Ruling 80-278, noting that an activity is
permissible under section 501(c)(3) if it is charitable, not illegal, is in furtherance of your exempt
purposes and is reasonably related. In support of your position an excerpt from a 1979 Exempt
Organizations Continuing Professional Education (CPE) text was submitted. This excerpt
presented references to other Internal Revenue Code sections not directly related to the current
review, as well as discussion of a Private Letter Ruling by the Internal Revenue Service which
expressed a formal determination on the subject under review.

Service Response to Applicant’s Position

As described above in Revenue Ruling 60-193, an organization is not operated exclusively for

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educational purposes (as described in 1.501(c)(3)-1(d)(3)(i)(a), which defines the term
“educational” as “the instruction or training of the individual for the purpose of improving or
developing his capabilities”) where the primary purposes are encouraging activism in
government and politics and promoting business, social, and civic action. Similarly, advocacy
does not always preclude exemption under section 501(c)(3), as described in Section
1.501(c)(3)-1(d)(2) of the Regulations (where the term “charitable” is defined). However, as
discussed in Revenue Procedure 86-43, a full and fair exposition of the facts must be presented
to allow an independent decision to be reached. Your method of gathering and presenting
information includes gathering individuals from similar backgrounds or in similar positions to
discuss ideas and needs to improve their situations, often with the ultimate goal of public policy
recommendations and influencing policy makers. In addition, a substantial number of your
educational programs are to train leaders in community organizing, which furthers the social
welfare of the community organizing groups. Generally, community organizing, mobilization,
and influencing public policy and policy makers are typically social welfare purposes not
described under Section 501(c)(3). Thus, while your programs may have educational elements,
you have the substantial non-exempt purposes of mobilizing individuals for change and
promoting the social welfare purposes of community organizing groups. These purposes
cannot be regarded as “charitable”. Consequently, your activities are not consistent with what
can be considered permissible under Revenue Ruling 80-278. Although the CPE article is
helpful in enhancing understanding of Exempt Organization law, in this context it cannot be
regarded as authoritative precedent. Likewise, the findings expressed in a Private Letter Ruling
have relevance only to the case for which it was rendered and cannot be cited as precedent in
other, even similar, cases.

Conclusion

You do not qualify for exemption under section 501(c)(3) of the Code. Although some of your
activities could be considered to be educational or charitable, the facts described show that you
have the substantial non-exempt purpose of serving the social welfare purposes of the
community by supporting the actions of community organizing groups (particularly your related
organization, N) and by training individuals how to be mobilization leaders in the community.
You have failed to prove that your activities are exclusively educational or charitable within the
meaning of section 501(c)(3) of the Code.

You have the right to file a protest if you believe this determination is incorrect. To protest, you
must submit a statement of your views and fully explain your reasoning. You must submit the
statement, signed by one of your officers, within 30 days from the date of this letter. We will
consider your statement and decide if the information affects our determination. If your
statement does not provide a basis to reconsider our determination, we will forward your case to
our Appeals Office.

You can find more information about the role of the Appeals Office in Publication 892, How To
Appeal an IRS Decision on Tax-Exempt Status.

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Types of information that should be included in your protest can be found on page 1 of
Publication 892, under the heading Filing a Protest”.
The statement of facts must be accompanied by the following declaration:

“Under penalties of perjury, I declare that I have examined the statement of facts presented in
this protest and in any accompanying schedules and statements and, to the best of my
knowledge and belief, they are true, correct, and complete.”

The declaration must be signed by an officer or trustee of the organization who has personal
knowledge of the facts.

Your protest will be considered incomplete without this statement.

If an organization’s representative submits the protest, a substitute declaration must be included
stating that the representative prepared the protest and accompanying documents; and whether
the representative knows personally that the statements of facts contained in the protest and
accompanying documents are true and correct.

An attorney, certified public accountant, or an individual enrolled to practice before the Internal
Revenue Service may represent you during the appeal process. If you want representation
during the appeal process, you must file a proper power of attorney, Form 2848, Power of
Attorney and Declaration of Representative, if you have not already done so. You can find more
information about representation in Publication 947, Practice Before the IRS and Power of
Attorney. All forms and publications mentioned in this letter can be found at www.irs.gov, Forms
and Publications.

If you do not file a protest within 30 days, you will not be able to file a suit for declaratory
judgment in court because the Internal Revenue Service (IRS) will consider the failure to appeal
as a failure to exhaust available administrative remedies. Code section 7428(b)(2) provides, in
part, that a declaratory judgment or decree shall not be issued in any proceeding unless the Tax
Court, the United States Court of Federal Claims, or the District Court of the United States for
the District of Columbia determines that the organization involved has exhausted all of the
administrative remedies available to it within the IRS.

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

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

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Catalog Number 47630W

Mail to: Deliver to:
Internal Revenue Service Internal Revenue Service
EO Determinations Quality Assurance EO Determinations Quality Assurance

You may fax your statement using the fax number shown in the heading of this letter. If you fax
your statement, please call the person identified in the heading of this letter to confirm that he or
she received your fax.

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

Sincerely,

Kenneth Corbin
Acting Director, Exempt Organizations
Rulings and Agreements

Enclosure, Publication 892

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