Military fishing tournament did not qualify for section 501(c)(3)

Plain-English summary

A nonprofit corporation organized an annual three-day event for military service members that included a dinner, a military-installation tour, and a fishing tournament. The IRS found that the organization's primary activity was social and recreational rather than exclusively charitable or educational. It also concluded that the program did not resemble an exempt community patriotism organization because it did not promote patriotism in the community. The proposed denial became final after the organization did not protest within 30 days. As a result, the organization was not exempt under section 501(c)(3), and donors could not deduct contributions under section 170.

Ruling snapshot

• Question: Did the organization's military fishing event satisfy the section 501(c)(3) operational test?
• Outcome: Denied because substantial social and recreational activities furthered a nonexempt purpose.
• Key authorities: IRC §§ 170, 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (c); Rev. Rul. 77-366; Rev. Rul. 78-84

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
IRS Cincinnati, OH 45201
Date: August 1, 2017

Employer ID number:

Number: 201743019 Contact person/ID number:
Release Date: 10/27/2017
Contact telephone number:
Form you must file:

Tax years:
UIL: 501.03-00, 501.03-30

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section 501(c)(3) of the
Internal Revenue Code (the Code). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it
gave you 30 days to file a protest. Because we didn’t receive a protest within the required 30 days, the proposed
determination is now final.

Because you don’t qualify as a tax-exempt organization under Section 501(c)(3) of the Code, donors can’t
deduct contributions to you under Section 170 of the Code. You must file federal income tax returns for the tax
years listed at the top of this letter using the required form (also listed at the top of this letter) within 30 days of
this letter unless you request an extension of time to file.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under Section 6110 of the Code) 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 the Notice
437 on how to notify us. If you agree with our deletions, you don’t need to take any further action.

We’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under Section 6104(c) of the Code). You should contact your state
officials if you have questions about how this determination will affect your state responsibilities and
requirements.

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Notice 437

Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S


Department of the Treasury

Internal Revenue Service

Cincinnati, OH 45201
Date: May 15, 2017
Employer ID number:
Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:
U = State of formation
V = Date of formation

UIL:
501.03-00
501.03-30

W= Venue name

X = Military base

Y = Tournament location
Z = Boat show location

Dear

We considered your application for recognition of exemption from federal income tax under Section 501(a) of
the Internal Revenue Code (the Code). Based on the information provided, we determined that you don’t qualify
for exemption under Section 501(c)(3) of the Code. This letter explains the basis for our conclusion. Please
keep it for your records.

Issues
Do you qualify for exemption under Section 501(c)(3) of the Code? No, for the reasons stated below.

Facts
You incorporated as a charitable corporation in the State of U on V.

You have an annual fishing tournament for military service members, from all branches of the military
throughout the United States. It is a three day event which starts with an icebreaker, including dinner at W in X
on the first day. There is a tour of the military installation in X on the second day. The event ends with a fishing
tournament in Y on the last day. Your objective is to match service members with experienced boaters who
possess the expertise and commitment to help soldiers learn about fishing and guide them through a positive
experience on the water.

You also set up a booth at a boat show in Z where you distribute flyers and answer questions regarding your
organization.

Law

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


2

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

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operating exclusively
for exempt purposes if it engages primarily in activities that accomplish 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.

Revenue Ruling 77-366, 1977-2 C.B. 192 states that a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities to further religious and educational purposes are provided in addition to
extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for
exemption under section 501(c)(3) of the Code.

Revenue Ruling 78-84, 1978-1 C.B. 150 states that an organization formed by citizens of a community to promote
civic pride in the community, the state, and the country by providing a color guard and conducting flag-raising and
other ceremonies at patriotic and community functions is promoting patriotism, a recognized charitable objective,
qualifies for exemption under Section 501(c)(3) of the Code.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279, the Supreme Court held
that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for exemption
regardless of the number or importance of truly exempt purposes.

Application of law

To meet the requirements of Section 501(c)(3) of the Code, an organization must exclusively further exempt
purposes and be able to show it satisfies the organizational and operational tests under Section 501(c)(3) as
detailed in Treas. Reg. Section 1.501(c)(3)-1(a)(1). Specifically, an organization that fails to meet either the
organizational test or the operational test, or both, is not exempt.

You conduct substantial social and recreational activities. Your primary activity is conducting a fishing
tournament for military service members. Social and recreational events are not considered activities that
further exempt purposes under Treas. Reg. Section 1.501(c)(3)-1(c)(1).

Your activities are like those described in Revenue Ruling 77-366 where an organization conducted some
religious and educational activities on ocean cruises in addition to substantial social and recreational activities.
You spend a majority of your time conducting an annual fishing tournament for military service members which
is a social and recreational activity.

Your activities are not like the activity described in Revenue Ruling 78-84 where an exempt organization
promoted patriotism in their community. Your activities to provide a social and recreational activity for military
service members and does not promote patriotism in the community.

Like the organization in Better Business Bureau, you further a substantial non-exempt purpose. Even if some of
your activities further exempt purposes under section 501(c)(3), such as an occasional fundraising event for
charity, a single non-exempt purpose, if substantial in nature, will destroy a claim for exemption regardless of
the number or importance of truly exempt purposes.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


Conclusion

A substantial part of your operations serve social and recreational purposes and thus, you do not exclusively
further exempt purposes under Section 501(c)(3) of the Code. Your fishing tournament for military service
members promotes a social and recreational purpose. Therefore, you are not described under Section 501(c)(3)
because you do not meet the operational test.

If you don’t agree
You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you
must send a statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone
number

• A copy of this letter highlighting the findings you disagree with
• An explanation of why you disagree, including any supporting documents
• The law or authority, if any, you are relying on

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization, or your authorized representative

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I examined this protest statement, including

accompanying documents, and to the best of my knowledge and belief, the statement contains all
relevant facts and such facts are true, correct, and complete.

For authorized representatives:

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

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if he or she hasn’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you provided a basis for us to reconsider our determination. If
so, we'll continue to process your case considering the information you provided. If you haven’t provided a
basis for reconsideration, we’ll forward your case to the Office of Appeals and notify you. 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.

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W


4

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court at a later date because
the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

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

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Room 7-008 550 Main Street, Room 7-008

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your statement and supporting documents to the fax number listed at the top of this letter. If
you fax your statement, please contact the person listed at the top of this letter to confirm that he or she received
it.

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from you
within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on your
income tax filing requirements.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If

you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Stephen A Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Letter 4036 (Rev. 7-2014)
Catalog Number 47630W