Baseball-support group primarily benefited a for-profit team's players

Plain-English summary

An organization said it would support baseball, community relations, youth tickets, education, and preservation activities. Its financial records instead showed substantial spending on players of a for-profit baseball team, including clothing, travel food, meals, awards, and picnics. Although some raffle proceeds went to a nonprofit home, the board reported that no money had been spent on most of the organization's stated community activities. The IRS concluded that the articles included a nonexempt purpose and that operations primarily benefited private parties who were not a charitable class. It revoked § 501(c)(3) status effective at the start of the redacted year.

Ruling snapshot

• Question: Was the organization organized and operated exclusively for charitable or other exempt purposes?
• Outcome: Revocation. The IRS found both organizational and operational test failures.
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), and 7428; Treas. Reg. § 1.501(c)(3)-1; Better Business Bureau v. United States

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR. Obvious scan misreads were corrected, and unreadable signature text is marked [illegible]. Wording is otherwise verbatim.

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION

Date: October 24, 2018
UIL: 501.03-00

Person to Contact:

Number: 201907009

Release Date: 2/15/2019 Identification Number:

Contact Telephone Number:
Telephone Number:
Fax:

EIN:

CERTIFIED MAIL — Return Receipt Requested
Dear

This is a final determination that your exempt status under section 501(c)(3) of the Internal Revenue
Code is revoked. Recognition of your exemption under Internal Revenue Code section 501(c)(3) is
revoked effective January 1, 20XX for the following reason(s):

You have not demonstrated that you are operated exclusively for charitable, educational, or other
exempt purposes within the meaning of I.R.C. section 501(c)(3). Organizations that are described
in I.R.C. section 501(c)(3) and section 501(a) must be organized and operated exclusively for an
exempt purpose. You provide services and items that directly benefit private parties who are not
of a charitable class.

As such, you failed to meet the requirements of Internal Revenue Code section 501(c)(3) and
Treasury Regulation Section 1.501(c)(3)-1(d), in that you failed to establish that you were
operated exclusively for an exempt purpose.

Contributions to your organization are no longer deductible under section 170 of the Internal
Revenue Code, effective January 1, 20XX.

You are required to file Federal income tax returns on Form 1120. These returns should be filed
with the appropriate Service Center for the year ending December 31, 20XX, and for all
subsequent years.

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


If you decide to contest this determination in court, you must initiate a suit for declaratory
judgment in the United States Tax Court, the United States Claim Court or the District Court of
the United States for the District of Columbia before the 91st day after the date this determination
was mailed to you. Contact the clerk of the appropriate court for the rules for initiating suits for
declaratory judgment. Please contact the clerk of the respective court for rules and the
appropriate forms regarding filing petitions for declaratory judgment by referring to the enclosed
Publication 892. Please note that the United States Tax Court is the only one of these courts
where a declaratory judgment action can be pursued without the services of a lawyer. You may
write to the courts at the following addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

You may call the IRS telephone number listed in your local directory. An IRS employee there may
be able to help you, but the contact person at the address shown on this letter is most familiar with
your case. You may also call the Internal Revenue Service Taxpayer Advocate. The Taxpayer
Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. We can offer you help if your tax problem is causing a hardship, or you've tried but
haven't been able to resolve your problem with the IRS. If you qualify for our assistance, which is
always free, we will do everything possible to help you. Visit taxpayeradvocate.irs.gov or call 1-877-
777-4778

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

Sincerely yours,

Maria Hooke
Director, EO Examinations

Enclosures:
Publication 892
Envelope


Department of the Treasury Date: May 7, 2018
Internal Revenue Service
IRS Tax Exempt and Government Entities Taxpayer Identification Number:

Exempt Organizations Examinations
Form:

Tax Year(s) Ended:
Person to Contact:

Employee ID:
Telephone:
Fax:
Manager’s Contact Information:

Employee ID:
Telephone:
Response Due Date

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you’re receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue
Code (IRC) Section 501(c)(3).

If you agree

If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter

determining that you aren't an organization described in IRC Section 501(c)(3) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
send additional information as stated in 1 and 2, above, you'll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the
IRS Appeals Office enough time to consider your case. For your protest to be valid, it

Letter 3618 (Rev. 9-2017)
Catalog Number 34809F


must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn’t apply now that we’ve issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
Government Entities) if you feel the issue hasn't been addressed in published precedent
or has been treated inconsistently by the IRS.

If you’re considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal
to the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

If we don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll
issue a final adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can
help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a
hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you
qualify for TAS assistance, which is always free, TAS will do everything possible to help you.
Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

For additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at
www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).

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

Sincerely,

[illegible]

for Maria Hooke
Director, Exempt Organizations
Examinations

Enclosures:
Form 886-A
Form 6018

2
Letter 3618 (Rev. 9-2017)
Catalog Number 34809F


Schedule number or exhibit

Form 886-A
(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number Year/Period ended
12/31/20XX
ISSUE
Whether qualifies for exemption under Internal Revenue Code

Section 501(c)(3).
FACTS

was incorporated under the laws of the State of on September 21,
19XX. It filed Form 990-N for the year ended December 31, 20XX.

The articles of incorporation of the state that: “The purpose of this public
benefit corporation is to promote the , as well as to support baseball at all
levels in the / / Tri-State. Fund raising activities will be conducted primarily to

sponsor: (1) assistance to players; (2) improved team and community relations; (3) game tickets for
youngsters and others; (4) community educational programs about baseball; and (5) assistance (to) the
and the in maintaining historic ”

A financial audit of the organization did not indicate that any money was spent during 20XX for purposes of
improved team, community relations community educational programs about baseball or assistance to the

and/or the in maintaining . The audit also
indicated substantial payments related to the players who are members of the baseball
team which is a for-profit entity.

Assistance to the players of the baseball team included the providing of warmup jerseys
and jackets to players, sack lunches and water for bus trips for the players, meals provided to players at
tryouts for the team, plaques for the players and pre and post season picnics at which time the public may
meet the players.

The organization participates in charitable gaming by holding a half-pot raffle at each baseball game.
Some of the money collected from the raffle is donated to , a non-profit home for disabled
and older adults in ,

On March 27, 20XX, an interview was between the Revenue Agent, members of the

board of directors and one of the owners of the . The members of the board
of directors were specifically asked whether they believed that the organization is a religious, charitable,
scientific, testing for public safety, literary or educational, or fosters national and amateur sports
competition. To each of these questions, the members of the board of directors answered that they did
not think that the was any one of these types of organization.

Form 886-A (1-1994) Catalog Number 20810W Page 1 publish.no.irs.gov Department of the Treasury-Internal Revenue Service


Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS
(Rev. January 1994)

Name of taxpayer Tax Identification Number Year/Period ended
12/31/20XX
The owner of the was asked whether the team operated as a non-profit entity. He
answered that the is operated as a for-profit enterprise.

Additionally, in the interview, the board of directors was asked about the amount of time and money spent
on improved team and community relations, game tickets for youngsters and others, community
educational programs about baseball and assistance for the maintenance of . The members of
the board of directors indicated that no money was spent on any of these activities and that only “sweat
equity” was used for maintenance of

LAW
IRC Section 501(c)(3) provides tax exemption for corporations and foundations that are operated
exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, no
part of the net earnings of which inures to the benefit of any private shareholder or individual.

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

Treasury Regulation Section 1.501(c)(3)-1(b) states that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization limit the purposes of the organization to one or
more exempt purposes and do not expressly empower the organization to engage in activities which in
themselves are not in furtherance of one or more exempt purposes except on an insubstantial basis.

Treasury Regulation Section 1.501(c)(3)-1(c)(1) states that an organization will be regarded as operated
exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one
or more of such exempt purposes specified in § 501(c)(3). An organization will not be so regarded if more
than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treasury Regulation Section 1.501(c)(3)-1(d)(2) provides that the term “charitable” is used in section
501(c)(3) of the Code in its generally accepted legal sense and includes the relief of the poor and distressed
or of the under privileged as well as the advancement of education.

In Better Business Bureau of Washington, D.C., Inc, v. United States, 326 U.S. 179 (1945), the Supreme
Court held that a better business bureau was not exclusively educational or charitable, its activities were in
part aimed at promoting the prosperity and standing of the business community, even though there was
also benefit to the public. 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.

Form 886-A (1-1994) Catalog Number 20810W Page 2 publish.no.irs.gov Department of the Treasury-Internal Revenue Service


Schedule number or exhibit

Form 886-A EXPLANATIONS OF ITEMS
(Rev. January 1994)

Name of taxpayer Tax identification Number Year/Period ended

12/31/20XX

GOVERNMENT’S POSITION

Organizational Test

Your articles of incorporation state that one of your purposes is to “promote the

” In the interview on March 27, 20XX, one of the owners of the indicated that the
team is a for-profit enterprise. You do not meet the requirements of Treasury Regulation Section
1.501(c)(3)-1(a)(1) because you are not organized exclusively for a purpose described in IRC Section
501(c)(3). Therefore, you fail the organizational test and should not be considered tax-exempt.

Operating Test

”

Your primary activity is to “promote the

You state that your fundraising activities are primarily to assist players, improve team and community
relations, provide game tickets for youngsters and others, community educational programs about
baseball and assistance for the maintenance of . However, during our interview, your board of
directors stated that no money had been spent on any of these activities except to assist players.

You fail the operating test in Treasury Regulation Section 1.501(c)(3)-1(c)(1) because you do not operate
primarily for one or more exempt purpose as specified in IRC Section 501(c)(3).

TAXPAYER’S POSITION

Unknown

CONCLUSION

Based on the information you provided and the interview with your board of directors, we conclude that
is neither organized nor operated exclusively for purposes described in IRC
section 501(c)(3).

Accordingly, your tax-exempt status should be revoked as of January 1, 20XX and all subsequent years.

You are required to file federal income tax return, Form 1120, for the year ending December 31, 20XX and
any subsequent years.

Contributions to your organization are no longer deductible under IRC section 170.

Form 886-A (1-1994) Catalog Number 20810W Page 3 publish.no.irs.gov Department of the Treasury-Internal Revenue Service