Fundraising website denied charitable exemption for insufficient operational detail

Plain-English summary

An organization applied for section 501(c)(3) status to operate a no-fee website supporting community fundraising campaigns. It planned to absorb payment-processing costs, publicize campaigns through social media, and accept donations and foundation grants to cover operating expenses. The IRS requested more detail about the fundraising program, but the organization did not respond to the second request despite follow-up calls. Without that information, the IRS could not determine whether the platform would operate exclusively for charitable purposes or provide substantial private benefits to individuals raising funds for private purposes. The IRS issued a final denial after the organization did not protest the proposed adverse determination.

Ruling snapshot

• Question: Did the fundraising-platform organization establish that it would operate exclusively for charitable purposes under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Proc. 2019-5

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

P.O. Box 2508
IRS Cincinnati, OH 45201

Date:

December 3, 2019
Number: 202009028 Employer ID number:
Release Date: 2/28/2020

Contact person/ID number:
Contact telephone number:
Form you must file:

Tax years:

UIL: 501.00-00, 501.03-05

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:

October 9, 2019
Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:

B = State 501.00-00
C = Date 501.03-05
Dear

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

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

Facts

You were incorporated in the state of B as a public benefit corporation on C. Your Articles of Incorporation
state that you are organized exclusively for charitable purposes, including for such purposes, the making of
distributions to organizations that qualify as exempt organizations under IRC Section 501(c)(3). Your Articles
also state that you were formed for the specific purpose of providing a web-site platform to support community
related fundraising for charity. There is no fee charged on all supported fundraising.

You provide a public platform (a website) to support all community-related fundraising or campaigns. You
believe that every dollar is crucial to the beneficiary who is in the hardship, so you do not charge a service fee
on the donation. You absorb the credit card processing fee and bank service fee. To support the listed
campaigns, you upload and share them to all major social media websites to connect more people.

There are several categories that the fundraiser can choose from to publicize the campaign and receive the
donation. For example, two of the categories are Arts and Culture and Disasters and Emergencies.

You accept public donations to cover the basic office expenses and bank service charges on all donations. All
personnel are working voluntarily without pay for your first years of operations so the program will have a
smooth start. You will seek grant funding through foundations.

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

Twice we requested additional information regarding your application. You responded to our first request for
information regarding your foundation classification. We sent a second letter requesting more detail regarding
your fundraising program. Despite multiple telephone calls to follow up on our second request for information,
you did not respond.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure 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 IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of
the purposes specified in such section. If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Treas. Reg. Section 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 IRC Section 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term “charitable” also includes lessening of the burdens of government.

Revenue Procedure 2019-5, 2019-1 I.R.B. 233, Section 3 states that a determination letter or ruling on exempt
status is issued based solely upon the facts and representations contained in the administrative record. The
applicant is responsible for the accuracy of any factual representations contained in the application. Section 6
(and its predecessors) provides that a favorable determination letter or ruling will be issued to an organization
only if its application and supporting documents establish that it meets the particular requirements of the section
under which exemption from federal income tax is claimed.

In Universal Life Church v. United States, 372 F. Supp. 770 (E.D. Cal. 1974), the court concluded that “one
seeking a tax exemption has the burden of establishing his right to a tax-exempt status.”

Pius XII Academy, Inc. v. Commissioner, T.C. Memo. 1982-97, affd. 711 F.2d 1058 (6th Cir. 1983), provides
that an organization must establish through the administrative record that it operates as an exempt organization.
Denial of exemption may be based solely upon failure to provide information describing in adequate detail how
the operational test will be met.

In La Verdad v. Commissioner, 82 T.C. 215 (1984), the administrative record did not demonstrate that the
organization would operate exclusively in furtherance of an exempt purpose. Therefore, denial of organization’s
request for tax-exempt status was reasonable.

New Dynamics Foundation v. United States, 70 Fed. Cl. 782 (2006), was an action for declaratory judgment
that the petitioner brought to challenge the denial of his application for exempt status. The court, in finding that

Letter 4034 (Rev. 11-201 8)
Catalog Number 47628K

3

the actual purposes displayed in the administrative record supported the Service’s denial, stated “It is well-
accepted that, in initial qualification cases such as this, gaps in the administrative record are resolved against the
applicant.” The court noted that if the petitioner had evidence that contradicted these findings, it should have
submitted it as part of the administrative process. The court also highlighted the principle that exemptions from
income tax are matters of legislative grace.

Ohio Disability Association v. Commissioner, T.C. Memo 2009-261 (2009), states 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.

Application of law
A ruling on exempt status is based solely on facts and representations in the administrative file. You have not
provided supporting documentation to establish you meet the requirements of IRC Section 501(c)(3).

IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3). You do not meet the operational test under Section 501(c)(3) because we are unable to
determine that you are operating exclusively for charitable purposes as required under Treas. Reg. Section
1.501(c)(3)-1(c)(1). Without the information we requested, we cannot determine whether you are operated for
the substantial private benefit of individuals by allowing them to use your website to solicit funds for private
purposes. As provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2), you have not established that your operations
accomplish exclusively charitable purposes.

You have not submitted sufficient information establishing you are operated exclusively for IRC Section
501(c)(3) purposes as described in Pius XII Academy, La Verdad, New Dynamics Foundation, and Ohio
Disability Association. You did not provide the detail we required regarding your fundraising program.
Therefore, there is not sufficient documentation to establish that you are exempt from taxation as required by
Section 501(c)(3) and Rev. Proc. 2019-5. As explained in Universal Life Church, you have the burden of
establishing that you qualify for tax exemption.

In Pius XII Academy, La Verdad, and New Dynamics Foundation, it was found that an organization must
establish, through its administrative record, that it meets the requirements for exemption. Because you failed to
provide sufficient details in your initial application, and the additional documentation you provided did not meet
the statutory and regulatory requirements for exemption, you have not established that you meet the
requirements for exemption under IRC Section 501 (c)(3). As provided in New Dynamics Foundation, any gaps
in the administrative record will be resolved against the applicant. Similarly, in Ohio Disability Association, the
court found that even when additional information was provided, but it contained generalizations and failed to
clarify purposes, denial is justified. You did not provide supplemental information; therefore, we are unable to
determine that you qualify for exemption.

Conclusion

Based on the information submitted, we conclude that you are not described in IRC Section 501(c)(3). You did
not establish that you are operated exclusively for charitable purposes and that you are not operated for the
substantial private benefit of the individuals using your fundraising platform. Therefore, you do not qualify for
exemption under Section 501(c)(3).

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

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.

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

* Your name, address, employer identification number (EIN), and a daytime phone number
* A statement of the facts, law, and arguments supporting your position
* A statement indicating whether you are requesting an Appeals Office conference

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

The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, 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 they haven’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 gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

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

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

Where to send your protest
Send your protest, Form 2848, if applicable, 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
Mail Stop 6403 550 Main Street, Mail Stop 6403

P.O. Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest 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 they received it.

You can get 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 listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

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 if 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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K