Truck and tractor pull group denied 501(c)(3) reinstatement

Plain-English summary

An organization whose exemption had been automatically revoked sought reinstatement under section 501(c)(3). Its articles stated that it was formed for social and civic purposes and to host an annual community truck and tractor pull. The event charged competitors and spectators, and a redacted percentage of entry fees funded prizes for winners. The IRS found no educational or other exempt component comparable to an educational agricultural fair. It concluded that the governing document was too broad and that the organization's activities served substantial social and recreational purposes, so the group failed both the organizational and operational tests.

Ruling snapshot

• Question: Does an organization centered on an annual truck and tractor pulling event qualify under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (b)(1)(iv), (c)(1); Rev. Rul. 67-216; Rev. Rul. 77-366; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

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

January 7, 2020
Release Number: 202014022 Employer ID number:

Release Date: 4/3/2020
UIL Number: 501.00-00, 501.03-30

Contact person/ID number:

Contact telephone number:

Form you must file:

Tax years:

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
P.O. Box 2508
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 501.03-30
D = Date

E = Association

f dollars = Amount

g dollars = Amount
h percent = Number

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 on C for social and civic purposes. You have never officially requested
a ruling on your exempt status until now, but your exemption under IRC Section 501(c)(3) was automatically
revoked on D due to your failure to file a return for three consecutive tax periods. You submitted Form 1023-EZ
requesting reinstatement of your exemption.

You attested on Form 1023-EZ that you are organized and operated exclusively to further charitable and
educational purposes. You also attested that you have not conducted and will not conduct prohibited activities
under IRC Section 501(c)(3).

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
Your Articles of Incorporation state that you were formed for social and civic purposes. More specifically, it
states that you were established to host an annual community event of truck and tractor pullers who enjoy
entertaining the local and surrounding communities.

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

2

In order to fulfill your mission, you host an annual community event. Your main exhibition is a series of truck
and tractor pulling events. You charge each entrant (truck or tractor pullers) f dollars to compete in your events.
You charge spectators g dollars to watch the event. Of the entry money, h percent is used to provide prizes for
the winners of your events.

Your other expenses include advertising, office supplies, signage, repairs, maintenance (of sleds to pull) and a
payment to the E Association.

Law

IRC Section 501(c)(3) provides, in part, for the exemption from federal income tax to organizations organized
and operated exclusively for charitable, religious or educational purposes, where no part of the net earnings
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 qualify under IRC Section 501(c)(3), 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 operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iv) states that in no case shall an organization be considered to be
organized exclusively for one or more exempt purposes, if, by the terms of its articles, the purposes for which
such organization is created are broader than the purposes specified in IRC Section 501(c)(3).

Treas. Reg. 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 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.

Rev. Rul. 67-216, 1967-2 C.B. 180, describes a nonprofit organization formed and operated exclusively to
instruct the public on agricultural matters by conducting annual public fairs and exhibitions of livestock,
poultry, and farm products qualified for exemption from federal income tax under IRC Section 501(c)(3). The
organization's activities and exhibits are planned and managed by or in collaboration with person whose
business it is to inform and instruct farmers and the general public on agricultural matters (i.e., home
demonstration agents, county agricultural agents), and the resulting displays are designed to be instructive. The
presence at the fair of recreational features such as midway shows, refreshment stands, and a rodeo are
incidental to the fair's overall educational purpose.

Rev. Rul. 77-366, 1977-2 C.B. 192, provides 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 IRC Section 501(c)(3). In addition to the usual cruise activities, the programs
conducted on each cruise include a schedule of lectures, discussion groups, and special interest workshops on
religious topics, at which attendance is not required. The organization accomplished both charitable and non-
charitable purposes through its cruises.

In Better Business Bureau of Washington, D.C., Inc v. United States, 326 U. S. 279 (1945), the Supreme Court
interpreted the requirement in IRC Section 501(c)(3) that an organization be "operated exclusively" by
indicating that an organization must be devoted to exempt purposes exclusively. This plainly means that the

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

3

presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the
number and importance of truly exempt purposes.

In Minnesota Kingsmen Chess Association v. Commissioner, T.C. Memo 1983-495 (1983), the organization
sponsored chess tournaments, provided chess magazines and books to libraries, offered free chess lessons, and
published a newsletter that primarily contained reports of past tournaments and announcements of future ones.
The petitioner sought exemption under IRC Section 501 (c)(3) because its purposes and activities were described
as educational. The court found that the promotion of chess tournaments furthered a substantial recreational
purpose, even though individual participants may have received some educational benefits.

In St. Louis Science Fiction Limited v. Commissioner, 49 TCM 1126, 1985-162 (1985) the Tax Court held that
a science fiction society failed to qualify for tax-exempt status under IRC Section 501(c)(3). Although many of
the organization's functions at its annual conventions (the organization's principal activity) were educational, its
overall agenda was not exclusively educational. A substantial portion of convention affairs were social and
recreational in nature.

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests to qualify for exempt
status. An organization must be both organized and operated exclusively for purposes described in Section
501(c)(3). You have failed to meet both requirements, as explained below.

Your Articles of Incorporation do not limit your purposes to exclusively IRC Section 501(c)(3) purposes. As a
result, you have not satisfied the organizational test required by Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iv).

You are also not described in IRC Section 501(c)(3) because you fail the operational test. Specifically, the facts
show you are not operated exclusively for Section 501(c)(3) purposes as required by Treas. Reg. Section
1.501(c)(3)-1(c)(1), but for the purpose of furthering social and recreational purposes.

You are unlike the organization granted exemption in Rev. Rul. 67-216. In that ruling the recreational features
of the organization’s events were incidental to their overall educational purpose. There is no evidence that you
have any educational or other exempt element to your operations. You are organized and operated to provide
recreation for the community. Similar to the organization in Rev. Rul. 77-366, you have a substantial
recreational purpose, which precludes exemption under IRC Section 501(c)(3).

As noted in Better Business Bureau of Washington D.C., exemption under IRC Section 501(c)(3) cannot be
granted when an organization has a substantial non-exempt purpose. This is further clarified in both Minnesota
Kingsmen Chess Association and St. Louis Science Fiction Limited, where the substantial recreational purposes
prohibited exemption under IRC Section 501(c)(3). As your purposes are entirely recreational and social, you
are not exempt under Section 501(c)(3).

Conclusion

Based on the information provided, you do not qualify for exemption because you are neither organized nor
operated for exclusively for exempt purposes described in IRC Section 501 (c)(3). Your organizing document
does not satisfy the organizational test and your recreational and social activities further substantial, non-exempt
purposes. 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)).

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

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

5

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