Shooting organization fails the Section 501(c)(3) organizational test

Plain-English summary

An organization operated shooting competitions, practices, safety classes, and training facilities used by national competitors, a state agency, and local law enforcement. It was incorporated as a mutual-benefit corporation without a qualifying purpose clause. Although it said it amended its organizing document, it did not provide a filed amendment showing conversion to a public-benefit corporation despite repeated IRS requests. The IRS concluded that the organization had not proved it met the Section 501(c)(3) organizational test. After no protest was filed within 30 days, the IRS made the denial final.

Ruling snapshot

• Question: Did the organization establish that it was organized exclusively for Section 501(c)(3) purposes?
• Outcome: Denied. The organization failed the organizational test and did not qualify for exemption.
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Proc. 2020-5

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Number: 202114023
Release Date: 4/9/2021

Date: 1/12/2021
Employer ID number:
Form you must file:
Tax years:
Person to contact:
Name:
ID number:
Telephone:

UIL Number: 501.00-00, 501.03-05, 501.31-00

Dear :

This letter is our final determination that you don’t qualify for exemption from federal income tax
under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section
501(c)(3). 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 IRC Section 501(c)(3), donors
generally can’t deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c),
by sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from
the date of this letter unless you request an extension of time to file. For further instructions,
forms, and information, visit www.irs.gov.

We’ll make this final adverse determination letter and the proposed adverse determination letter
available for public inspection after deleting certain identifying information, as required by IRC
Section 6110. 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.

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

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

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

Date: 11/10/2020
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
D = Organization 501.31-00
E = Organization
F = Organization
G = Agency

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 B on C as a mutual benefit corporation. Your formation document did not have a

purpose clause.

You conduct shooting competitions, practices, and safety classes. You also have participants competing in
national competitions train at your facility and you have had one participant compete for the Olympic team.
You are a member of several national organizations, including E, D, and F. A state agency, G, teaches courses
in hunter and boating safety at your facility. You also work closely with local law enforcement agencies and
provide them with a facility for training and educational needs.

You received a grant from G to build your facility. The city donated the land. You, G, and the city have signed a
long-term agreement to operate the facility.

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

2

We requested that you amend your organizing document to change your formation from a mutual benefit
corporation to a public benefit corporation and to send a copy that shows a proof of filing with your state of
incorporation. You attested that you amended your purpose clause of your organization document to meet the
organizational test of IRC Section 501(c)(3). However, you did not provide a copy of the amended organizing
document that shows that you have amended to change from a mutual benefit corporation to a public
corporation. We made several attempts at securing the information with no success.

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(b)(1)(i) provides that an organization is organized exclusively for one or more
exempt purposes only if its articles of organization:
(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization engage, otherwise than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Revenue Procedure 2020-5, 2020-1 I.R.B. 241, 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.

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
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.

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

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).

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 are formed as a mutual benefit corporation rather than a public benefit corporation. As a
result, you have not satisfied the organizational test described in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i).

We asked for you to provide an amendment to your formation document which modifies your formation as a
mutual benefit corporation to a public benefit corporation, but despite multiple requests for it, you have not
provided the amendment. Therefore, there is not sufficient documentation to establish that you meet the
requirements of IRC Section 501(c)(3) as required by Revenue Procedure 2020-5. As in Universal Life Church,
you have the burden of establishing that you qualify for tax exemption.

In Pius XII Academy, Inc., it was stated that an organization must establish, through its administrative record,
that it meets the requirements for exemption. Because you failed to provide requested information, 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. You did not
provide supplemental information; therefore, we are unable to determine that you qualify for exemption.

Conclusion
You have failed to establish that you meet the organizational test under IRC Section 501(c)(3). You did not

provide the requested amendment to your corporation document to change your formation to a public benefit
corporation. Because you are formed as a mutual benefit corporation you fail the organizational test.
Accordingly, you do not qualify for exemption under Section 501(c)(3).

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

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

• 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:

U.S. mail:
Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
P.O. Box 2508
Cincinnati, OH 45201

Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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