Family fundraising organization denied Section 501(c)(3) status

Plain-English summary

An organization applied for Section 501(c)(3) status to raise awareness of an injury and improve the quality of life of a specifically named individual and that individual’s family. It planned to travel across the country raising money, use a stated amount for the family, pay salaries to board members, and return remaining funds to supporting communities. The IRS found that the organizing document expressly authorized support for preselected individuals. That private benefit meant the organization failed both the organizational and operational tests, even though it also stated educational and charitable purposes. The organization did not protest the proposed denial within 30 days, so the IRS made the denial final.

Ruling snapshot

• Question: Was an organization formed primarily to raise money for a named individual and family organized and operated exclusively for Section 501(c)(3) purposes?
• Outcome: Denied.
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367; Better Business Bureau v. United States; Wendy Parker Rehabilitation Foundation, Inc. v. Commissioner

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service Date: February 2, 2021

Tax Exempt and Government Entities Employer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Form you must file:
Tax years:
Number: 202117014
Release Date: 4/30/2021 Person to contact:
Name:
ID number:
Telephone:

UIL: 501.00-00, 501.03-30

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

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

December 2, 2020
Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:
W = State
X = Date
Y = Individual
Z = Injury

b dollars = amount
c dollars = amount

UIL:
501.00-00
501.03-00
501.33-00

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 W on X. Your Articles of Incorporation state you shall be operated
exclusively for educational and charitable purposes within the meaning of IRC Section 501(c)(3), specifically
for the purpose of raising funds to ease the quality of life of Y and [redacted] family as well as raise national awareness
for Z.

You will travel across the country raising money and awareness for children born with a [redacted]
called Z. Specifically, you will raise money for Y. You will spend a year on the road reaching out to
different populations and communities to spread awareness and with the generosity of the community you will
be able to radically increase Y’s quality of life. Once you are successfully able to support Y, you will turn your
eyes to support a greater population and others across the country.

You were formed and are governed by a [redacted]-member board. The funds you raise will support Y and [redacted] family
in the amount of b dollars. Salaries will be paid to your board members in the amount of c dollars. Any
remaining funds will go back to the communities that have supported you.

Law
IRC Section 501(c)(3) provides for the exemption from federal income tax of organizations 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 qualify under 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 or 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 limit the purposes of such organization to one or
more exempt purposes; and do not expressly empower the organization to engage, otherwise than as an
insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more
exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iii) provides an organization is not organized exclusively for one or
more exempt purposes if its articles expressly empower it to carry on, otherwise than as an insubstantial part of
its activities, activities which are not in furtherance of one or more exempt purposes, even though such
organization is, by the terms of such articles, created for a purpose that is no broader than the purposes specified
in IRC Section 501(c)(3).

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 that 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)(1)(ii) states that an organization is not organized or operated exclusively
for exempt purposes unless it serves a public rather than a private interest. It must not be operated for the
benefit of designated individuals or the persons who created it.

Revenue Ruling 67-367, 1967-2 C.B. 188, describes a nonprofit organization whose sole activity was the
operation of a “scholarship plan” for making payments to pre-selected, specifically named individuals. The
organization did not qualify for exemption from federal income tax under IRC Section 501(c)(3) because it was
serving private rather than public or charitable interests.

In Better Business Bureau of Washington, D.C., Inc. v. U.S., 326 U.S. 279 (1945), the court held that the
presence of a single non-exempt purpose, if substantial in nature, will preclude exemption, regardless of the
number or importance of statutorily exempt purposes.

In Wendy Parker Rehabilitation Foundation, Inc. v. Commissioner, T.C. Memo 1986-348 (1986), the
organization was created by the Parker family to aid an open-ended class of “victims of coma.” However, the
organization stated that it anticipated spending 30 percent of its income for the benefit of Wendy Parker,
significant contributions were made to the organization by the Parker family, and the Parker family controlled
the organization. Wendy Parker’s selection as a substantial recipient of funds substantially benefited the Parker
family by assisting with the economic burden of caring for her. The benefit did not flow primarily to the general
public as required under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Therefore, the Foundation was not exempt
from federal income tax under IRC Section 501(c)(3).

Application of law
You are not described in IRC Section 501(c)(3) because you fail the organizational and operational tests as
described in Treas. Reg. Section 1.501(c)(3)-1(a)(1).

Your organizing document states that your purpose is to raise funds to ease the quality of life of Y and
[redacted] family. As explained in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) and Treas. Reg. Section 1.501(c)(3)-
1(b)(1)(iii), you are not organized exclusively for one or more exempt purposes because your articles expressly
empower you to engage in activities which are not in furtherance of one or more exempt purposes. Despite the
fact that your organizing document states that you are formed exclusively for educational and charitable
purposes as described in IRC Section 501(c)(3), your organizing document further states that you will provide
funds to pre-selected individuals, which is not an exempt purpose.

You will raise funds for Y and [redacted] family. Operating for the benefit of designated individuals does not further an
exempt purpose under IRC Section 501(c)(3). Thus, per Treas. Reg. Section 1.501(c)(3)-1(c)(1), you are not
operated exclusively for one or more exempt purposes. Providing funds to a pre-selected family serves a private
rather than a public interest as described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

You are like the organization described in Rev. Rul. 67-367 because you were formed to benefit one pre-
selected, designated individual and are, thus, serving a private rather than a public interest.

You are also like the organization in Better Business Bureau because you are not operated exclusively for
exempt purposes. Your main purpose is to further the private interests of Y and [redacted] family.

Finally, you are similar to the organization described in Wendy Parker because the benefits you provide flow
primarily to Y and his family, rather than the general public.

Conclusion
Based on the information submitted, you are neither organized nor operated exclusively for exempt purposes.
You are operating for the private interests of Y and [redacted] family. Thus, you do not qualify for exemption under
IRC 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

• 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: 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