IRS denies Section 501(c)(3) status to a member golf course

Plain-English summary

An organization operating a golf course and clubhouse for members applied for recognition as a Section 501(c)(3) charity. Members and their families could use the course and reserve the clubhouse, while guests and visitors could use facilities subject to fees and member-related conditions. The organization received dues and clubhouse revenue and wanted exemption so it could seek grants to maintain and repair facilities for current and future members. The IRS found that its articles authorized recreational facilities for members, did not limit its purposes to charitable activities, and lacked a required dissolution provision dedicating assets to exempt purposes. It also found that operating the golf course served a substantial social and recreational purpose rather than an exclusively charitable or educational one. Because the organization did not protest within 30 days, the proposed denial became final.

Ruling snapshot

• Question: Did the member golf course qualify for exemption as a Section 501(c)(3) charity?
• Outcome: Denied.
• Key authorities: IRC §§ 170, 501(a), and 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 60-143; Rev. Rul. 77-366; Better Business Bureau v. United States; Media Sports League v. Commissioner

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: 202122011
Release Date: 6/4/2021

UIL Number: 501.00-00, 501.30-30

Date:
03/09/2021

Employer ID number:

Form you must file:

Tax years:

Person to contact:
Name:
ID number:
Telephone:

Dear [redacted]:

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:
01/12/2021

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:

X = State
Y = Date

UIL:
501.00.00
501.03-30

Dear [redacted]:

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 incorporated in X on Y. Your Articles of Incorporation state that your purpose is to establish, develop, and
operate recreational facilities for the promotion of the health and welfare of your members. Your Articles of
Incorporation are silent regarding the disposition of your assets upon your dissolution.

You operate a golf course. Anyone may utilize your golf course by purchasing a membership certificate and
paying current dues. For your facilities, the immediate families of members (except members of the family over
[redacted] years of age and members of the family who are married or have been married regardless of age) are
permitted to use your facilities. Any guest of a member, or a non-member, may use your facilities by paying a
daily green fee or any other charge as required.

Your members are divided up into categories: immediate family of members, family-one golfer, single, social,
and student. Only members and their immediate families may have the privilege of reserving and/or using your
clubhouse facility for private entertainment. Your members may reserve the ballroom for private entertainment.
The fees for reserving the ballroom will be determined by the manager(s) and board of directors. The
manager(s) may extend the use of your clubhouse facilities to clubs, social, and charitable organizations as they
see fit, with the same conditions as members using the facilities. Members reserving the clubhouse for private
entertainment are privileged to invite any guests they choose, including nonmembers.

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

2

Your clubhouse (including the golf course) is reserved for members and their guests. Your guests are permitted
to use the facilities and golf course provided they are guests of a member who is in good standing and have paid
all current dues and fees. Your members have the right to use any part of your clubhouse at any time during
open hours, except the ballroom when it is reserved for private entertainment. There may be a cover charge for
dances with permission from your board of directors. Visitors who play golf may be introduced by one of your
members and will pay a fee per day on weekdays, weekends and holidays as posted in your clubhouse. The fee
for part of a day is to be considered the same as a whole day. You sell liquor and other beverages in your
clubhouse.

You receive dues from members and revenue from your clubhouse activities, which cover the cost of day to day
expenses. You are seeking exemption so that you can apply for grants to maintain and repair your facilities for
your members and future members.

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) provides that, for an organization to be exempt under IRC
Section 501(c)(3), it 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 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.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) holds that an organization is not organized exclusively for one or more
exempt purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be
considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a
provision in the organization's articles or operation of law, be distributed for one or more exempt purposes.

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 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.

Revenue Ruling 60-143, 1960-1 CB 192, found that social and recreational activities carried on by an alumni
association of a university, which are merely incidental to its basic purpose and objective of advancing the
interests of the university, do not of themselves preclude such organization from tax exemption under IRC
Section 501(c)(3) as an association organized and operated exclusively for educational and charitable purposes.

Rev. Rul. 77-366, 1977-2 C.B. 192, stated that a nonprofit organization that arranges and conducts wintertime
ocean cruises during which activities to further religious and educational purposes are provided in addition to

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

3

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 Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court
determined the activities of that organization were aimed at promoting the prosperity and standing of the
business community and therefore, served a substantial private purpose. It concluded that the presence of a
single nonexempt purpose, if substantial in nature, will preclude exemption regardless of the number or
importance of statutorily exempt purposes.

In Media Sports League, Inc. v. Commissioner, T.C. Memo 1986-568 (1986), the court ruled that an
organization that sponsored sports competitions for adults in the community was not exempt under IRC Section
501(c)(3). The court found that the organization had the substantial nonexempt purpose of promoting the social
and recreational interests of its members.

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 state that you were formed to establish, develop, and operate recreational
facilities for the promotion of the health and welfare of your members. Because your organizing document does
not limit your purposes to exclusively IRC Section 501(c)(3) purposes, you do not meet the requirements of
Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i). Additionally, your Articles are silent regarding the disposition of
your assets upon your dissolution, which also causes you to fail the organizational test per Treas. Reg. Section
1.501(c)(3)-1(b)(4).

You do not meet the operational test under IRC Section 501(c)(3) because you are not operating
exclusively for exempt purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). Your activities
consist of providing recreational facilities for your members, which is neither exclusively educational nor
charitable.

You are unlike the organization in Rev. Rul. 60-143 because your social and recreational activities are not
incidental to any charitable or educational purpose. Golfing is the only activity that you offer for your members.
These activities do not meet the requirements for tax exemption under IRC Section 501(c)(3). Rather, you are
like the organization in Rev. Rul. 77-366 because you operate for substantial social and recreational purposes.

Your purpose is to operate a golf course for your members. Your purpose is not considered charitable or
educational as described in IRC Section 501(c)(3). Because you are operating for substantial non-exempt
purposes, as described in Better Business Bureau of Washington, D.C., Inc., you are precluded from exemption
under Section 501(c)(3).

You are like the organization described in Media Sports League, Inc. because your social and recreational
activities are substantial and preclude exemption under IRC Section 501(c)(3).

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

4

Conclusion

Based on the information provided, you do not qualify for exemption under IRC Section 501(c)(3) because you
are neither organized nor operated exclusively for exempt purposes within the meaning of Section 501(c)(3).
Your articles do not limit your purposes to those described in Section 501(c)(3) and are silent regarding the
disposition of your assets upon your dissolution, causing you to fail the organizational test. You fail the
operational test because operating a golf course for your members further a substantial non-exempt purpose.
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

• 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

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

5

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

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