IRS denies Section 501(c)(3) status to an adjunct faculty mutual benefit group

Plain-English summary

An organization formed as a mutual benefit corporation applied for recognition as a Section 501(c)(3) charity. It promoted the professional treatment, economic welfare, and rights of adjunct faculty through meetings, workshops, complaint assistance, and support for union ideals, and its constitution described it as a business league under Section 501(c)(6). The IRS found that its organizing document did not limit it to charitable purposes and that it operated primarily for the private benefit of its members. Educational aspects of some programs did not overcome the substantial nonexempt purpose of advocating for local adjunct faculty. The organization did not protest the proposed adverse determination within 30 days, so the IRS made the denial final. Donors generally could not deduct contributions to the organization under Section 170.

Ruling snapshot

• Question: Did the adjunct faculty mutual benefit organization qualify for exemption as a Section 501(c)(3) charity?
• Outcome: Denied.
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), and 501(c)(6); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 61-170; Better Business Bureau v. United States; Callaway Family Association 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

Date:
March 9, 2021

Employer ID number:

Form you must file:

Tax years:

Number: 202122012

Person to contact:
Name:
ID number:
Telephone:

Release Date: 6/4/2021

UIL Number: 501.00-00, 501.03-00, 501.30-30

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:
December 8, 2020

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:

W = City
X = State
Y = Date

UIL:
501.00-00
501.03-00
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 were incorporated in X on Y as a mutual benefit corporation. You are dedicated to promoting the
professional treatment, economic welfare, and equitable rights of adjunct faculty and their students as well as
maintaining an adjunct community of resources.

Your activities include holding periodic meetings to help other adjuncts understand recent events that affect
them, organizing workshops covering topics that affect adjuncts, and to act as a resource for adjuncts to come to
you with complaints of how their school, district or union has treated them. You also have organized workshops
with outside speakers covering topics that affect adjuncts. You are not affiliated with any particular union, but
you support union ideals and you strive to increase your voice within the unions.

You submitted a copy of your Constitution which states you are a “business league” within the meaning of IRC
Section 501(c)(6). Any person employed as an adjunct faculty member at an X community college located
within the County of W within twelve months of the date of application for membership is eligible for
membership.

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

2

Your primary source of income is from member dues and a donation paid to you from a like-minded
organization for preparing and shipping out your periodic newsletter. We asked you in an additional information
letter if you would be better classified under a different subsection, but you failed to respond to this question.

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 limits the purposes of such organization to one or more
exempt purposes and does 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(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)(1)(ii) states that an organization is not operated exclusively for one or
more 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.

In Revenue Ruling 61-170, 1961-1 C.B. 112, an association composed of professional private duty nurses and
practical nurses which supported and operated a nurses' registry primarily to afford greater employment
opportunities for its members was not entitled to exemption under IRC Section 501(c)(3). Although the public
received some benefit from the organization's activities, the primary benefit of these activities was to the
organization's members.

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 Callaway Family Association, Inc. v. Commissioner, 71 T.C. 340 (1978), the court held that a family
association formed as a nonprofit organization to study immigration to and migration within the United States
by focusing on its own family history and genealogy does not qualify for exemption under IRC Section
501(c)(3). The association's activities included researching the genealogy of its members for the ultimate
purpose of publishing a family history. The court stated that the association's family genealogical activities were

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

3

not insubstantial and were not in furtherance of an exempt purpose. Rather, they served the private interests of
the members. Thus, the association was not operated exclusively for exempt purposes.

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 organizing document does not limit your purposes to exclusively IRC Section 501(c)(3) purposes;
therefore, you do not meet the requirements of Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i). Additionally, you are
organized as a mutual benefit corporation, which means that you operate specifically for the benefit of your
members. For these reasons, you do not meet the organizational test and do not qualify for exemption under
Section 501(c)(3).

You also do not meet the operational test under IRC Section 501(c)(3). Your specific purpose is to advocate for
local adjunct faculty. While you do operate some programs which are generally considered to be educational
within the meaning of Section 501(c)(3), you also operate more than an insubstantial amount of non-exempt
programs for the benefit of your members, which precludes you from exemption, as described in Treas. Reg.
Section 1.501(c)(3)-1(c)(1).

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you are operating for the
private interests of your members, rather than the general public.

Like the organization described in Better Business Bureau of Washington D.C., Inc., you have a substantial
non-exempt purpose of advocating for the professional treatment, economic welfare, and equitable rights of
your members. You are like the organization described in Rev. Rul. 61-170 and Callaway Family Association,
Inc. in that the primary beneficiaries of your activities are your members and not the general public.

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 which are exempt under Section 501(c)(3) and you are formed
as a mutual benefit organization, causing you to fail the organizational test. You fail the operational test because
your activities further the interests of your members, which is 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

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

4

• 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.

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

5

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