IRS denies exemption to freemium research-software organization

Plain-English summary

An organization developed and distributed a web-based research-management platform under a freemium model, with professional users paying for expanded storage, projects, participants, security, support, and clinical-trial features. It also offered STEM materials and school programs, including free access and paid add-on services. The IRS found that the articles did not limit the organization to exempt purposes. It also concluded that software design and distribution were routine commercial product-development activities rather than scientific research, that users could keep their research results private, and that the platform substantially benefited private users, including commercial and pharmaceutical laboratories. Because the software activity remained a substantial nonexempt commercial purpose even after the organization increased its planned educational work, the IRS denied Section 501(c)(3) status, and the determination became final after no timely protest.

Ruling snapshot

• Question: Did the research-software and STEM organization qualify as a scientific or educational organization under Section 501(c)(3)?
• Outcome: Denied.
• Key authorities: IRC §§ 501(c)(3) and 513; Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 68-373; Rev. Rul. 69-526; Rev. Rul. 71-506; Rev. Rul. 71-529; Rev. Rul. 72-369

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service Date: April 27, 2021

Tax Exempt and Government Entities

Employer ID number:
IRS Po Box 2508
Cincinnati, OH 45201 Form you must file: 1120
Tax years: All
Number: 202129017
. Person to contact:

Release Date: 7/23/2021 Name:

ID number:
UIL Number: 501.03-00, 501.03-21, 501.36-01 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. 1-2021)
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. 1-2021)
Catalog Number 47632S

Department of the Treasury

Internal Revenue Service

Cincinnati, OH 45201
Date: February 2, 2021
Employer ID number:
Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend: UIL:

B = State 501.03-00
C = Date 501 .03-21
D = Name 501.36-01

p percent = Number
q percent = Number
r percent = Number
s percent = Number
t dollars = Amount

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 the state of B on C. Your Articles of Organization indicate your purpose is to make

research accessible to everyone by providing affordable research tools. You rely on state law for
dissolution provisions.

In your application for exemption, you described the two main activities that you participate in. The first and
primary activity is the design, development, and distribution of generally free web-based research management
software called D. The software is created by your software engineers, uploaded to your secure computer
servers and made available to all researchers. You describe D as an easy-to-use project management tool for

scientific researchers. Researchers use the free web-based software to track and monitor experiment participants
even outside of the traditional laboratory setting.

Your second activity is to promote STEM education in grades [redacted] to [redacted] by providing students with workshops
and activities that let them use D and conduct their own research projects. Specifically, you provide worksheets,

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Catalog Number 47628K

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lesson plans, and occasional training or workshops; the teachers at participating schools conduct the activities
with the students as part of the school’s curriculum.

You indicated that your primary activity of maintaining and improving D will take p percent of your time.
Preparation of lesson plans for your secondary activity will take up q percent of your time. You will spend the
remainder of your time on administrative work and business development.

You contract with external organizations to manage various aspects of the software and customer service.
Currently, one of contracted software development companies is partially owned by one your Directors, but
they are not allowed to participate in deliberations and voting on the transactions.

You state that all activities are focused on promoting scientific research and discovery. You enable scientific
researchers to expand the scope and efficacy of their research by providing them with innovative tools that have
not previously existed. Due to the high costs of collecting data and managing research projects, research has
previously not been easily accessible. With D’s affordability and ease of use, you make health research

accessible to everyone, from large academic labs to a financially limited college student looking to try out a
project.

Although not created for use in testing for commercial products, D can be used for such purposes. For example,
the software could be used by pharmaceutical labs as a tool for drug or clinical testing depending on the type of
testing and what metrics they are measuring. The software does abide by all data regulations regarding health
information (i.e. HIPAA).

In addition to helping research professionals, you believe that more students would choose to pursue academic
research if they actually had a chance to experience scientific discovery. D promotes research as a possible
career path by setting up classes and activities for students.

You anticipate that all activities will be funded by revenue generated from D, which includes fees for using a
“professional” version of the D software. You may also receive consulting fees for helping implement
customized programs within schools. Lastly, you will also accept donations and apply for foundation and
government grants.

As part of your application, you indicated that you operate a freemium software as a service model, meaning
most users won’t pay anything but some accounts (professional research labs, pharmaceutical labs, etc.) will
pay for extended services.

Advantages of the professional plan over the free personal plan include additional storage space, unlimited
number of projects, unlimited number of participants in a user’s study, unlimited hardware raw data access,
advanced security monitoring, advance customer support, and audit trail (for clinical trial use). A yearly
subscription is t dollars per person.

If an institution wants to buy in bulk, you may offer a discounted bulk price. You also offer the free professional
version to students from low-income school systems or neighborhoods. All other students get substantial
discount pricing on professional subscriptions.

Letter 4034 (Rev. 11-2018)
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3

You believe in personal data ownership. All data collected through the D platform is owned by the individual,
and they have complete control over what they want to do with their data. Individual users own any intellectual
property that may result from their research. Users are not required to share or make widely available the results
of their research. However, many users are part of institutions that do have requirements to make their research
results available to all. Users can also choose to donate their anonymized collected data to your D open
database, which is accessible for free to all, in order to provide researchers with access to [redacted] datasets
to further their research.

Law

IRC Section 501(c)(3) exempts from taxation any corporation organized and operated exclusively for religious,
charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or
international amateur sports competition, or for the prevention of cruelty to children or animals, provided no
part of the net earnings of which inures to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides 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 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:

(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.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iv) provides 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) 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)(5)(i) provides that a scientific organization must be organized and operated
in the public interest. Therefore, the term scientific, as used in IRC Section 501(c)(3), includes the carrying on
of scientific research in the public interest. "Research," when taken alone, is a word with various meanings; it is
not synonymous with scientific; and the nature of particular research depends upon the purpose which it serves.
For research to be scientific, within the meaning of Section 501(c)(3), it must be carried on in furtherance of a
scientific purpose. The determination as to whether research is scientific does not depend on whether such
research is classified as fundamental or basic as contrasted with applied or practical.

Treas. Reg. Section 1.501(c)(3)-1(d)(5)(ii) provides that scientific research does not include activities of a type
ordinarily carried on as an incident to commercial or industrial operations, as, for example, the ordinary testing
or inspection of materials or products or the designing or construction of equipment, buildings, etc.

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

Treas. Reg. Section 1.501(c)(3)-1(d)(5)(iii) provides that scientific research will be regarded as carried on in the
public interest: (a) If the results of such research (including any patents, copyrights, processes, or formula
resulting from such research) are made available to the public on a nondiscriminatory basis; (b) If such research
is performed for the United States, or any of its agencies or instrumentalities, or for a State or political
subdivision thereof; or (c) If such research is directed toward benefiting the public. The following are examples
of scientific research which will be considered as directed toward benefiting the public, and, therefore, which
will be regarded as carried on in the public interest: (1) scientific research carried on for the purpose of aiding in
the scientific education of college or university students; (2) scientific research carried on for the purpose of
obtaining scientific information, which is published in a treatise, thesis, trade publication, or in any other form
that is available to the interested public; (3) scientific research carried on for the purpose of discovering a cure
for a disease; or (4) scientific research carried on for the purpose of aiding a community or geographical area by
attracting new industry to the community or area or by encouraging the development of, or retention of, an
industry in the community or area.

Treas. Reg. Section 1.501(c)(3)-1(e)(1) provide that an organization may meet the requirements of IRC Section
501(c)(3) although it operates a trade or business as a substantial part of its activities, if the operation of such
trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is

not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in
Section 513.

Rev. Rul. 68-373,1968-2 C.B. 206, described an organization whose primary activity was clinically testing
drugs for commercial pharmaceutical companies to comply with the Food and Drug Administration's
requirements that drugs be tested for safety and efficacy before they can be marketed was not engaged in
scientific research. The Ruling stated that clinical testing is an activity ordinarily carried on as an incident to a
pharmaceutical company's commercial operations. The fact that the testing must be done by highly qualified
professionals does not change its basic nature. The testing does not constitute scientific research within the
meaning of Treas. Reg. Section 1.501(c)(3)-1(d)(5)(i). The organization failed to qualify for exemption from
Federal income tax under IRC Section 501(c)(3).

Rev. Rul. 69-526, 1969-2 C.B. 115, describes an organization formed by a group of physicians specializing in
heart disease, to research the causes of heart defects and publish treatments, that qualified for exemption under
IRC Section 501(c)(3). In this ruling, patients were referred to the organization by physicians and welfare
agencies when it appeared that their condition merited special study and evaluation. Each patient underwent a
medical examination to determine whether their condition fell within the scope of the organization's research
goals. If the patient's case met the criteria, the patient was accepted without regard to their ability to pay. The
data collected from the patient studies is used by the organization in the development of new methods and
procedures for preventing and treating heart defects. The results of the research, as well as any medical
procedures derived, were made public through publication. The organization's research could only be performed
by individuals with advanced scientific and/or technical expertise -- i.e., cardiologists. The results of the
organization's research were publicly disseminated and add to the knowledge of internal medicine, specifically
the causes and treatments for heart disease. Based upon the above, the Service held that the organization's
research activities were scientific under Section 501(c)(3).

Rev. Rul. 71-506, 1971-2 C.B. 233, describes an engineering society formed to engage in scientific research in
the areas of heating, ventilating, and air conditioning ("HVAC") for the public that qualified as a scientific

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

5

research organization under IRC Section 501(c)(3). The Service found that the organization was comprised of
HVAC engineers, architects, educators and others who have a professional interest in HVAC -- with full
membership in the organization limited to persons with 8 years of experience in the science related to HVAC.
The organization's research was conducted by a full-time paid staff in the organization's own laboratory.
Typical subjects of investigation for the organization included the effects of solar radiation through various
materials, the phenomena of heat flow and transfer, development of data on air friction, the problems of panel
heating, and the physiological effects of air conditioning upon the human body. The organization's research was
devoted exclusively to the development of data on basic physical phenomena, which data can be used by
anyone. The organization published a regular journal and maintained a library where its data, and specifically
scores of model codes of minimal standards for HVAC, are stored for public review. The Service concluded
that this organization engaged in scientific research.

Rev. Rul. 71-529, 1971-2 C.B. 234, determined that an organization that provided assistance in the management
of participating colleges' and universities' endowment or investment funds for a charge substantially below cost
qualified for recognition under IRC Section 501(c)(3). The organization restricted its membership to Section
501(c)(3) organizations, and its board of directors was composed of representatives from member organizations.
The organization obtained grants from independent charitable organizations to cover operating expenses and
only charged members a nominal fee representing less than 15% of the total costs of operation for its services.
The ruling found that, by providing the services described above, the organization performed an essential
function for charitable organizations. Furthermore, by performing this function at substantially below cost, the
organization performed a charitable activity within the meaning of Section 501(c)(3).

Rev. Rul. 72-369, 1972-2 C.B. 245, determined that an organization formed to provide managerial and
consulting services at cost to unrelated exempt organizations did not qualify for recognition under IRC Section
501(c)(3). The organization provided managerial and consulting services for Section 501(c)(3) organizations at
cost. The ruling found that providing managerial and consulting services on a regular basis for a fee was a trade
or business ordinarily conducted for profit. Furthermore, the ruling explained that an organization does not
qualify for recognition merely because its operations are not conducted for the purpose of producing a profit.
Rather, providing services at cost lacked the donative element necessary to establish the activity as charitable.
Accordingly, the ruling held that the organization did not qualify for recognition under Section 501(c)(3).

In Better Business Bureau of Washington, D.C.., Inc. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67,
1945 C.B. 375 (1945), the Supreme Court held that the presence of private benefit, if substantial in nature, will
destroy an organization's tax-exempt status regardless of the organization's other charitable purposes or
activities.

In B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978), the Tax Court determined that an organization that
sold consulting services to nonprofit and exempt organizations interested in rural-related policy and program
development operated a trade or business ordinarily carried on for profit. The burden rested on petitioner to
prove that it did not operate "a consulting business of the sort which is ordinarily carried on by commercial
ventures organized for profit." The court stated that "competition with commercial firms is strong evidence of
the predominance of nonexempt commercial purposes." Accordingly, the court determined that petitioner
"completely failed to demonstrate that its own services, or the services provided by its consultants, [were] not in
competition with commercial businesses such as personnel agencies, consulting referral services, real estate
agents, housing rental services, banks, loan companies, trash disposal firms, or environmental consulting
companies." Furthermore, petitioner did not conduct other substantial charitable activities. Other factors that

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

6

counted against petitioner included that petitioner's financing did not resemble that of a typical IRC Section
501(c)(3) organization and that petitioner failed to limit its services to Section 501(c)(3) organizations.
Therefore, the court determined that petitioner failed to qualify for recognition under Section 501(c)(3).

In American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989), the Tax Court determined that the
American Campaign Academy, a training program for political campaign professionals, operated for the private
benefit of the Republican party because its curriculum was tailored to Republican interests, its graduates worked
for Republican candidates and incumbents, and it was financed by Republican sources. The Tax Court defined
private benefit as "nonincidental benefits conferred on disinterested persons that serve private interests." Private
benefits included "advantage; profit; privilege; gain; [or] interest.”

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests for an organization
to be recognized as exempt. An organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3). Based on the information you provided in your application and supporting
documentation, we conclude that you fail both tests.

Your Articles of Incorporation do not include a purpose clause that limits your purposes to one or more exempt
purposes. The purposes for which you were created are broader than the purposes specified in IRC Section
501(c)(3), specifically to make [redacted] research accessible to everyone by providing affordable research
tools. Therefore, you did not establish that you have a valid purpose provision. As a result, you have not
satisfied the organizational test described in Treas. Reg. Sections 1.501(c)(3)-1(b)(1)(i) and (iv).

You are also not described in IRC Section 501(c)(3) because you fail the operational test. Specifically, you are
not operated exclusively for an exempt purpose as described in Treas. Reg. Section 1.501(c)(3)-1(c)(1). The
presence of a single non-exempt purpose, if substantial in nature, will destroy exemption under Section
501(c)(3) regardless of the number or importance of any other exempt purposes. Better Business Bureau of
Washington, D.C. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67, 1945 C.B. 375 (1945). The facts
show you are not operated exclusively for scientific purposes, but also for the substantial nonexempt
commercial purpose of providing research management software for the public at large.

You claim to qualify for tax-exemption as a scientific research organization for your activities that are related to
the design, development, and distribution of research management software. For an organization to qualify as an
IRC Section 501(c)(3) scientific research organization, the organization must (1) engage in scientific research;
(2) the scientific research must not include activities that are incidental to commercial or industrial operations;
and, (3) the scientific research must be undertaken in the public's interest. Treas. Reg. Section 1.501(c)(3)-

1(d)(5).

Under the first element, the organization seeking exempt status as a scientific research organization must be
engaging in scientific research. Treas. Reg. Section 1.501(c)(3)-1(d)(5). For research to be "scientific," within
the meaning of IRC Section 501(c)(3), it must be carried on in furtherance of a 'scientific' purpose. Treas. Reg.
Section 1.501(c)(3)-1(d)(5)(i). Although the Regulations provide that research that is scientific can be practical
or applied as well as fundamental or theoretical, the term "scientific" is not clearly identified in either the Code
or the Treasury Regulations. However, several revenue rulings and cases have interpreted "science" and
"scientific" in terms of scientific research for IRC Section 501(c)(3) purposes.

Letter 4034 (Rev. 11-201 8)
Catalog Number 47628K

7

For example, in Rev. Rul. 71-506, 1971-2 C.B. 233, the Service held that an engineering society qualified as a
scientific research organization under IRC Section 501(c)(3). The organization was operated to engage in
scientific research in the areas of heating, ventilation, and air conditioning ("HVAC") for the public benefit. In
another example, the Service held that an organization formed by a group of physicians specializing in heart
disease to research the causes of heart defects and publish treatments, qualified under Section 501(c)(3). Rev.
Rul. 69-526, 1969-2 C.B. 115.

Based upon the above law, you do not meet the first and second elements for recognition as a scientific research
organization under IRC Section 501(c)(3) because you do not engage in scientific research and your software
development activities are of a type incident to commercial or industrial operations. Unlike the organizations
described above, you are not utilizing objective scientific methods to formulate or verify facts or natural laws,
or to search for a demonstrable truth. You do not propose a hypothesis pertaining to the verification of facts or
natural laws. You do not utilize scientific methods to test this hypothesis and objectively record the results of
your experimentation. Finally, you do not objectively evaluate your research results and publish the findings for
the public to utilize. Instead, you design, develop, and distribute research management software. This activity
can best be described as routine product development, which is a type incident to commercial operations. Under
Treas. Reg. Section 1.501(c)(3)-1(d)(5)(ii), scientific research does not include activities carried on as an
incident to commercial or industrial operations, such as the design or improvement of goods or services. For
example, in Rev. Rul. 68-373, 1968-2 C.B. 206, the Service held that an organization that engaged in clinical
testing of pharmaceuticals by highly qualified personnel was not a scientific research organization under IRC
Section 501(c)(3) but rather was engaging in ordinary testing necessary to comply with standards to bring the
pharmaceuticals to market. Here, you are engaging in software development similar to what a commercial
software company engages in to develop new products to be competitive in the market. In addition, the software
you develop can be used by others for any purpose, including testing for commercial products and clinical
testing by pharmaceutical labs. As such, a substantial part of your activities are incidental to commercial
operations and are not exempt under IRC Section 501(c)(3).

Finally, you do not meet the third element for a scientific research organization, which requires that scientific
research to be directed toward benefiting the public. Treas. Reg. Section 1.501(c)(3)-1(d)(5)(iii). Your research
does not exclusively benefit the public. First, users of your software own the results of their research and are not
required to publish the results of their research. See Treas. Reg. Section 1.501(c)(3)-1(d)(5)(iii)(a). Rather, you
make your software available to the public for their personal consumption, similar to the release of a
commercial product, not the publication of scientific research. Second, your research is not performed for the
United States. See Treas. Reg. Section 1.501(c)(3)-1(d)(5)(iii)(b). Third, your research is not exclusively carried
on for the purpose of aiding in the scientific education of college or university students; obtaining scientific
information, which is published in a treatise, thesis, trade publication, or in any other form that is available to
the interest public; discovering a cure for a disease; or aiding a community or geological by attracting new
industry to the community or area or by encouraging the development of, or retention of, an industry in the
community or area. See Treas. Reg. Section 1.501(c)(3)-1(d)(5)(iii)(c). Production of Q benefits users,
including commercial labs and pharmaceutical companies. Therefore, you do not qualify under IRC Section
501(c)(3) as a scientific research organization.

An organization is not organized or operated exclusively for one or more exempt purposes unless it serves a
public rather than private interest. Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Private benefit has been defined
as "nonincidental benefits conferred on disinterested persons that service private interests." American Campaign
Academy v. Commissioner, 92 T.C. 1053 (1989). "Prohibited private benefit may include an ‘advantage; profit;

Letter 4034 (Rev. 11-2018)
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8

privilege; gain; [or] interest." Id. It is the organization's burden to establish that it is not organized or operated
for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the
organization, or persons controlled, directly or indirectly, by such private interests. Treas. Reg. Section

1.501(c)(3)-1(d)(1)(ii).

You benefit the private interests of users by providing research management software that assists researchers
with their own projects, whether the projects be educational, recreational, or commercial. Thus, you are
operated for private rather than public interests in violation of IRC Section 501(c)(3).

Your primary activity is providing research management software, which is a trade or business ordinarily
carried on for profit. See B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978). An organization may be
recognized as tax-exempt even though it operates a trade or business as a substantial part of its activities if
certain conditions are met. Treas. Reg. Section 1.501(c)(3)-1(e). For example, management and consulting
services are trades or businesses ordinarily conducted for profit. Rev. Rul. 72-369; Rev. Rul. 71-529; B.S.W.
Group, 70 T.C. 352. Nonetheless, Rev. Rul. 71-529 held that an organization that provided assistance in the
management of participating colleges and universities' endowment or investment funds for a charge
substantially below cost qualified for recognition under IRC Section 501(c)(3). However, unlike this
organization, you intend to provide your services to any interested person or organization, not just Section

501(c)(3) organizations. Furthermore, you fail to establish that you provide your services at substantially below
cost.

Your position

You submitted amendments to your original application, in which you state you have been re-prioritizing your
efforts to help provide schools with a STEM program that can be launched whether the students are
experiencing in-person, hybrid, or remote learning.

Your D STEM education programs for schools will promote inquiry-based learning and allow students to
practice a hands-on approach to learning science. Students will cover the entire research process, from selecting
a topic, hypothesis and protocol design, to data collection, data analysis, and presenting their project.

As part of your belief in accessibility, your program is free to access for all students and schools. You will also
offer add-on services for schools that require a more tailored service, such as events, seminars, implementation,
etc. These add-on services will have a cost since you need to over the cost of staff.

You now state that the first activity of maintaining and improving the D software will take r percent of your
time and the preparation of STEM education programs will take around s percent of the total time. The
remaining time will be used for administrative work, fundraising, etc.

You now state that your activities will be funded from three main sources. First is from public donations and
government grants. Second will be from revenue generated from fees for using premium add-on features in the

D software. Third will be fees for add-on services to schools.

You amended your statement of revenue and expenses to reflect both an increase in donations and salaries and
wage expense.

Our response to your position

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You failed to provide any additional information from which it can be concluded that your activities exclusively
further or advance a purpose described in IRC Section 501(c)(3). Although you have revised the anticipated
amount of time you will devote to the design, development, and distribution of D software, this activity serves a
substantial non-exempt purpose Therefore, denial of your request for tax-exempt status is reasonable.

Conclusion

Based on the facts and circumstances presented, you do not qualify for exemption from federal income tax as an
organization described in IRC Section 501(c)(3). You are not organized or operated exclusively for exempt
purposes as set forth in Section 501(c)(3). By providing research management software to anyone for any
purpose, you are operating for a substantial non-exempt purpose. Your operations are not exclusively charitable
and resemble those of a trade or business.

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

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

10

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

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