Tourism trade association denied Section 501(c)(3) exemption

Plain-English summary

A trade association promoting tourism to and within a country applied for recognition as a Section 501(c)(3) charity. Its members included governments, tourism agencies, airlines, hotels, cruise lines, travel sellers, and other tourism businesses, and its activities included destination marketing, industry events, networking, referrals, professional development, and research. The IRS found that most of those activities promoted tourism businesses and the industry's common business interests rather than serving an exclusively charitable or educational purpose. It compared the association to the medical society in Revenue Ruling 71-504 and applied the rule from Better Business Bureau that one substantial nonexempt purpose defeats exemption. Because the organization did not protest the proposed denial within 30 days, the denial became final.

Ruling snapshot

• Question: Does the tourism trade association operate exclusively for charitable or educational purposes under Section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (c), and (d); Rev. Rul. 71-504; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service                            Date:
Tax Exempt and Government Entities                  July 13, 2021
PO Box 2508                                         Employer ID number:
Cincinnati, OH 45201
                                                    Form you must file:
                                                    Tax years:
Number: 202141024
Release Date: 10/15/2021                            Person to contact:
UIL Number: 501.00-00, 501.03-00, 501.03-30,
501.35-00
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. 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:
May 25, 2021

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend:                                      UIL:
B = Date                                     501.00-00
C = State                                    501.03-00
D = Country                                  501.03-30
E = Organization                             501.35-00
F = Program
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 submitted Form 1023-EZ Streamline Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code.

You attested that you were formed as a corporation on B, in the state of C. You attested that you are organized
and operated exclusively to further charitable purposes and that you have not conducted and will not conduct
prohibited activities under Section 501(c)(3).

Your mission as stated on the Form 1023-EZ is: “to promote tourism to and within D”.

During review of your Form 1023-EZ, we sent a request for information regarding your activities to supplement
the above mission.

You responded that you are a trade association promoting travel and tourism to D and strengthening intra-D
partnerships. You serve both the public and private sectors of the international travel and tourism industry. Your
membership is comprised of governments, tourism ministers, tourism bureaus and boards, airlines, cruise lines,
hotels, resorts, travel sellers and providers, tour operators and travel agents, and affiliate industries. You partner

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

2

with the E to promote the sustainable development of tourism to and across D. Your annual events in D and the
United States bring together industry leaders to shape D’s tourism agenda.

Your goals are to:

* Advocate for D as a global travel destination,
* Showcase D’s diverse travel products and services,
* Market and promote the destination of D.
* Organize industry business-to-business programs in D and the United States,
* Achieve greater coordination among tourism ministers and the industry,
* Offer continuing education, professional development and learning opportunities,
* Increase business through exposure, networking, and referrals,
* Bring public and private stakeholders together to discuss issues,
* Cooperate with other organizations interested in tourism and D, and
* Conduct research with partner organizations



Your listed events and activities include various international travel and tourism shows where you participate,
partner, exhibit, host, or co-host. You have also launched F in response to the effect the coronavirus pandemic
has had on the hospitality, tourism, and meetings industry. F features materials and resources, information about
online events and opportunities, and a specially curated series of online conversations that focus on D travel
from various perspectives.

You are governed by a -member board of directors. Actual and projected revenues consist of membership
dues, consulting income, and event fees. Expenses are for travel, consultants, a social media manager, telecom,
and marketing materials.

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(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)(2) provides the term “charitable” is used in IRC Section 501(c)(3) in its
generally accepted legal sense and includes relieving the poor and distressed or the underprivileged, combating
community deterioration, lessening neighborhood tensions, and eliminating prejudice and discrimination.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) provides that the term “educational,” as used in IRC Section
501(c)(3), relates to the instruction or training of the individual for the purpose of improving or developing his
capabilities or the instruction of the public on subjects useful to the individual and beneficial to the community.

In Revenue Ruling 71-504, 1971-2 C.B. 231, a city medical society exempt under IRC Section 501(c)(6), that
primarily directs its activities to the promotion of the common business purposes of its members may not be
reclassified as an educational or charitable organization under Section 501(c)(3). The society was created for the
purpose of promoting the art of medicine, the betterment of public health, and the unity, harmony, and welfare
of members of the medical profession. Membership is open to all doctors in the community. Activities included
presentations on new procedures and clinical care, an extensive library of medical books for use by members, a
monthly medical journal, supporting medical education and local health programs, a patient referral service for
members, meetings concerned with matters affecting the promotion and practice of medicine and enhancing and
improving the public image of the medical profession. While some of the society’s activities are charitable or
educational, several are instead directed primarily at the promotion of the medical profession and thus further
the common business purposes of its members.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court
of the United States interpreted the requirement in IRC Section 501(c)(3) that an organization be “operated
exclusively” by indicating that an organization must be devoted to exempt purposes exclusively. The presence
of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of
the number and importance of truly exempt purposes.

Application of law

You do not meet the operational test of Treas. Reg. Section 1.501(c)(3)-1(a)(1). You are not operating
“exclusively” for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1). Most of your
activities are directed at promoting travel and tourism to and within D. This includes marketing and promoting
the area, showcasing related products and services, coordinating industry networking and discussions,
increasing exposure for member businesses, hosting international events for the industry, etc. These activities
are not charitable per Treas. Reg. Section 1.501(c)(3)-1(d)(2) or educational per Treas. Reg. Section

1.501(c)(3)-1(d)(3)(i). Like the organization in Rev. Rul. 71-504, you have substantial noncharitable and
noneducational purposes and activities. Thus, you are precluded from exemption under IRC Section 501(c)(3).

You are like the organization in Better Business Bureau because a substantial portion of your purposes and
activities are not exempt (promoting tourism and increasing business opportunities). Thus, you are not
“operating exclusively” and your claim to exemption is destroyed.

Conclusion
Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3). You do not
meet the operational test because you are operated for a substantial non-exempt purpose.

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.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

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 Determination 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:

US 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

PO 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. 01-2021)
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. 01-2021)
Catalog Number 47628K