Off-road motorcycle club denied Section 501(c)(3) status

Plain-English summary

An off-road motorcycle club sought recognition as a Section 501(c)(3)
organization. Its principal activities were two annual motorcycle competitions
for adults and youth, along with a post-season awards banquet for volunteers.
The IRS found that the club did not provide sports instruction through clinics,
workshops, or lessons. It also did not foster national or international amateur
competition or develop athletes for such competition. Instead, its events
primarily served the recreational and social interests of members and other
participants. The IRS therefore found a substantial nonexempt purpose and
denied Section 501(c)(3) status.

Ruling snapshot

• Question: Did the motorcycle club operate exclusively for educational, charitable, or qualified amateur-sports purposes under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3) and § 501(j)(2); Treas. Reg. § 1.501(c)(3)-1(a) and (c); Rev. Rul. 77-365; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201

Date:
July 20, 2021

Employer ID number:

Form you must file:

Tax years:

Person to contact:
Name:
ID number:
Telephone:

Number: 202141025
Release Date: 10/15/2021

UIL: 501.00-00, 501.03-00, 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.

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
P.O. Box 2508
Cincinnati, OH 45201

Date: 5/18/2021

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:
E = Date
F = Name
G = Name
H = Name

J = Event Name
K = Event Name
x dollars = Amount
y dollars = Amount

UIL:
501.00-00
501.03-00
501.03-30

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 on Form 1023-EZ that you are organized and operated exclusively to
further charitable purposes. You also attested that you have not conducted and will not conduct prohibited
activities under IRC Section 501(c)(3).

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
You were formed as a nonprofit corporation on E in the State of F. Your Articles state that you were
established to acquire, administer, hold, invest and reinvest funds received by the corporation, which funds
will be used exclusively for its charitable, religious, scientific, literary or educational purposes. In addition,
they indicate you will provide competitions, meetings, events and programs for educational purposes to and
for the benefit of members and the public in order to enhance the education, common good, general welfare
and well-being of such persons, and to protect the ability of said persons to participate in competitive activities
through the provision of suitable events and programs.

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

2

You are a club composed of members of the community who engage in off-road motorcycle riding. Your
specific activities consist of conducting two annual events which are J and K. J is a form of off-road
motorcycle competition covering a course of [redacted] to [redacted] miles in length consisting of roads, dirt roads, and a
single track trail. Scoring takes place at timed checkpoints. Participants are men and women, who have a
motorcycle’s driver’s license and a properly licensed and insured machine. K involves a shorter course timed
over multiple laps as well as includes separate competition classes for youth as young as [redacted] years old and adult
classes divided by machine size and rider ability. The K events are held on the property of a private
motorcycle/ATV recreation area. You have also hosted a post season awards banquet to thank all those who
volunteered to help with these events.

Your events are held around the G area for J. Parking and camping for participants is permitted on the campus
of H. The J entry fee is around x dollars and similarly for K with youth fees being much less, typically y dollars.
Both J and K are annual events, scheduled in coordination with the schedules of other clubs in the states located
near F.

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.

IRC Section 501(j)(2) defines a "qualified amateur sports organization” as an organization organized and
operated exclusively to foster national or international amateur sports competition if it is also organized and
operated primarily to conduct or to support and develop amateur athletes for national or international
competition in sports.

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(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.

Rev. Rul. 77-365, 1977-2 C.B. 192, describes an organization that was organized and operated to instruct and
educate individuals of all ages and skill levels in a particular sport. It conducts clinics, workshops, lessons, and
seminars. The organization was recognized as an educational organization described in 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 Hutchinson Baseball Enterprises, Inc. v. Commissioner, 696 F.2d. 757 (1982), the court held that an
organization that promoted recreational and amateur sports was exempt as a charitable organization under IRC

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

3

Section 501(c)(3). The organization undertook numerous activities to promote the sport of baseball and the
court found that the purpose of promoting sports predominated over subsidiary purposes, such as members’
recreational or social benefit.

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.

In Wayne Baseball, Inc. v. Commissioner, T.C. Memo. 1999-304 (1999), the court held that the organization’s
nonexempt social and recreational activities were substantial in comparison to the organization’s promotion of
baseball in the community. The Court found that the only activity sponsored by the organization was the
operation of an adult amateur baseball team and that the primary beneficiaries of the organization were the
individual team participants.

Application of law

You do not meet the requirements for recognition of tax exemption under IRC Section 501(c)(3) because you
fail the operational test as described in Treas. Reg. Section 1.501(c)(3)-1(a)(1).

You do not meet the provisions in Treas. Reg. Section 1.501(c)(3)-1(c)(1). You are a club whose members
engage in off-road motorcycle riding. You are also conducting J and K for your members and those of the
community as well as for members from other clubs. This shows you are operated for substantial nonexempt
recreational and social purposes and precludes exemption under IRC Section 501(c)(3).

You are not a qualified amateur sports organization, as defined in IRC Section 501(j)(2) because you do not
foster national or international amateur sports competition or support and develop amateur athletes for national
or international competition in sports. Rather, you are operated to provide recreational activities for members
and those of the community.

You are not like the organization described in Rev. Rul. 77-365. You do not instruct individuals of all skill
levels in a particular sport through clinics, workshops, or lessons. You organize recreational events for your
members and members of the general public. This disqualifies you from exemption under IRC Section
501(c)(3).

Your activities mainly consist of conducting recreational and social activities for members and the general
public. 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.

You are unlike the organization described in Hutchinson Baseball Enterprises, Inc. because you are operated for
substantial recreational and social purposes. You are like the organizations described in Media Sports League,
Inc. and Wayne Baseball Inc. because your recreational activities are substantial and preclude exemption under
IRC Section 501(c)(3).

Conclusion

Based on the above facts and analysis, you do not qualify for exemption under IRC Section 501(c)(3). You fail
the operational test because you are serving a substantial non-exempt recreational

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

4

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 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:

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

5

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