IRS denies 501(c)(3) status to a soccer team's independent supporters' club

Plain-English summary

A membership group applied for tax-exempt charity status under 501(c)(3), describing itself as an independent supporters' group for a soccer team (referred to as C). Its activities center on the team: sponsoring road trips to away matches, hosting tailgates before home matches, arranging viewing parties, and providing a positive atmosphere for the team and its fans, with only possible future fundraising. The IRS issued a proposed denial and made it final after no protest. The IRS found the group fails on two independent grounds. It fails the organizational test because its Articles of Incorporation were never shown to be amended to limit its purposes to exempt ones and it has no proper dissolution clause. It also fails the operational test because a substantial part of its activities are social and recreational and serve the private interests of the team, not exclusively charitable purposes. Under the rule that a single substantial non-exempt purpose defeats exemption, the group does not qualify, so donors cannot deduct contributions under Section 170 and the group must file federal income tax returns.

Ruling snapshot

• Question: Does an independent sports-team supporters' club, whose activities are largely social and recreational, qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (fails the organizational test on its Articles and dissolution clause, and the operational test because of substantial social/recreational and private-benefit activities)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), (c), (d); Better Business Bureau v. United States, 326 U.S. 279

Full text (IRS public release)

Transcriber's note: this document is a degraded scan. Per the runbook's proofreading duty, obvious OCR misreads have been corrected, wording is kept verbatim, and the IRS's redaction blanks are preserved as gaps. Genuinely unreadable spots (including two garbled contact-field labels in the header) are marked [illegible]. List bullets appear in the scan as stray letters and are left as-is.

Department of the Treasury Date:
Internal Revenue Service January 4, 2022
I Tax Exempt and Government Entities Employer ID number:

Box 2508
Cincinnati, OH 45201

Form you must file:
Tax years:

Person to contact:

Release Number: 202213013 [illegible]
Release Date: 4/1/2022 [illegible]
UIL: 501.03-00, 501.03-30 Telephone:

Check if 501(c)(3) denial
[-] Check if valid POA

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 Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 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.

Sincerely,

Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 437

Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: October 19, 2021

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = Date 501.03-00
C = Team 501.03-30
D = State
E = Date
F= City
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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code, on B

You attest on Form 1023-EZ that you are organized and operated exclusively to further charitable and
educational purposes. You attest that you have the necessary organizing document, that your organizing
document limits your purposes to one or more exempt purposes within the meaning of IRC Section 501(c)(3),
that your organizing document does not expressly empower you to engage in activities, other than an
insubstantial part, that are not in furtherance of one or more exempt purposes, and that your organizing
document contains the dissolution provision required under Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you
have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you
attest you will:

e Refrain from supporting or opposing candidates in political campaigns in any way

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

2

e Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
individuals

e Not further non-exempt purposes (such as purposes that benefit private interests) more than
insubstantially

e Not be organized or operated for the primary purpose of conducting a trade or business that is not related
to your exempt purpose(s)

e Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations
outlined in Section 501(h)

® Not provide commercial-type insurance as a substantial part of your activities

You indicated on the Form 1023-EZ that your mission is to act as an independent support group of C.

We subsequently requested additional information as well as provided you a copy of your Articles of
Incorporation obtained from the D’s Secretary of State’s website. These were filed on E. Your corporate
purposes are to serve as an independent supporters’ group for C, support C to provide experiences and support
for others, and engage in charitable endeavors in the F area. They were silent concerning the disposition of
assets upon dissolution.

The information provided shows that you are a membership organization. Membership is open free of charge to
everyone in the community including children. You further indicated that your mission includes establishing
and maintaining a healthy, yet independent, working relationship with C, assisting both local and visiting
supporters attending home matches of C, sponsoring road trips to away matches for C for members and
supporters of C, as well as arranging viewing parties for members and supporters for other C away matches, or
other televised matches. Your members tailgate before all home matches and host events throughout the season.

You also wish to provide a positive atmosphere for C, its fans and the game of soccer at matches and in the
general community. In addition, you will assist C if requested and use the sport of soccer as a mechanism to
unite your community. You may in the future engage in fundraising and other charitable activities to grow the
game of soccer in F by selling your merchandise to reinvest in charitable efforts.

Furthermore, you attested that you amended your Articles of Incorporation. There is no evidence on D’s SOS
website that this was completed. Your board is clected from your membership and all are volunteers. Due to
Covid 19, you have had no revenue since inception and have had minimal expenses.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for charitable, educational, or other enumerated 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, 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 will be regarded as organized

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

3

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 to engage,
otherwise that as an insubstantial part of its activities, in activities which in themselves are not in furtherance of
one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) which requires the dedication of remaining assets exclusively for
purposes 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)(1)(ii) provides that an organization is not organized or operated
exclusively for one or more exempt purposes unless it serves a public rather than a private purpose. To meet this
requirement, it is necessary for an organization to establish that it is not organized or operated for the benefit of
private interests.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term “charitable” also includes lessening of the burdens of government.

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. This plainly
means that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption
regardless of the number and importance of truly 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.

Although you attested to amending your Articles of Incorporation to add the needed provisions to meet the
organizational test under IRC Section 501(c)(3), there is no evidence on D’s SOS website that this has been
done. Therefore, you fail the organizational test because the purposes stated in your Articles of Incorporation
are not limited to those specified in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) and you do not have a proper
dissolution clause as required by Treas. Reg. Section 1.501(c)(3)-1(b)(4).

You are also not described in IRC Section 501(c)(3) because you are not operated exclusively for exempt
purposes as required by 1.501(c)(3)-1(c)(1). For instance, you sponsor road trips for members and supporters to
away matches for C, host tailgates before home matches as well as arrange viewing parties for other C away
matches, or other televised matches These facts show more than an insubstantial part of your activities are not
in furtherance of a Section 501(c)(3) exempt purpose, but rather for social and recreational purposes.

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

4

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. You
did not provide evidence that your activities help lessen neighborhood tensions and eliminate prejudice or
discrimination. You are an independent supporter of C, your activities serve the private interests of C in
contravention to Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii), and are also social and recreational.

You are similar to the organization described in Better Business Bureau of Washington, D.C. Inc. v. United
States, 326 U.S. 279 (1945). Even though in the future, you plan to fundraise and conduct other charitable
activities, you are operated for substantial nonexempt purposes, which prevents you from qualifying under IRC
Section 501(c)(3).

Conclusion

Based on the facts submitted, you are not organized and operated exclusively for exempt purposes within the
meaning of IRC Section 501(c)(3). You do not meet the organizational test because your organizing document
does not limit your purposes to those required by the regulations nor does your organizing document have a
valid dissolution clause. You also do not meet the operational test for Section 501(c)(3) because you are
operated for substantial nonexempt purposes. 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.

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

5

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:

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

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.

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