Veterans' post loses 501(c)(19) exemption for having too few veteran members

Plain-English summary

The IRS revoked the tax exemption of a veterans' post that had been recognized as a section 501(c)(19) organization under a national group ruling. To qualify under 501(c)(19), at least 75 percent of a post's members must be past or present members of the Armed Forces (war veterans), and at least 97.5 percent must be veterans, service members, cadets, or their close relatives, leaving at most 2.5 percent for unaffiliated social members. On examination the IRS found the post ran a members' social club (bar, kitchen, dining room, and small games of chance) and that its membership badly exceeded the non-veteran limits, so it failed the membership test. The IRS found the post was otherwise properly organized, operated for exempt veterans' purposes, and had no private inurement, but explained that a single membership failure alone defeats 501(c)(19) status and that the Service has almost no discretion to overlook it. Because a post covered by a group ruling must independently meet the requirements, the exemption was revoked (prospectively), contributions to it are no longer deductible under section 170, and the IRS suggested the organization might qualify under a different Code section. This is the final adverse determination, issued after a proposed revocation to which the organization did not successfully respond.

Ruling snapshot

• Question: Does a veterans' post keep its section 501(c)(19) exemption when far more than 25 percent of its members have no military affiliation?
• Outcome: revocation (effective a redacted January 1; contributions no longer deductible under section 170)
• Key authorities: IRC §§ 501(c)(19), 501(a), 170, and 512(a); Treas. Reg. § 1.501(c)(19)-1; Public Law 92-418; Rev. Proc. 80-27

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street, MC 4920DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Release Number: 202221010 Date:
Release Date: 5/27/2022 January 6, 2021
UIL: Code: 501.19-00 Taxpayer ID Number:

Form:

Tax Period(s) Ending
Person to contact:
Identification Number:

Telephone Number:

CERTIFIED MAIL- Return Receipt Requested
LAST DAY FOR FILING A PETITION WITH THE TAX COURT:

Dear

This is a final determination that you do not qualify for exemption from federal income
tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in
IRC Section 501(c)(19) for the tax period(s) above.

Our adverse determination as to your exempt status was made for the following
reasons:

You have not established that you are operated as a veteran's post or an
organization described in IRC Section 501(c)(19), and that no part of your net
earnings inures to the benefit of any private shareholder or individual. You
have exceeded the membership requirement of 75-percent of current/former
military service members (war veterans).

Contributions to your organization are no longer deductible under IRC Section 170.

Organizations that are not exempt under IRC Section 501 generally are required to file
federal income tax returns and pay tax, where applicable. For further instructions,
forms, and information please visit www.irs.gov.

If you decide to contest this determination, you may file an action for declaratory
judgment under the provisions of IRC Section 7428 in one of the following three
venues: 1) United States Tax Court, 2) the United States Court of Federal Claims, or
3) the United States District Court for the District of Columbia. A petition or complaint
in one of these three courts must be filed within 90 days from the date this
determination was mailed to you. Please contact the clerk of the appropriate court for
rules and the appropriate forms for filing petitions for declaratory judgment by referring
to the enclosed Publication 892. You may write to the courts at the following
addresses:

United States Tax Court
400 Second Street, NW
Washington, DC 20217

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20005

U. S. District Court for the District of Columbia
333 Constitution Ave., N.W.
Washington, DC 20001

Processing of income tax returns and assessments of any taxes due will not be
delayed if you file a petition for declaratory judgment under IRC Section 7428.

You may be eligible for help from the Taxpayer Advocate Service (TAS). 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 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 1-877-777-4778.

Taxpayer Advocate assistance can't be used as substitute for established IRS
procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to
reverse legal or technically correct tax determination, nor extend the time fixed by law
that you have to file a petition in Court. The Taxpayer Advocate can, however, see that
a tax matter that may not have been resolved through normal channels gets prompt
and proper handling.

You can get any of the forms or publications mentioned in this letter by calling 800-
TAX- FORM (800-829-3676) or visiting our website at www.irs.gov/forms-pubs.

If you have any questions, you can contact the person listed at the top of this letter.

Enclosures: Sincerely,
Publication 892 ; i
[signature illegible]
Sean E. O'Reilly

Director, Exempt Organizations Examinations

Internal Revenue Service a,
Tax Exempt and Government Entities Taxpayer Identification Number:
IRS Exempt Organizations Examinations

The Department of the Treasury Date: August 14, 2020

Form:
Tax Year(s) Ended:
Person to Contact:

Employee ID:
Telephone:
Fax:
Manager’s Contact Information:

Response Due Date:

CERTIFIED MAIL — Return Receipt Requested
Dear

Why you're receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue
Code (IRC) Section 501(c)(19).

If you agree

If you haven’t already, please sign the enclosed Form 6018, Consent to Proposed Action, and
return it to the contact person shown at the top of this letter. We'll issue a final adverse letter
determining that you aren't an organization described in IRC Section 501(c)(19) for the periods
above.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

If you disagree

1. Request a meeting or telephone conference with the manager shown at the top of this
letter.

2. Send any information you want us to consider.

3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or
send additional information as stated in 1 and 2, above, you'll still be able to file a protest
with IRS Appeals Office after the meeting or after we consider the information.

The IRS Appeals Office is independent of the Exempt Organizations division and
resolves most disputes informally. If you file a protest, the auditing agent may ask you to
sign a consent to extend the period of limitations for assessing tax. This is to allow the

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

IRS Appeals Office enough time to consider your case. For your protest to be valid, it
must contain certain specific information, including a statement of the facts, applicable
law, and arguments in support of your position. For specific information needed for a
valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-
Exempt Status.

Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process,
generally doesn’t apply now that we've issued this letter.

4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt
Government Entities) if you feel the issue hasn’t been addressed in published precedent
or has been treated inconsistently by the IRS.

If you're considering requesting technical advice, contact the person shown at the top of
this letter. If you disagree with the technical advice decision, you will be able to appeal
to the IRS Appeals Office, as explained above. A decision made in a technical advice
memorandum, however, generally is final and binding on Appeals.

If we don't hear from you
if you don't respond to this proposal within 30 calendar days from the date of this letter, we'll
issue a final adverse determination letter.

Contacting the Taxpayer Advocate Office is a taxpayer right

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 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.

For additional information
You can get any of 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 shown at the top of this letter.

Sincerely,
Digitally signed by Russell T. Renwicks

Russell T. Renwicks
Date: 2020.08.13 15:05:13 -04'00'

For
Sean E. O’Reilly
Director, Exempt Organizations Examinations
Enclosures:
Form 886-A
Form 6018

Publication 892
Publication 3498

2 Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
ISSUE:
Does the continue to qualify for tax exempt status under Internal

Revenue Code (IRC) Section 501(c)(19), if they do not meet the required membership requirements?

FACTS:

The applied to be a on July 18, 19

The was incorporated on May §,19 ; amended in 19

The has not filed Form 1024 in order to receive a Determination Letter

Prior ta making contact with the organization, the examining agent attempted to secure the administrative record from
Exempt Organization Determinations. The examining agent was informed that no record exists. However, internal
IRS records indicate that the organization is exempt under section 501(c)(19). On their Form 990 for the tax years
ended December 31,20 ,20 ,and20_, the organization filed as an organization described in section 501(c)(19).

The was covered under the Group Ruling issued to the

According to Internal Revenue Service records, the has filed Form 990
from the periods of January 1,20 through December 31, 20

The has filed Form 940 to report the annual Federal Unemployment
Taxes due, for the periods of January1,20 through December 31, 20

The has filed Form 941 to report the Quarterly Wage Taxes withheld from
the employees, for the periods of January 1,20 through December 30, 20

The primary purpose of the is to provide benefits to veterans and assist
the youth of community.

e The organization helps veterans with training and information on how to obtain Veteran’s Administration
benefits

*« The organization donates proceeds from their gaming income to local sports organizations

The has the following membership categories
e ACTIVE — properly limited to current and honorably discharged members of the Armed Services
AUXILIARY — All adult members of the , who are in good standing, shall be
eligible for

e ASSOCIATE — All adult persons of good repute and character, not eligible for ACTIVE membership, shall be
eligible for ASSOCIATE membership

According to the organization’s membership records, for the year ended there were a total of
members. There were members meeting the military service requirements and members meeting the familial
/ relationship requirements, and social members who have had no affiliated military service.

The activities include the operation of a social club for the enjoyment and pleasure
of their members and guests. The social club operated by the organization has a bar, kitchen, and dining room. They
also have small games of chance. The members of the organization have to pay for all drinks, food, and small games
that are enjoyed by their guests.

Catalog Number 20810W Page 1 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury Internal Revenue Service
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
FACTS (continued):
The operates a bar that does not limit their membership to past and

present members of the military, their spouses and lineal descendants, and a limited number of members with no
affiliation to the United States Armed Services. Approximately  -percent of the organization’s members have no
affiliation to the United States Armed Services.

The State of , Department of Health, has inspected the facilities and
has issued them a Certificate allowing them to operate a bar.

The State of has issued a gaming license to the '
authorizing them to conduct “Pull Tab” gaming activities. The State Police conducts routine checks on

the organization’s records to ensure compliance with the gaming laws of the state.

The has paid bartenders; the bartenders run the day to day operations of
the organization. The bartenders serve drinks to the customers and they are in charge of the gaming activities that
the is authorized to conduct with their members.

The makes several donations to local charities each year.

The does not participate in any political or legislative activities, nor do
they have any expenditures for any such activities.

There was no evidence of any non-member income discovered during the examination of the organization’s books
and records. During the interview, the organization stated that non-member guests were only permitted in the facility
with a member in good standing; bartenders are instructed to only take payments from members.

The Service examined the books and records, including, but not limited to the following items:
Membership list / records; State gaming reports; Governing Documents; Board of Director's Meeting Minutes;
QuickBooks reports and financial statements; invoices; bank statements; and payroll reports.

LAW:

Internal Revenue Code Section 601(c)(18) - Exemption from tax on corporations, certain trusts, ete.

(a) Exemption from taxation
An organization described in subsection (c) or (d) or section 401(a) shall be exempt from taxation under this
subtitle unless such exemption is denied under section 502 or 503.

(b) Tax on unrelated business income and certain other activities
An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in parts
II, III, and VI of this subchapter, but (notwithstanding parts II, III, and VI of this subchapter) shall be considered

an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from
income taxes.

(c) List of exempt organizations
(19) A post or organization of past or present members of the Armed Forces of the United States, or an auxiliary
unit or society of, or a trust or foundation for, any such post or organization—

(A) organized in the United States or any of its possessions,

(B) at least 75 percent of the members of which are past or present members of the Armed Forces of the
United States and substantially all of the other members of which are individuals who are cadets or are
spouses, widows, widowers, ancestors, or lineal descendants of past or present members of the Armed
Forces of the United States or of cadets, and

(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Catalog Number 20810W Page 2 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury Internal Revenue Service
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
LAW (Continued):

Treasury Regulation Section 1.501(c)(19)-1 - War Veterans organizations
(a) In general.

(1) For taxable years beginning after December 31, 1969, a veterans post or organization which is organized in
the United States or any of its possessions may be exempt as an organization described in section 501(c)(19)
if the requirements of paragraphs (b) and (c) of this section are met and if no part of its net earnings inures to
the benefit of any private shareholder or individual. Paragraph (b) of this section contains the membership
requirements such a post or organization must meet in order to qualify under section 501(c)(19). Paragraph
(c) of this section outlines the purposes, at least one of which such a post or organization must have in order
to so qualify.

(2) In addition, an auxiliary unit or society described in paragraph (d) of this section of such a veterans post or
organization and a trust or foundation described in paragraph (e) of this section for such post or organization
may be exempt as an organization described in section 501(c)(19).

(b) Membership requirements.

(1) In order to be described in section 501(c)(19) under paragraph (a)(1) of this section, an organization must
meet the membership requirements of section 501(c)(19)(B) and this paragraph. There are two requirements
that must be met under this paragraph. The first requirement is that at least 75 percent of the members of the
organization must be war veterans. For purposes of this section the term war veterans means persons,
whether or not present members of the United States Armed Forces, who have served in the Armed Forces of
the United States during a period of war (including the Korean and Vietnam conflicts).

(2) The second requirement of this paragraph is that at least 97.5 percent of all members of the organization must
be described in one or more of the following categories:

(i) War veterans,

(ii) Present or former members of the United States Armed Forces,

(iii) Cadets (including only students in college or university ROTC programs or at Armed Services

academies), or

(iv) Spouses, widows, or widowers of individuals referred to in paragraph (b)(2) (i), (ii) or (iii) of this section.

(c) Exempt purposes. In addition to the requirements of paragraphs (a){1) and (b) of this section, in order to be

described in section 501(c)(19) under paragraph (a)(1) of this section an organization must be operated
exclusively for one or more of the following purposes:

(1) To promote the social welfare of the community as defined in § 1.501(c)(4)-1(a)(2).

(2) To assist disabled and needy war veterans and members of the United States Armed Forces and their
dependents, and the widows and orphans of deceased veterans,

(3) To provide entertainment, care, and assistance to hospitalized veterans or members of the Armed Forces of
the United States,

(4) To carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and
to comfort their survivors,

(5) To conduct programs for religious, charitable, scientific, literary, or educational purposes,

(6) To sponsor or participate in activities of a patriotic nature,

(7) To provide insurance benefits for their members or dependents of their members or both, or

(8) To provide social and recreational activities for their members.

Catalog Number 20810W Page 3 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury Internal Revenue Service
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
LAW (Continued):

Public Law 92-418, 1972-2 C.B. 675
To amend the Inlernal Revenue Code of 1954 with regard to the exempt status of veterans' organizations, and for
other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
that (a) section 501(c) of the Internal Revenue Code of 1954 (relating to list of exempt organizations) is amended by
adding at the end thereof the following new paragraph:
(19) A post or organization of war veterans, or an auxiliary unit or society of, or a trust or foundation for, any such
post or organization—

(A) organized in the United States or any of its possessions,

(B) at least 75 percent of the members of which are war veterans and substantially all of the other members of
which are individuals who are veterans (but not war veterans), or are cadets, or are spouses, widows, or
widowers of war veterans or such individuals, and

(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual.

(b} Section 512(a) of such Code (relating to definition of unrelated business taxable income) is amended by adding at
the end thereof the following new paragraph:

(4) SPECIAL RULE APPLICABLE TO ORGANIZATIONS DESCRIBED IN SECTION 501(c)(19).—In the case of
an organization described in section 501(c) (19), the term ‘unrelated business taxable income’ does not include any
amount attributable to payments for life, sick, accident, or health insurance with respect to members of such
organizations or their dependents which is set aside for the purpose of providing for the payment of insurance benefits
or for a purpose specified in section 170(c) (4). If an amount set aside under the preceding sentence is used during
the taxable year for a purpose other than a purpose described in the preceding sentence, such amount shall be
included, under paragraph (1), in unrelated business taxable income for the taxable year.”

(c) The amendments made by this section shall apply to taxable years beginning after December 31,1969.

SEC. 2.
(a) Section 165(h) of the Internal Revenue Code of 1954 (relating to disaster losses) is amended by—

(1) striking out the first sentence and inserting in lieu thereof the following: "Notwithstanding the provisions of
subsection (a), any loss attributable to a disaster occurring in an area subsequently determined by the
President of the United States to warrant assistance by the Federal Government under the Disaster Relief Act
of 1970 may, at the election of the taxpayer, be deducted for the taxable year immediately preceding the
taxable year in which the disaster occurred.” and

(2) inserting before the period in the second sentence a comma and the following: “based on facts existing at the
date the taxpayer claims the loss,"
(b) Section 6405 of such Code (relating to reports of refunds and credits to the Joint Committee on Internal Revenue

Taxation) is amended by adding at the end thereof the following new subsection:

(d} REFUNDS ATTRIBUTABLE TO CERTAIN DISASTER LOSSES.—lf any refund or credit of income taxes is
atiributable to the taxpayer's election under section 165 (h) to deduct a disaster loss for the taxable year immediately
preceding the taxable year in which the disaster occurred, the Secretary or his delegate is authorized in his discretion
to make the refund or credit, to the extent attributable to such election, without regard to the provisions of subsection
(a) of this section. If such refund or credit is made without regard to subsection (a), there shall thereafter be submitted
to such Joint Committee a report containing the matter specified in subsection (a) as soon as the Secretary or his
delegate shall determine the correct amount of the tax for the taxable year for which the refund or credit is made."

(c) The amendment made by subsection (a) shall apply to disasters occurring after December 31, 1971, in taxable
years ending after such date. The amendment made by subsection (b) shall apply with respect
to refunds or credits made after July 1,1972.

Catalog Number 20810W Page 4 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number Year/Period ended

LAW (Continued):

Rev. Proc. 80-27, 1980-1 C.B. 677

SEC. 1. PURPOSE

The purpose of this revenue procedure is to supersede Rev. Proc. 77-38, 1972-2 C.B. 571, by setting forth updated
procedures under which recognition of exemption from federal income tax under section 501(c) of the Internal
Revenue Code may be obtained on a group basis for subordinate organizations affiliated with and under the general
supervision or control of a central organization. This procedure relieves each of the subordinates covered by a group
exemption letter from filing its own application for recognition of exemption. This revenue procedure changes the time
for filing the annual submission of information required to maintain a group exemption letter to 90 days before the
close of the organization's accounting period. This revenue procedure also clarifies the requirements concerning
subordinates’ accounting periods and the 15-month rule of section 508 for section 501(c)(3) subordinates and
provides the addresses of three new Service Centers for filing purposes.

SEC. 2. ISSUANCE OF GROUP EXEMPTION LETTERS

.01 Under this revenue procedure and Rev. Proc. 80-25, page 39, this Bulletin, the Internal Revenue Service will
consider requests of central organizations for group exemption letters.

.02 A subordinate included in an exemption letter should not apply separately for recognition of exempt status
unless it no longer wants to be included in the group exemption letter.

.03 A subordinate that is organized and operated in a foreign country may not be included in a group exemption
letter.

.04 A subordinate described in section 501(c)(3) of Code may not be included in a group exemption letter if it is a
private foundation defined in section 509(a). Such an organization should apply separately for recognition of

exempt status under the procedures outlined in Rev. Proc. 76-34, 1976-2 C.B. 656, as supplemented by Rev.
Proc. 80-25.

SEC. 3. DEFINITIONS

.01 A group exemption letter is a ruling or determination letter issued to a central organization recognizing on a
group basis the exemption under section 501(c) of the Code of subordinate organizations on whose behalf the
central organization has applied for recognition of exemption in accordance with this revenue procedure.

.02 A central organization is an organization that has one or more subordinates under its general supervision or
control.

.03 A subordinate is a chapter, local, post, or unit of a central organization. It may or may not be incorporated, but
it must have an organizing document. A central organization may be a subordinate itself, such as a state
organization which has subordinate units and is itself affiliated with a national organization.

SEC. 4. REQUIREMENTS FOR INCLUSION IN A GROUP EXEMPTION LETTER
.01 A central organization applying for a group exemption letter must obtain recognition of its own exempt status.
.02 It must also establish that the subordinates to be included in the group exemption letter are:
1 Affiliated with it;
2 Subject to its general supervision or control;
3 All exempt under the same paragraph of section 501(c) of the Code, though not necessarily the paragraph
under which the central organization is exempt;
4 Not private foundations, if the application for a group exemption letter involves section 501(c)(3);
5 All on the same accounting period as the central organization if they are to be included in group returns; and
6 Organizations that have been formed within the 15-month period prior to the date of submission of the group
exemption application, if they are claiming section 501({c)(3) status and are subject to the requirements of
section 508(a), and wish to be recognized as exempt from their dates of creation. A group exemption letter
may be issued covering subordinates, one or more of which have not been organized within the 15-month
period prior to the date of submission, if all subordinates are willing to be recognized as exempt only from the
date of application.

Catalog Number 20810W Page 5 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury Internal Revenue Service
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
LAW (Continued):

Rev. Proc. 80-27, 1980-1 C.B. 677 (continued)

.03 Each subordinate must authorize the central organization to include it in the application for the group
exemption letter. The authorization must be signed by a duly authorized officer of the subordinate and retained
by the central organization while the group exemption letter is in effect. In the case of a new organization
described in section 501(c){3) of the Code that wants to be included in a group exemption, it must submit its
authorization before the end of the fifteenth month after it was formed in order to satisfy the requirement of
section 508(a). The central organization must also include this subordinate in its next annual submission. See
section 6.

SEC. 5. FILING APPLICATION FOR A GROUP EXEMPTION LETTER

.01 A central organization seeking a group exemption letter for its subordinates must obtain recognition of Its own
exemption by filing an application with the key District Director of Internal Revenue for the area in which is
located the principal place of business or principal office of the organization. Any application received by the
National Office or by a District Director other than as provided above will be forwarded, without action, to the
appropriate key District Director.

.02 |f the central organization is recognized as exempt, it must indicate its employer identification number (EIN), the
date of the letter recognizing its exemption, and the Internal Revenue Office that issued it. It need not resubmit
documents already submitted. However, if it has not already done so, it must submit a copy of any
amendment to its governing instruments or internal regulations as well as any information regarding any
change in its character, purposes, or method of operations.

.03 In addition to the information required to obtain recognition of its own exemption, the central organization must
submit to the key District Director the following information on behalf of those subordinates to be included in
the group exemption letter:

1 A letter signed by a principal officer of the central organization setting forth or including as attachments:
(a) information verifying the existence of the relationships required by section 4.02;

(b) a sample copy of a uniform governing instrument (charter, trust indenture, articles of association, etc.)
adopted by the subordinates; or, in the absence of a uniform governing instrument, copies of
representative instruments;

(c) a detailed description of the purposes and activities of the subordinates including the sources of
receipts and the nature of expenditures;

(d) an affirmation that, to the best of the officer's knowledge, the purposes and activities of the
subordinates are as set forth in (b) and (c) above;

(e) a statement that each subordinate to be included in the group exemption letter has furnished written
authorization to the central organization as described in section 4.03;

(f) a list of subordinates to be included in the group exemption letter to which the Service has issued an
outstanding ruling or determination letter relating to exemption;

(g) if the application for a group exemption letter involves section 501(c)(3) of the Code, and is subject to
the provisions of section 508(b), an affirmation to the effect that, to the best of the officer's knowledge
and belief, no subordinate to be included in the group exemption letter is a private foundation as
defined in section 509(a); and

(h) for each subordinate that is a school claiming exemption under section 501(c)(3), the information
required by Rev. Proc. 75-50, 1975-2 C.B. 834. Also, there must be included such other information
necessary to establish that the school is complying with the requirements of Rev. Rul. 71-447, 1971-2
C.B. 230. This is the same information required by Schedule A, Form 1023, Application for
Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

2 Alist of the names, mailing addresses {including Postal Zip Code), actual addresses if different, and
employer identification numbers of subordinates to be included in the group exemption letter. A current
directory of subordinates may be furnished in lieu of the list if it includes the required information and if the
subordinates not to be include in the group exemption letter are identified.

Catalog Number 20810W Page 6 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury Internal Revenue Service
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
LAW (Continued):

Rev. Proc. 80-27, 1980-1 C.B. 677 (continued)

.04 If the central organization does not have an employer identification number, it must submit a completed Form
SS-4, Application for Employer Identification Number, with its exemption application. See Rev. Rul. 63-247,
1963-2 C.B. 612.

.05 Each subordinate must have its own employer identification number even if it has no employees. The central

organization must submit with the exemption application a completed Form SS-4 on behalf of each subordinate
not having a number.

SEC. 6. INFORMATION REQUIRED ANNUALLY TO MAINTAIN A GROUP EXEMPTION LETTER
-01 In order to maintain a group exemption letter, the central organization must submit annually, at least 90 days
before the close of its annual accounting period, to the Internal Revenue Service Center indicated in .02 of this
section, the following information:

1 Information regarding all changes in the purposes, character, or method of operation of subordinates
included in the group exemption letter.

2 Lists of (a) subordinates that have changed their names or addresses during the year, (b) subordinates no
longer to be included in the group exemption letter because they have ceased to exist, disaffiliated, or
withdrawn their authorization to the central organization, and (c) subordinates to be added to the group
exemption letter because they are newly organized or affiliated or they have newly authorized the central
organization to include them. A separate list must be submitted for each of the three categories set out
above. Each list must show the names, mailing address (including Postal ZIP Codes), actual address if
different, and employer identification numbers of the affected subordinates. An annotated directory of
subordinates will not be accepted for this purpose. If there were none of the above changes, the central
organization must submit a statement to that effect.

3. The information required by section 5.031 a through h, with respect to subordinates to be added to the
group exemption letter. However, if the information upon which the group exemption letter was based is
applicable in all material respects to such subordinates, a statement to this effect may be submitted in lieu
of the information required by items (a) through (d) of section 5.031.

.02 1 If the central organization is located in Indiana, Kentucky, Michigan, Ohio, or West Virginia, send the
report to the Internal Revenue Service Center, Cincinnati, Ohio 45999.

2 If the central organization is located in Maine, New Hampshire, Vermont, Connecticut, Massachusetts, or
Rhode Island, send the report to the Internal Revenue Service Center, Andover, Massachusetts 05501.

3 If the central organization is located in California, Hawaii, Arizona, Utah, or Nevada, send the report to the
Internal Revenue Service Center, Fresno, California 93888

4 lf the central organization is located in North Carolina, South Carolina, Georgia, Florida, Tennessee,
Alabama, or Mississippi, send the report to the Internal Revenue Service Center, Atlanta, Georgia
31101.

5 lf the central organization is located in Arkansas, Colorado, Kansas, Louisiana, New Mexico, Oklahoma,
Texas, or Wyoming, send the report to the Internal Revenue Service Center, Austin, Texas 73301.

6 If the central organization is located in Alaska, Idaho, Minnesota, Montana, North Dakota, Oregon, South
Dakota, Washington, or Wisconsin, send the report to the Internal Revenue Service Center, Ogden,
Utah 84201.

7 If the central organization is located in New Jersey or New York, send the report to the Internal Revenue
Service Center, Holtsville, New York 00507.

8 If the central organization is located in Illinois, lowa, Missouri, or Nebraska, send the report to the Internal
Revenue Service Center, Kansas City, Missouri 64999.

9 If the central organization is located in Delaware, Maryland, Pennsylvania, Virginia, District of Columbia,

any U.S. possession, or a foreign country, send the report to the Internal Revenue Service Center,
Philadelphia, Pennsylvania 19255.

Catalog Number 20810W Page 7 www.irs.gov Form 886-A (Rev. 5-2017}

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit
(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number Year/Period ended

LAW (Concluded):

Rev. Proc. 80-27, 1980-1 C.B. 677 (concluded)

.03 Submission of the information required by this section does not relieve the central organization or any of its
subordinates of the duty to submit such additional information as a District Director may require; to determine
whether the conditions for continued exemption are being met. See sections 6001 and 6033 of the Code, and
regulations thereunder.

SEC. 7. CIRCUMSTANCES UNDER WHICH A GROUP EXEMPTION LETTER WILL CEASE TO HAVE EFFECT

.01 Continued effectiveness of a group exemption letter is based on the following conditions:

1 continued existence of the central organization;

2 continued qualification of the central organization for exemption under section 501(c) of the Code;

3 annual submission by the central organization of the information required by section 6; and

4 annual filing by the central organization of an information return if one is required of it under section 6033.

.02 Continued effectiveness of a group exemption letter as to a particular subordinate is based on the conditions
set out in .01 of this section and the following conditions:

1 continued conformity by the subordinate to the requirements for group exemption set out in SEC. 4.02 and
4.03; and

2 annual filing of an information return for the subordinate if one is required of it under section 6033 of the
Code.

.03 A group exemption letter shall cease to have effect either as to a particular subordinate or to the group as a
whole when:

1 The central organization notifies the Service that it is going out of existence.

2 The central organization notifies the Service, by its annual submission described in section 6 or otherwise,
that any of its subordinates will no longer fulfill the conditions set out in .02 of this section.

3 The Service notifies the central organization or the affected subordinate that the group exemption letter
shall cease to have effect as to some or all of the group because the conditions set out in .01 or .02 of this
section have not been fulfilled.

.04 When notice is given under .03 of this section, the Service will not thereafter recognize the exempt status of the
affected subordinates unless and until they file separate applications on their own behalf, or the central
organization files complete supporting information for their reinclusion in the group exemption at the time of its
annual submission.

.05 When notice is given by the Service as described in .03 of this section, and withdrawal of recognition is based
on a failure to come within the description of the particular subparagraph of section 501(c) of the Code, the
effective date will be governed by section 12.01 of Rev. Proc. 80-25. Such notice will be given after completion
of the appeal procedures set out in that revenue procedure.

SEC. 8. INSTRUMENTALITIES OR AGENCIES OF POLITICAL SUBDIVISIONS

An instrumentality or agency of a political subdivision that exercises control or supervision over a number of
organizations similar in purposes and operations, each of which may qualify for exemption under the same paragraph
of section 501(c) of the Code, may obtain a group exemption letter covering those organizations in the same manner
as a central organization. However, the instrumentality or agency must evidence that it is a qualified governmental
agency. Examples of organizations over which governmental agencies exercise control or supervision are federal
credit unions, state-chartered credit unions, and federal land bank associations.

SEC. 9. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 77-38 is superseded.

SEC. 10. EFFECTIVE DATE
This revenue procedure is effective June 30, 1980, the date of its publication in the Internal Revenue Bulletin.

Catalog Number 20810W Page 8 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
TAXPAYER POSITION:

The taxpayer has not supplied their position at this time.

GOVERNMENT POSITION:

Veterans' organizations occupy a preferred position in relation to other tax-exempt organizations. Veterans’
organizations are eligible for most of the federal tax benefits available to exempt organizations without many of the
restrictions. For example, veterans’ organizations can and do engage in substantial political activity. In contrast,
charitable organizations described in IRC Section 501(c)(3) are prohibited from engaging in almost all political
activities. Also, donees may make deductible contributions to veterans’ organizations. Obviously, the special position
these organizations occupy is due in no small part to Congress’ general desire to reward the men and women who
have served their country by being past and current members in the American military. For an organization to be
exempt under section 501(c)(19) the organization must meet the membership requirements found in Treas.
Reg. 1.501(c)(19)-1(b), and the organizational requirements and operational requirements set forth in Treas. Reg.
1.501(c)(19)-1(c). Failure of any of these requirements precludes exemption under IRC section 501(c)(19).

The first test is the membership test found in Treas. Reg. 1.501(c)(19)-1(b).
Those requirements are:

1. Atleast 75% of the members must be present or former members of the United States armed forces.
2. Atleast 97.5% of the members must be:
a. present or former members of the U.S. Armed Forces,
b. cadets who are students in a college or university ROTC program or at an Armed Services Academy, or
c. spouses, widows or widowers, ancestors, or lineal descendants of such persons.

When applying the 75% test requirement:

1. No more than 25% of the total membership may be non-veterans.
2. Of the 25%, at least 90% of the members must be widows or widowers, spouses, parents, children, or
grandchildren of veterans or cadets.

After the membership test is conducted, in order to meet the organizational and operation requirements, the activities
of the organization must meet one or more of the eight requirements set forth in Treas. Reg. 1.501(c)(19)-1(c):

1. Promote the social welfare of the community as defined in Treas. Reg. 1.501(c)(4)-1(a)(2),

2. Assist disabled and needy war veterans and members of the United States Armed Forces and their
dependents, and the widows and orphans of deceased veterans. For example, providing color guard services
for a veteran's funeral,

3. Provide entertainment, care, and assistance to hospitalized veterans or members of the Armed Forces of the
United States,

4. Carry on programs to perpetuate the memory of deceased veterans and members of the Armed Forces and

to comfort their survivors,

Conduct programs for religious, charitable, scientific, literary, or educational purposes,
Sponsor or participate in activities of a patriotic nature,

Provide insurance benefits for its members or dependents of its members or both, or
Provide social and recreational activities for its members.

Finally, no part of the earnings of the organization can inure to the benefit of private shareholders or individuals.

The analysis must begin with the membership test.

The , has failed to meet the membership requirement of 75-percent
current / former military service members (war veterans); 97.5-percent war veterans, present or former members of
the United States Armed Forces, Cadets (including only students in college or university ROTC programs or at Armed

Catalog Number 20810W Page 9 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number Year/Period ended

GOVERNMENT POSITION (continued):

Services academies), or spouses, widows, or widowers. Nor, limiting the remaining 2.5-percent of the membership is
open to the general public.

Using the organization’s membership as the base, members,
e The organization needed to have 75 percent or  members to be war veterans.
e The organization needed to have 97.5 percent or  members to be war veterans, present or former
members of the United States Armed Forces, cadets, or spouses, widows, or widowers of individuals referred
to above.

« The organization was limited to 2.5 percent or  members be from the general public with no affiliation to
other members or the United States Armed Services.

CODE Requirements

Membership Cumulative Cumulative
Category Number Percent Percent Number Percent Percent
[The membership breakdown rows for each category, and the totals, were redacted in the original release.]

According to the organization's membership records, for the year ended December 31,20, there were a total of
members. There were members meeting the military service requirements; which represents _-percent of the
total members; significantly less than the required 75-percent limit in the Code. There were members meeting the
familial / relationship requirements; which represents —__-percent of the total members; significantly more than the
required 22.5-percent limit in the Code. Finally, there were — social members who have had no affiliated military
service which represents _-percent of the total members; significantly more than the 2.5-percent limit in the Code.

The did not meet their Active Membership percentage of 75 percent.

The did not meet their Active / Auxiliary Membership percentage of 97.5 percent.
The did not limit their Associate Memberships to 2.5 percent.

It is the Government's position that the does not qualify for exemption

under section 501(c)(19) of the Internal Revenue Code because they fail the membership test under
Treas.Reg.1.501(c)(19)-1(b).

It is the Government's position that the tax-exempt status under section 501(c)(19)
of the Internal Revenue Code should be revoked effective January 1, 20

The Service has determined that the was properly organized based on
the documentation examined.

The Service has determined that there was no inurement of the organization’s income which would have benefited
any private shareholders, individuals, or officers.

Catalog Number 20810W Page 10 www.irs.gov Form 886-A (Rev. 5-2017)

Schedule number or exhibit
Form 886-A Department of the Treasury — Internal Revenue Service

(May 2017) Explanations of Items

Name of taxpayer Tax Identification Number Year/Period ended

GOVERNMENT POSITION (concluded):

The sections of the Internal Revenue Code and underlying regulations relating to the membership requirements for
veterans’ organizations as recited above are explicit in their definition of the permissible member percentages a
veterans organization may enroll and still maintain its exempt status. In determining whether or not a veterans
organization meets the legal requirements for continued recognition of exemption from Federal income tax, the
Service has virtually no latitude when membership infractions occur.

The legal requirements for recognition of exemption from Federal income tax for veterans’ organizations are straight
forward. Such organizations are subject to membership restrictions and must comply with these constraints in order
to qualify for tax-exempt status. Moreover, if a veterans' organization such as the

wishes to maintain its tax-exempt status, it must continue to comply with the membership restrictions which
initially qualified the Post for its tax-exempt status.

With respect to subsidiary organizations recognized as exempt under the umbrella of a group ruling, the Revenue
Procedure cited above (Rev. Proc. 80-27, 1980-1 C.B. 677); makes it clear that all such subsidiary organizations
must meet the legal requirements for recognition of exemption in order to be included in the group ruling. The

fact of holding a Charter from the national organization carries no automatic provision for inclusion in the group to
which the tax-exempt status applies. That is, the Income Tax Regulations which restrict the membership
qualifications for veterans’ organizations seeking an individual ruling letter are equally applicable to all other similar
veterans’ organizations seeking to be included as a subsidiary under a group ruling letter.

Since the organization does not pass the membership requirements for a veterans organization it does not qualify for
exemption under Section 501(c)(19) of the Code.

With respect to the desire to make correction to its membership roster and retain tax-exempt status, the legal
requirements set forth in IRC sections 501(a) or 501(c) do not provide for exceptions based on an organization's
correction or remedy of the condition that caused its disqualification. In addition to the above, it appears that to permit
such a correction would have the effect of relieving the American Legion National Office of its responsibility of
ensuring that all of its subordinate units included in the group ruling comply with the legal requirements for inclusion.
There is no legal precedent to support such a decision, and no such action is recommended.

CONCLUSION:

The has established that it was covered under the group ruling for
Internal Revenue Code Section 501(c)(19) that was issued to the . As stated in
Treas. Reg. § 1.501(c)(19)-1(a), the organization must meet both the membership requirements AND the operational
requirements under the Code. The does not meet the membership
requirements stated in Treas. Reg. § 1.501(c)(19)-1(b). Therefore, the organization does not meet the requirements
for qualification. Even though the operates for the exempt purposes

listed in Treas. Reg. § 1.501(c)(19)-1(c); the organization does not qualify as an organization under Internal Revenue
Code Section 501(c)(19) because it does not meet both the membership and operational requirements of this code
section.

It is the Government's position that the does not qualify for exemption
under section 501(c)(19) of the Internal Revenue Code because they fail the membership test defined in Treasury
Regulation Section 1.501(c)(19)-1(b).

It is the Government's position that the ; -ax-exempt status under section 501(c)(19)
of the Internal Revenue Code should be revoked effective January 1, 20

Catalog Number 20810W Page 11 www.irs.gov Form 886-A (Rev. 5-2017)

Form 886-A Department of the Treasury — Internal Revenue Service Schedule number or exhibit
(May 2017) Explanations of Items
Name of taxpayer Tax Identification Number Year/Period ended
Based on the documentation examined by the Service, the may qualify
under another code section and the organization should consider this as an option; since the no longer

meets the requirements of Internal Revenue Code Section 501(c)(19).

Catalog Number 20810W Page 12 www.irs.gov Form 886-A (Rev. 5-2017)