Soccer-referee association denied 501(c)(10) fraternal-society status for lacking a lodge system and fraternal activities

Plain-English summary

An organization that supplies certified referees to officiate youth and school soccer matches applied to be recognized as a tax-exempt domestic fraternal society under section 501(c)(10), and the IRS denied it. The denial became final because the organization did not file a protest within 30 days of the proposed adverse letter. To qualify under 501(c)(10), a group must be a domestic fraternal society that operates under the "lodge system" (a parent body with largely self-governing local branches or lodges) and devote its net earnings to charitable, religious, educational, or fraternal purposes. The IRS found this group did neither: it does not operate under a lodge system, and it has no rituals, ceremonies, regalia, or other fraternal activities, so its members' shared interest in soccer officiating does not make it "fraternal." In substance the group is an administrative body that recruits, trains, schedules, and pays referees and bills schools for their services, keeping a percentage. Because it is not a fraternal beneficiary society operating under the lodge system and performs specific services for members, it did not qualify.

Ruling snapshot

• Question: Does an organization that trains, schedules, and pays soccer referees and bills schools for their services qualify as a domestic fraternal society under IRC § 501(c)(10)?
• Outcome: denied (proposed adverse determination became final when no protest was filed)
• Key authorities: IRC § 501(c)(10) (and § 501(c)(8)); Treas. Reg. §§ 1.501(c)(8)-1(a), 1.501(c)(10)-1(a); National Union v. Marlow, 74 F. 775 (8th Cir. 1896); Philadelphia and Reading Relief Association v. Commissioner, 4 B.T.A. 713 (1926)

Full text (IRS public release)

Department of the Treasury Date: March 7, 2022

Internal Revenue Service
Tax Exempt and Government Entities

IRS PO Box 2508 Employer ID number:
Cincinnati, OH 45201

Form you must file:
Number: 202222006 Tax years:
Release Date: 6/3/2022

Person to contact:

Name:
ID number:
Telephone:
UIL: 501.10-00
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)(10). 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.

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,

Stephen A. Martin
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
PO Box 2508
IRS Cincinnati, OH 45201
Date: January 18, 2022

Employer ID number:

Person to contact:

Name:

ID number:
Legend: Telephone:
B — State Fax:
C = Date
D=Name 1
E = Name 2 UIL-
F = County 1 501.10-00
G= County 2
H =County 3
J= County 4

X percent = Percentage
y dollars = Amount
z=Number

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)(10). 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)(10)? No, for the reasons stated below.

Facts
You are incorporated in the state of B on C as a nonprofit corporation. Your Articles of Incorporation state

your specific purpose is “to promote the sport of soccer through support service of providing high quality certified
referees to officiate matches for” D.

You develop and maintain a membership consisting of certified D and E soccer referees to support F, G, H, and
J counties in the state of B. You also provide education, leadership, and training to develop and refine the soccer
officiating skills of your members. You actively recruit, train, and develop new referees to meet the needs of the
area D and E soccer organizations. Each member may have to pay an application fee and is required to pay an

annual membership fee in order to officiate matches. Required licenses and liability insurance will be provided
to your members.

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

The primary source of your revenue is from billings to schools for refereeing services provided by your member
referees. You serve as the administrative body to schedule and assign member referees, collect payments from
schools, and pay referees for their officiating services. Payment to the referees will be distributed after an
assessment of up to x percent. You expect to distribute around y dollars to your members in z years.

According to Form 1024 Schedule E, you do not operate under the lodge system.

Law
IRC Section 501(c)(8) provides for the exemption from federal income tax of fraternal beneficiary societies,
orders, or associations

(A) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating
under the lodge system, and

(B) providing for the payment of life, sick, accident, of other benefits to the members of such society, order, or
association or their dependents.

IRC Section 501(c)(10) provides for the exemption from federal income tax of domestic fraternal societies,
orders, or associations operating under the lodge system, the net earnings of which are devoted exclusively to
religious, charitable, scientific, literary, educational, and fraternal purposes, and which do not provide for the
payment of life, sick, accident, or other benefits.

Treasury Regulation Section 1.501(c)(8)-l(a) states that a fraternal beneficiary society is exempt from tax only
if operated under the “lodge system” or for the exclusive benefit of the members so operating. “Operating
under the lodge system” means carrying on its activities under a form of organization that comprises local
branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. In
order to be exempt it is also necessary that the society have an established system for the payment to its
members or their dependents of life, sick, accident, or other benefits.

Treas. Reg. Section 1.501(c)(10)-1(a) provides that an organization will qualify for exemption under IRC
Section 501(c)(10) if it is a domestic fraternal beneficiary society, order, or association, described in Section
501(c)(8) and the regulations thereunder, except that it does not provide for the payment of life, sick, accident,
or other benefits to its members, and devotes its net earnings exclusively to religious, charitable, scientific,
literary, educational, and fraternal purposes.

The court in National Union v. Marlow, 74 F. 775, 778-779 (8 Cir. 1896) stated that even if the member of an
organization enjoys a common tie or goal, the organization does not serve a fraternal purpose unless its
members engage in fraternal activities.

In Philadelphia and Reading Relief Association _v. Commissioner, 4 B.T.A. 713 (1926), the court held that an
organization of railroad company employees that made payments to members who became disabled because of
accident or sickness was not entitled to exemption because it was not “fraternal”. The court cited rituals,
ceremonies, and regalia as evidence of a fraternal purpose, and was unable to discover a single fraternal feature
in its organization, being entirely without social features or fraternal object. The petitioner has neither lodges,
rituals, ceremonial, nor regalia; and it owes no allegiance to any other authority or jurisdiction.

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

Application of law

Treas. Reg. Section 1.501(c)(10)-l(a) provides that an organization will qualify for exemption under IRC
Section 501(c)(10) if it is a domestic fraternal beneficiary society, order, or association, described in Section
501(c)(8). As required by Treas. Reg. Section 1.501(c)(8)-l(a), you are not operating under the lodge system.
For example, you are not operating in such a manner that comprises local branches chartered by a parent

organization and largely self-governing called lodges, chapters, or the like. This precludes exemption under
Section 501(c)(10).

You do not meet the definition of fraternal as provided in National Union v. Marlow. You have not provided
any evidence that you have rituals, ceremonies or regalia as described in the court case, Philadelphia and
Reading Relief Association v. Commissioner. Even though your members may have a common tie, you do not
engage in fraternal activities within the meaning of the regulations.

Conclusion
You do not qualify for exemption under IRC Section 501(c)(10) because you are not a fraternal beneficiary

society, or an association operating under the lodge system. You are providing specific services to members and
you do not have any activities that accomplish fraternal purposes.

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

¢ Your name, address, employer identification number (EIN), and a daytime phone number

* A statement of the facts, law, and arguments supporting your position

¢ A statement indicating whether you are requesting an Appeals Office conference

* The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative

* The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't

already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll

continue to process your case considering the information you provided. If you haven't given us a basis

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

4

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