IRS denies 501(c)(25) title-holding status to a group organized as a self-proclaimed sovereign nation

Plain-English summary

An organization applied to be recognized as a tax-exempt title-holding entity under IRC § 501(c)(25), and the IRS denied it. A § 501(c)(25) organization exists for one narrow purpose: to acquire real property, hold title to it and collect income from it, and pass that income (minus expenses) to qualified pension plans, governmental plans, or other exempt organizations that are its shareholders or beneficiaries. This applicant was not organized for that purpose at all. It described itself as a "sovereign nation state," adopting a constitution and planning to run agencies such as courts, police, a bureau of motor vehicles, and schools, funded by "taxpayers" who are its "citizens." Its organizing documents said nothing about holding title to real property, and Notice 87-18 requires those documents to include the § 501(c)(25) requirements. Because operating as a self-declared nation is not a § 501(c)(25) purpose, the IRS denied exemption. The applicant filed no protest, so this is the final adverse determination.

Ruling snapshot

• Question: Does a group organized to operate as a self-proclaimed sovereign nation qualify for exemption under IRC § 501(c)(25) as a real-property title-holding organization?
• Outcome: Denied (final adverse determination; no protest filed)
• Key authorities: IRC § 501(c)(25)(A), (C), (D); Notice 87-18, 1987-1 C.B. 455

Full text (IRS public release)

Department of the Treasury                          Date: 04/04/2022
Internal Revenue Service
Tax Exempt and Government Entities                  Employer ID number:
Cincinnati, OH 45201
                                                    Person to contact:

Number: 202226017
Release Date: 7/1/2022
UIL: 501.25-00

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)(25). 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
Cincinnati, OH 45201

                                                    Date: 01/11/22

                                                    Employer ID number:

                                                    Person to contact:
                                                    Name:
                                                    ID number:
                                                    Telephone:
                                                    Fax:

Legend:                                             UIL:
B = Date
C = State
D = Self-Proclaimed Country                         501.25-00

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

Facts

You were formed as a corporation, an unincorporated association and as a trust all in the state of C. Your date
of incorporation is B. The purpose clause of your Articles of Incorporation states: "This state government is
invested with the powers and authority to create and enforce laws and impose taxes including protection of
lives and property by maintenance of a police force."

You have adopted a constitution and have formed a "sovereign nation state of D."
You intend to operate the following agencies:

* Bureau of Motor Vehicles
* Secretary of State
* Department of Justice
* Marshall Services
* Electric Power Distribution
* Libraries and Archives
* Credit Card Issues
* Research and Development in the Social Sciences and Humanities
* Elementary and Secondary Schools
* Business and Secretarial Schools
* Courts
* Police Protection
* Legal Counsel and Prosecution
* Correctional Institutions
* Fire Protection

Your main source of financial support will come from your "taxpayers" who are citizens of D.

Law

Internal Revenue Code (IRC) Section 501(c)(25) of the Code provides for exemption from federal income tax
for organizations that meet the following substantive requirements:

IRC Section 501(c)(25)(A) provides exemption to any corporation or trust which
(i) has no more than 35 shareholders or beneficiaries,
(ii) has only 1 class of stock or beneficial interest, and
(iii) is organized for the exclusive purposes of—
(I) acquiring real property and holding title to, and collecting income from, such property, and
(II) remitting the entire amount of income from such property (less expenses) to 1 or more
organizations described in subparagraph (C) which are shareholders of such corporation or
beneficiaries of such trust.

Section 501(c)(25)(C) provides an organization is described in this subparagraph if such organization is--
(i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401(a),
(ii) a governmental plan (within the meaning of section 414(d)),
(iii) the United States, any State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, or
(iv) any organization described in paragraph (3).

Section 501(c)(25)(D) provides a corporation or trust shall in no event be treated as described in subparagraph
(A) unless such corporation or trust permits its shareholders or beneficiaries—
(i) to dismiss the corporation's or trust's investment adviser, following reasonable notice, upon a
vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and
(ii) to terminate their interest in the corporation or trust by either, or both of the following
alternatives, as determined by the corporation or trust:
(I) by selling or exchanging their stock in the corporation or interest in the trust (subject to any
Federal or State securities law) to an organization described in subparagraph (C) so long as the sale
or exchange does not increase the number of shareholders or beneficiaries in such corporation or
trust above 35, or
(II) by having their stock or interest redeemed by the corporation or trust after the shareholder or
beneficiary has provided 90 days' notice to such corporation or trust.

Notice 87-18, 1987-1 C.B. 455, states an IRC Section 501(c)(25) applicant's articles of incorporation or trust
instrument must include the above requirements.

Application of law

To be exempt as an organization described in IRC Section 501(c)(25) of the Code, you must be both organized
and operated for the purposes of acquiring real property and holding title to, and collecting income from such
property, and remitting the entire amount of income from such property (less expenses) to 1 or more
organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such
trust. Your organizing documents are silent with regards to the requirements of an IRC 501(c)(25) applicant.
(See Notice 87-18). You are neither organized nor operated to hold title to real property. You state you were
created to operate as a sovereign nation state, which is not a Section 501(c)(25) purpose.

Conclusion

You do not qualify for exemption as an organization described in Section 501(c)(25). You are not organized or
operated for the purpose of holding title to real property. As stated above, you were created to operate as a
sovereign nation state.

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 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