IRS revokes a cultural membership group's 501(c)(3) status for running only social activities and failing to keep records

Plain-English summary

A membership-based cultural and social organization had been recognized as a 501(c)(3) charity in 2009. On examination, the IRS found that the group operated almost entirely as a social club for its members: its revenue came from membership dues, and its documented activities were things like a summer picnic and a Christmas party, with no charitable, cultural, or educational programs it could substantiate. The organization also failed to keep and produce the records the tax law requires and did not respond to repeated requests for information about its finances and activities. Because an organization must be operated primarily for exempt purposes and must maintain adequate records, the IRS concluded the group flunked the operational test and violated the recordkeeping rules of sections 6001 and 6033. It revoked the group's tax-exempt status effective January 1, 2017, meaning contributions are no longer deductible under section 170 and the organization must file corporate income tax returns (Form 1120). This is a final adverse determination; the organization waived its right to contest it under section 7428. The full release also includes the earlier proposed adverse determination letter and the Form 886-A explanation of the examiner's findings.

Ruling snapshot

• Question: Does a membership organization that conducts mainly social and recreational activities, and that failed to keep or produce records, continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation (exempt status revoked effective January 1, 2017; fails the operational test and the section 6001/6033 recordkeeping requirements)
• Key authorities: IRC §§ 501(c)(3), 6001, 6033(a)(1); Treas. Reg. §§ 1.501(c)(3)-1(b)(1)(iii), (iv), 1.6001-1(c), (e)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service Date: MAY 19 2022
Independent Office of Appeals

Person to contact:
IRS Name:
Employee ID number:

Number: 202232016 Telephone:
Release Date: 8/12/2022

Employer ID number:

Uniform issue list (UIL):
501.03-00

Certified Mail

Dear

This is a final adverse determination that you do not qualify for exemption from federal income tax under
Internal Revenue Code (the "Code") Section 501(a) as an organization described in Section 501(c)(3)
of the Code.

We have hereby revoked the favorable determination letter to you dated May 22, 2009 and you are no longer
exempt under Section 501(a) of the Code effective January 1, 2017.

We made the adverse determination for the following reasons:
The organization did not operate for an exempt purpose under Section 501(c)(3) of the Internal Revenue Code.

Contributions to your organization are not deductible under Section 170 of the Code.

You're required to file federal income tax returns on Forms 1120, U.S. Corporation Income Tax Return. Mail
your form to the appropriate Internal Revenue Service Center per the form's instructions. You can get forms and
instructions by visiting our website at www.irs.gov/forms or by calling 800-TAX-FORM (800-829-3676).

You've agreed to waive your right to contest this determination under the declaratory judgment provisions of
Section 7428 of the Code.

We'll make this letter and the proposed adverse determination letter available for public inspection under
Section 6110 of the Code after deleting certain identifying information. We provided to you, in a separate
mailing, Notice 437, Notice of Intention to Disclose. Please review the Notice 437 and the documents attached
that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in
Notice 437.

Letter 1371-A (Rev. 10-2021)
Catalog Number 62960H

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

Sincerely,

Enclosures:
IRS Appeals Survey

cc:

Letter 1371-A (Rev. 10-2021)
Catalog Number 62860H

Department of the Treasury Date: April 28, 2024
Internal Revenue Service

Tax Exempt and Government Entities Taxpayer ID number:

Form:
Tax periods ended:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact information:

Name:
ID number:
CERTIFIED MAIL --- Return Receipt Requested Telephone:
Response due date:

Dear
Why you're receiving this letter

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 [insert code section] for the periods above.

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 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.

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

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.

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,

Enclosures:
Form 886-A
Form 6018

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

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

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
ISSUE:
Whether continues to qualify for
exemption under Section 501(c)(3) of the Internal Revenue Code (IRC)?

FACTS:

      filed the Form 1023 requesting exemption under IRC Section 501(c)(3) on          ;
      was granted tax-exempt status on          under IRC Section 501(c)(3).

      filed Form          for the year ending on April 9, 20   . Organization

has not filed Form for the year ending .

      conducted its operations out of various locations in          ,          .

According to its Articles of Incorporation dated , the purposes of the EO are as follows.

The Corporation is organized for the following purpose(s) charitable,
educational, including, for such purposes, the making of distributions to
organizations under Sections 501(c)(3) and 170(c)(2) of the Internal
Revenue Code of 1986 (herein the "Code") or corresponding
provisions of any future United States Internal Revenue Code).

Per the constitution/bylaws of the
dated , Article II - Purpose states:

2.1 To cultivate mutual recognition and friendship among each other as
brothers and sisters.

2.2 To foster respect, mutual understanding, cooperation, unity and
friendliness among the members, and between the and
community

2.3 To Cultivate the habit of being supportive of one another in the
society.

2.4 To uphold the truth about our cultural and social heritage, and to
help eliminate prejudices through education and service to the public.

2.5 To promote, communicate and maintain educational, social, and
cultural exchanges in/between the and the

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

[illegible - garbled scanned page header]
Form 886-A
(May 2017) Explanation of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
The originally filed Form for the year ending shows the following for the
description of the most significant activities in part I - Summary: Help children to be successful in
our community. On Form in part the organizations
mission is omitted. The organization did not indicate any cultural or educational activities on the
Form for the year ending

      is a membership-based organization. Per the constitution/bylaws of the

organization, dated , Article IV - Membership states:
4.1 Regular Membership: Membership of this shall be
open to all by birth, marriage, and/or by
adoption.

4.2.1 Honorary Members shall consist of persons who do not meet the
conditions set forth for regular membership under 4.1, who have made
significant or in-kind contributions to the . He or she shall
not have the right to hold office.

4.3.3 All members of are also required to be members of
( ). And therefore, shall register
with and abide by the guidelines and regulations as articulated
by

4.3.5 The applicant shall then pay the current non-refundable
registration fee and dues to the , and

The following information was received by the Service from the organization in response to four
information document requests.

e is a membership-based organization and its revenues consist entirely of
membership dues/contributions. The revenue is then used to conduct social and
recreational activities with other members.

. held social/recreational events during the 20__ tax year which included a
picnic in July 20__ and a Christmas party in December 20__. No aspect of charitable,
cultural, or educational events were present. Events were advertised to members and
family members by means of a flyer for the held on July 8, 20__

° exempt activities are undocumented. Meeting minutes with a date, time and
dialogue were not provided, only generic descriptions of meetings were provided by the
organization.

e Requested information about money that was disbursed to individuals or separate entities
( ): The organization did not respond.

e Requested information pertaining to the issuance of charitable contribution receipts for
members: The organization did not respond.

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

[illegible - garbled scanned page header]
Form 886-A
(May 2017) Explanation of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

e Requested information regarding charitable work that members had done on behalf of the
organization: The organization did not respond.

LAW:

IRC Section 501(c)(3) exempts from Federal income tax corporations, and any community chest,
fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing
for public safety, literary, or educational purposes, or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the benefit of any private shareholder or
individual, no substantial part of the activities of which is carrying on propaganda, or otherwise
attempting to influence legislation and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of any candidate for
public office.

IRC Section 6001 provides that every person liable for any tax imposed by the IRC, or for the
collection thereof, shall keep adequate records as the Secretary of the Treasury or his delegate
may from time to time prescribe.

IRC Section 6033(a)(1) provides, except as provided in IRC Section 6033(a)(2), every
organization exempt from tax under Section 501(a) shall file an annual return, stating specifically
the items of gross income, receipts and disbursements, and such other information for the
purposes of carrying out the internal revenue laws. The Secretary may also prescribe by forms or
regulations the requirement of every organization to keep such records, render under oath such
statements, make such other returns, and comply with such rules and regulations as the Secretary
may from time to time prescribe.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iii) states that an organization is not organized exclusively
for one or more exempt purposes if its articles expressly empower it to carry on, otherwise than as
an insubstantial part of its activities, activities which are not in furtherance of one or more exempt
purposes, even though such organization is, by the terms of such articles, created for a purpose
that is no broader than the purposes specified in IRC Section 501(c)(3). Thus, an organization that
is empowered by its articles to engage in a manufacturing business, or to engage in the operation
of a social club does not meet the organizational test regardless of the fact that its articles may
state that such organization is created for charitable purposes within the meaning of IRC Section
501(c)(3) of the code.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(iv) states that in no case shall an organization be
considered to be organized exclusively for one or more exempt purposes, if, by the terms of its
articles, the purposes for which such organization is created are broader than the purposes
specified in IRC Section 501(c)(3). The fact that the actual operations of such an organization
have been exclusively in furtherance of one or more exempt purposes shall not be sufficient to
permit the organization to meet the organizational test. Similarly, such an organization will not

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

[illegible - garbled scanned page header]
Form 886-A
(May 2017) Explanation of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

meet the organizational test as a result of statements or other evidence that the members thereof
intend to operate only in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.6001-1(c) states that in addition to such permanent books and records as
are required by paragraph (a) of this section with respect to the tax imposed by section 511 on
unrelated business income of certain exempt organizations, every organization exempt from tax
under section 501(a) shall keep such permanent books of account or records, including
inventories, as are sufficient to show specifically the items of gross income, receipts and
disbursements. Such organizations shall also keep such books and records as are required to
substantiate the information required by section 6033. See section 6033 and
Sections 1.6033-1 through -3.

Treas. Reg. Section 1.6001-1(e) states that the books or records required by this section shall be
kept at all times available for inspection by authorized Internal Revenue Service officers or
employees, and shall be retained as long as the contents thereof may be material in the
administration of any Internal Revenue law.

TAXPAYER'S POSITION:
The taxpayer's position is unknown at this time.

GOVERNMENT'S POSITION:

      has failed to provide documentation to meet the operational test for an IRC Section

501(c)(3) organization for the tax year ending . In order to meet the
operational test, must show that their primary activities accomplish one or more of such
exempt purposes specified in IRC Section 501(c)(3). The Service determined that hasn't
met the operational test, and more than an insubstantial part of its activities are not in furtherance
of an exempt purpose.

As evidence of their failure to operate for exempt purposes, the originally filed Form for tax
year ending does not state their exempt purpose or describe their activities in
Part III. The subsequent year returns also do not show any exempt purpose activities. Most of the
activities that engaged in were social and recreational in nature, none of which were
consistent with IRC Section 501(c)(3). did not provide substantiation for any other
activities that are consistent with an IRC Section 501(c)(3) exempt purpose.

      did not perform exempt purpose activities since 20__, which is required for an IRC

Section 501(c)(3) organization to keep their tax-exempt status. Accordingly, we are proposing
revocation because they do not operate for exempt purposes.

      has failed to provide records as is required in IRC Section 6033(a)(1) and Treas. Reg.

Section 1.6033-1(h)(2). They failed to provide organizational and financial information that we
requested during the examination numerous times by mail, e-mail, and phone.

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) Explanation of Items

Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended
The Service could not verify that operated according to their exempt purpose due to the
lack of documentation that was received from the organization.

In accordance with the above cited provisions of the Code and Regulations under IRC Section
6001 and 6033, organizations recognized as exempt from federal income tax must meet certain
reporting requirements. These requirements relate to the filing of a complete and accurate annual
information (and other required federal tax forms) and the retention of records sufficient to
determine whether such entity is operated for the purposes for which it was granted tax-exempt
status.

CONCLUSION:

By not complying with the Code and Regulations, has jeopardized its exempt status.
They have also failed to provide required documentation, thereby failing to be compliant with the
Code, and failing to show any evidence of exempt activities. is not operating for exempt
purposes.

As a result of the examination, the Service has determined that is not operating for
exempt purposes as an IRC Section 501(c)(3) organization. They have not provided any
information to the Service substantiating for exempt activities. Since failed to operate
primarily for exempt purposes, their tax-exempt status is revoked effective January 1, 20__.

Since will no longer have tax-exempt status beginning January 1, 20___, they are liable
for filing Form 1120, U.S. Corporation Income Tax Return, as of

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