Faith-based matchmaking and social-event club denied 501(c)(3) status as a commercial venture serving private interests

Plain-English summary

An organization applied to be recognized as a tax-exempt charity under Section 501(c)(3). It planned to run an exclusive faith-based social club, a paid matchmaking service where clients hire it to find partners, and community events for dues-paying members, all aimed at one religious community. The IRS denied exemption. It found the group failed the organizational test (its articles did not limit its purposes to exempt ones) and the operational test (matchmaking, social clubs, and social events are substantial non-exempt activities). The IRS also concluded the group served the private interests of its paying members rather than the general public, and that it operated like a for-profit business, competing with commercial dating and event services, setting prices commercially, and advertising. Because the organization did not protest the proposed adverse determination within 30 days, the denial became final. Contributions to it are not deductible under Section 170.

Ruling snapshot

• Question: Does a faith-based matchmaking and social-event membership club qualify for exemption under IRC § 501(c)(3)?
• Outcome: denied (organizational and operational tests both failed; commercial, private-interest activity)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), (c), (d)(1)(ii), (e); Better Business Bureau v. U.S., 326 U.S. 279 (1945); B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978); Living Faith, Inc. v. Commissioner, 950 F.2d 365 (7th Cir. 1991)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201

Date: 11/21/2022

Employer ID number:

Tax years:
All

Person to contact:

Release Number: 202307007
Release Date: 2/17/2023
UIL Code: 501.03-00, 501.03-30, 501.33-00, 501.36-00, 501.36-01

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't
deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by
sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

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

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
Cincinnati, OH 45201

Date: 09/29/2022

Employer ID number:

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

Legend:                          UIL:
B = date                         501.03-00
C = state                        501.03-30
D = city                         501.33-00
E = number                       501.36-00
F = religion                     501.36-01
G = religion
H = religious phrase
t dollars = amount 1
w dollars = amount 2
x dollars = amount 3
y dollars = amount 4
z dollars = amounts

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts
You were incorporated on B in C. Your Articles of Incorporation did not include a purpose clause and stated
that your assets will be distributed to one or more qualifying organizations described in IRC Section 501(c)(3).

You are formed to be D's first and only F community building place for events. You will provide F
events with a twist. Your hope is to provide the F community with a service to build
connections and encourage more F friendships and and to enable couples to continue and further the
traditions that G holds dear. Your mission is to facilitate F individuals for relationships-
friendships, dating, and marriage while giving back to the F community. You are based on the F concept of H.

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

2

You indicate that your industry is that of a F social club and service. You further state that your
competitors are all online services or other or events in the D and
surrounding areas. Your competitive edge is that you are the only exclusive F social event club and
service.

You intend to have three main activities:
(1) An exclusive F social club,
(2) Individual where a client hires you specifically to find their using your
database and resources
(3) Community events for your membership

You intend to have E members and charge dues for your membership. The dues follow a tiered system. Tier 1 is
t dollars for months to join, and these members pay per event at a "non-member rate". Tier 2 is w dollars for
months to join and members get each monthly event at discounted "member prices". Tier 3 is x dollars for
months to join and members get each monthly event at a discounted "member price". You also offer a Tier 4
rate of y dollars where all events are free of charge and the co-founders also more intensely hand pick
with extensive research to allow the individuals in this tier to get quicker.

Tickets for monthly events are your second source of revenue. These tickets range from z dollars (depending on
the type of event) and the membership tier. Outside of membership dues and ticket sales, you anticipate
receiving revenue from donations, sponsorships, and partnerships. Your revenues are expected to be primarily
from donors, sponsors and partnerships, followed by membership fees, events tickets, and revenue from events.
Your primary expenses are anticipated to include events, salaries, business expenses, and marketing.

Should you not meet your membership goals, your events will need to be smaller, and will cost less. If you need
to raise money, you will sell banner ad space on your website to businesses that want to promote their brand.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization described
in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more of
the purposes specified in such section. If an organization fails to meet either the organizational test or the
operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(b)(1) provides that an organization is organized exclusively for one or more
exempt purposes only if its articles of organization:
a) Limit the purposes of such organization to one or more exempt purposes; and
b) Do not expressly empower the organization to engage, otherwise than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of

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

3

such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for an exempt purpose unless it serves a public rather than a private interest. The organization must
demonstrate that it is not organized or operated for the benefit of private interests such as designated
individuals, the creator or his family, shareholders of the organization, or persons controlled directly or
indirectly by such private interests.

Treas. Reg. Section 1.501(c)(3)-1(e) provides that an organization which is organized and operated for the
primary purpose of carrying on an unrelated trade or business is not exempt under IRC Section 501(c)(3), even
though its net profits do not inure to the benefit of individual members of the organization.

Treas. Reg. Section 1.501(c)(3)-1(e)(1) provides that an organization may meet the requirements of IRC Section
501(c)(3) although it operates a trade or business as a substantial part of its activities, if the operation of such
trade or business is in furtherance of the organization's exempt purpose or purposes and if the organization is
not organized or operated for the primary purpose of carrying on an unrelated trade or business, as defined in
Section 513.

In Better Business Bureau of Washington, D.C. Inc v. U.S., 326 U.S. 279 (1945), the court held that the presence
of a single non-exempt purpose, if substantial in nature, will preclude exemption, regardless of the number or
importance of statutorily exempt purposes.

In B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978), the Tax Court determined that an organization that
sold consulting services to nonprofit and exempt organizations interested in rural-related policy and program
development operated a trade or business ordinarily carried on for profit. The burden rested on petitioner to
prove that it did not operate "a consulting business of the sort which is ordinarily carried on by commercial
ventures organized for profit." The court stated that "competition with commercial firms is strong evidence of
the predominance of nonexempt commercial purposes." Accordingly, the court determined the petitioner
"completely failed to demonstrate that its own services, or the services provided by its consultants, [were] not in
competition with commercial businesses such as personnel agencies, consulting referral services, real estate
agents, housing rental services, banks, loan companies, trash disposal firms, or environmental consulting
companies." Furthermore, the petitioner did not conduct other substantial charitable activities. Other factors that
counted against petitioner included the petitioner's financing did not resemble that of a typical IRC Section
501(c)(3) organization and that petitioner failed to limit its services to Section 501(c)(3) organizations.
Therefore, the court determined that petitioner failed to qualify for recognition under Section 501(c)(3).

In Syrang Aero Club, Inc v Commissioner, 73 T.C. 717 (1980), the court held that while an organization may
serve educational and charitable purposes, it does not exclusively operate for educational, charitable, or other
exempt purposes because it also serves a substantial recreational purpose.

In Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), it was held that if an activity serves a substantial
non-exempt purpose, the organization does not qualify for exemption even if the activity also furthers an
exempt purpose.

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

4

In St. Louis Science Fiction Limited v. Commissioner, 49 TCM 1126, 1985-162, the Tax Court held that a
science fiction society failed to qualify for tax-exempt status under Section 501(c)(3) of the Code. Although
many of the organization's functions at its annual conventions (the organization's principal activity) were
educational, its overall agenda was not exclusively educational. A substantial portion of convention affairs were
social and recreational in nature.

In Living Faith, Inc. v. Commissioner, 950 F.2d 365 (7th Cir. 1991) the court wrote that the activities were
conducted as a business and the organization was in direct competition with other restaurants and health food
stores; thus, it did not qualify for exemption under IRC Section 501(c)(3). The appellate court stated the factors
that the court relied on to find commerciality and thus offered the best contemporary explanation of the
commerciality doctrine. These factors Include:

1) The organization sold goods and services to the public.
2) The organization was in direct competition with for profit businesses.
3) The prices set by the organization were based on pricing formulas common to retail food businesses.
4) The organization utilized promotional materials and "commercial catch phrases" to enhance sales.
5) The organization advertised its services and food.
6) The organization did not receive any charitable contributions.

Application of Law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests for an organization
to be recognized as exempt. An organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3). Based on the information you provided in your application and supporting
documentation, we conclude that you fail both tests.

Your Articles of Incorporation do not limit your purposes to one or more exempt purposes. You are not
organized exclusively for an exempt purpose as described in Treas. Reg. Section 1.501(c)(3)-1(b)(1) and fail the
organizational test.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of
such exempt purposes specified in IRC Section 501(c)(3). You engage in substantial non-exempt activities
through the matchmaking, social club and social events. Although portions of these activities are intended to
further religious purposes, overall, these activities serve substantial non-exempt purposes. You therefore do not
operate exclusively for exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated
exclusively for an exempt purpose unless it serves a public rather than a private interest. Your matchmaking and
event services further the private interests of your members rather than the interests of the general public. These
matchmaking and event services provide a direct social and recreational benefit to your members, furthering
their private interests and lack the benefit to the general public typical of organizations described in IRC Section
501(c)(3).

Treas. Reg. Section 1.501(c)(3)-1(e) provides that an organization which is organized and operated for the
primary purpose of operating an unrelated trade or business is not exempt under IRC Section 501(c)(3). Treas.
Reg. Section 1.501(c)(3)-1(e)(1) also provides that an organization may be recognized as tax-exempt even

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

5

though it operates a trade or business as a substantial part of its activities if the operation of such trade or
business is in furtherance of the organization's exempt purpose or purposes. Similar to the organizations
described in B.S.W. Group, Inc. your activities are commercial in nature and directly compete with similar for-
profit businesses. While you offer health seminars the totality of your activities is more indicative of a
commercial business than that of an educational organization. Your matchmaking services are considered an
unrelated trade or business ordinarily carried on by commercial ventures since these services are not furthering
an acceptable Section 501(c)(3) exempt purpose.

Living Faith Inc., provides six factors that the courts rely on to find commerciality. Your primary activities
include operating a F social club, operating an individual service, and hosting community
events for your members. Your activities are a trade or business ordinarily carried on for profit
that presents five of these factors. You have established a business where customers pay you to find

You are operating a service that directly competes with other commercial service.
Your prices are set similarly to the pricing formulas of other services. You use promotions and
advertising, similar to that of for-profit businesses. Your sources of revenues include donations, sponsorships,
and partnerships, membership fees, and fees. Your expenses are mainly for events and salaries. A
substantial amount of your current income comes from and membership fees. Because you
conduct activities similar to a commercial business you do not meet the qualifications for exemption under IRC
Section 501(c)(3).

Similar to the organization described in Schoger Foundation, you serve substantial recreational and social
purposes for paid members. Your members participate in F events with a twist. These
events provide opportunities for your members to socialize and find potential friends or partners. There are no
apparent religious activities other than the simple fact that the members partaking are all F. These social and
recreational activities are substantial and will preclude exemption under IRC Section 501(c)(3).

You are like the organizations described in St. Louis Science Fiction Limited and Syrang Aero Club Inc.
Participants in your service could have some religious or educational benefit, but overall you
serve substantial recreational and social purposes for paid members. Because these activities further a
substantial non-exempt purpose, as described in Better Business Bureau of Washington, D.C. Inc, you do not
qualify for exemption under IRC Section 501(c)(3).

Conclusion

Based on the facts and circumstances presented, you do not qualify for exemption from federal income tax as an
organization described in IRC Section 501(c)(3). You do not meet the organizational and operational tests. You
are operated for substantial nonexempt purposes and you operate similar to commercial ventures normally
carried on for profit. You are not organized or operated exclusively for exempt purposes set forth in Section
501(c)(3) of the code.

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

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

6

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.

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

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