202313009: IRS denies exemption to social fraternity involved in political campaigning

Plain-English summary

A fraternity-like organization sought section 501(c)(3) status and described
its members as sharing democratic, freedom, and equal-justice principles tied
to a related organization in another country. Its main activities were social
gatherings celebrating American and foreign holidays. It claimed that event
donations supported charitable work, but provided no records of charitable
distributions or ongoing programs. The IRS also found an article describing the
organization's campaign activity supporting a political party's candidates in
the foreign country, and the organization initially confirmed the article
referred to it. The IRS concluded that the organizing document did not limit
the group to exempt purposes, its social activities did not establish an exempt
purpose, and its campaign activity made it an action organization. The IRS
denied exemption, and the determination became final when no timely protest was
filed.

Ruling snapshot

• Question: Did a social fraternity with unsupported charitable claims and
  political campaign activity qualify under IRC § 501(c)(3)?
• Outcome: Denied. The organization failed both the organizational and
  operational tests.
• Key authorities: IRC § 501(c)(3); Treas. Reg.
  §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(b)(1)(i),
  1.501(c)(3)-1(c)(1), and 1.501(c)(3)-1(c)(3); Rev. Rul.
  2007-41.

Full text (IRS public release)

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

Date:
01/04/2023
Employer ID number:

Form you must file:
1120

Tax years:
All

Person to contact:

Release Number: 202313009

Release Date: 3/31/2023

UIL Code: 501.31-00,

501.35-00

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)(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

IRS PO Box 2508
Cincinnati, OH 45201

Date: 11/09/2022

Employer ID number:

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

Legend: UIL:

W =Date of Incorporation 501.31-00
X = State of Incorporation 501.35-00
Y = Related Organization

Z = Related Country

x = Percent of Time Spent

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 submitted Form 1023-EZ Streamlined Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code.

You attest that you have the necessary organizing document, that your organizing document limits your
purposes to one or more exempt purposes within the meaning of the IRC Section 501(c)(3), that your organizing
document does not expressly empower you to engage in activities, other than an insubstantial part, that are not
in furtherance of one or more exempt purposes, and that your organizing document contains the dissolution
provision required under Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you
have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you
attest you will:
• Refrain from supporting or opposing candidates in political campaigns in any way
• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or
individuals

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

2

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
insubstantially

• Not be organized or operated for the primary purpose of conducting a trade or business that is not related
to your exempt purpose(s)

• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you
made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations
outlined in Section 501(h)

• Not provide commercial-type insurance as a substantial part of your activities

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.

You were formed as corporation on W in the state of X. You indicate that you are a fraternity of men & women
who believe in democracy, freedom and equal justice under law, the same values and principles espoused by the
Y in Z. Since your organizational document did not sufficiently limit your purposes or dedicate your assets to
those described in IRC Section 501(c)(3), you attested that you would amend the document to include proper
language. However, there is no evidence that any amendment was filed with X.

You indicate x% of your activities include the celebration of holidays, both American and those
commemorating the modern history of Z, such as , Independence Day and other important dates.
The events are designed to spread awareness about the specific holiday and your purpose. These events take
place at rented venues, where your members meet to share meals. The general public is welcome to attend.

You state that all your events are conducted for the sole purpose of gathering as a community and any donations
collected are used to support charitable programs. When asked to clarify and to expound on your support of
charitable programs, you state that donations gathered at your events are used toward organizing blood drives
and to provide “food and warm clothes to homeless people, providing education grants, providing religious
grants, etc.” However, you didn’t provide any evidence of funds being distributed for any charitable purposes
when asked for documentation on how you financially support those activities.

During the determination process, we located an article on the internet that discussed your involvement in
political campaigning in Z. You state in the article that “(You), a group from the are campaigning in Z to
assure the victory of the Y party candidates in the ongoing elections.” You also stated your “campaign
activities aim towards promoting the idea of democracy among the people of the society.” When asked, you
confirmed the article was indeed referring to you.

All your revenue comes from donations and contributions collected for your events. All money collected is
used to cover costs of the events and some administrative costs (office expense, accounting fees, etc.). Your
budgets show no evidence of any distributions to any charitable cause or exempt purpose. You submitted no
evidence of any ongoing charitable program or participation.

Law

IRC Section 501(c)(3) provides for the exemption from federal income tax of organizations organized and
operated exclusively for charitable or educational purposes, 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 any political campaign on behalf of or in opposition to any candidate for public office.

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

3

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

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) states that an organization is organized exclusively for one or more
exempt purposes only if its organizational document:

(a) Limits the purposes of such organization to one or more exempt purposes; and

(b) Does not expressly empower the organization to engage, otherwise than as an insubstantial part of
its activities, in activities which 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
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.

Section 1.501(c)(3)-1(c)(3)(i) of the Income Tax Regulations states that an organization is not operated
exclusively for one or more exempt purposes if it is an “action” organization.

Section 1.501(c)(3)-1(c)(3)(iii) of the regulations defines an “action” organization as an organization that
participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any
candidate for public office. The term “candidate for public office” is defined as an individual who offers
himself, or is proposed by others, as a contestant for an elective public office, whether such office be national,
State, or local. The regulations further provides that activities that constitute participation or intervention in a
political campaign on behalf of or in opposition to a candidate include, but are not limited to, the publication or
distribution of written statements or the making of oral statements on behalf of or in opposition to such a
candidate.

Rev. Rul. 2007-41, 2007-25 I.R.B. Situation 21. Church P, an IRC Section 501(c)(3) organization, maintains a
web site that includes such information as biographies of its ministers, times of services, details of community
outreach programs, and activities of members of its congregation. B, a member of the congregation of Church P,
is running for a seat on the town council. Shortly before the election, Church P posts the following message on
its web site, “Lend your support to B, your fellow parishioner, in Tuesday’s election for town council.” Church P

has intervened in a political campaign on behalf of B which is contrary to the standards of exemption under IRC
Section 501(c)(3).

In Minnesota Kingsmen Chess Association, Inc v. Commissioner, T.C. Memo. 1983-495, the organization was
formed to broaden and develop chess as art and recreation and solicit donations from the general public to conduct
chess matches and tournaments to award trophies and prizes to successful contestants. The court concluded that
while the tournaments may have provided some educational benefit, the tournaments were more recreational in
nature. Consequently, the court found the serving of recreational interests by these tournaments is a substantial

purpose for the existence of the organization, and thus fails the operational test for exemption under IRC Section
501(c)(3)

Application of law

Your organizational document doesn’t state your purpose. You describe yourself as a fraternity of people who
believe in democracy, freedom and equal justice. Your primary program is celebrating holidays. Such

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

4

celebrations appear to be social in nature and have no exempt purpose. Thus, you are not organized or operated
exclusively for any exempt purpose. [See Treas. Regs. Sections 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(b)(1)(i) and
1.501(c)(3)-1(c)(1)]

You are an “action” organization. You indicate that you will directly campaign to ensure members of a certain
political party in Z are elected to office. You confirm this is an ongoing activity. “Action” organizations are
not operated exclusively for one or more exempt purposes. Therefore, you do not meet the operational test for
exemption under IRC Section 501(c)(3). [See Treas. Regs. Sections 1.501(c)(3)-1(c)(3)(i) and 1.501(c)(3)-
1(c)(3)(iii)]

Similar to Situation 21 in Rev. Rul. 2007-41, you are intervening in a political campaign on behalf of a specific
party. This is contrary to exemption under IRC Section 501(c)(3).

You are similar to the organization described in Minnesota Kingsmen Chess Association v. Commissioner.
Your main activities are social in nature, and you have not established how these social activities and
celebrations serve a clear exempt purpose under IRC Section 501(c)(3). Although you indicate that donations
are collected at these events, you have not provided any evidence that your donations are distributed for
charitable purposes within the definition of the Section. Thus, you do not meet the operational test for
exemption under IRC Section 501(c)(3).

Your position

You submitted a written response to our determination providing additional information. You indicate you
were created to provide charity to those in need, however, any activities developed to meet these goals have
not yet begun. You further state you are formed as a fraternity of people of Z who believe in democracy,
freedom, and equal justice. You are an independent entity and not associated with any political party in Z.
You state that you are not involved in any political campaign intervention, and that if anyone associated with
you travels to Z to do so, they are doing so of their own volition and not as your representative. You further
indicate that your website will be modified to reflect your independent stance.

Our response to your position

While you indicate that you will not be involved in any political campaign intervention, you still have not
provided sufficient evidence that you now meet the organizational and operational tests for exemption under
IRC Section 501(c)(3). Your primary activities are still substantially social in nature and do not serve a clear
exempt purpose. Your organizing document does not limit your purpose to one or more purposes described in
IRC Section 501(c)(3), and you have provided no evidence that this has been adjusted.

Conclusion

Based on the information you provided, you fail both the organizational and operational test to qualify for
exemption under IRC Section 501(c)(3). Your organizing document does not limit your purpose to one or more
exempt purposes described in IRC Section 501(c)(3). Regarding the operational test, you have failed to
establish that you are operated exclusively for exempt purposes. Therefore, we cannot grant exemption under
IRC Section 501(c)(3). Donations to you are not deductible by the donor.

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

5
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.

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

6

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