IRS denies 501(c)(3) status to a foreign political party organization

Plain-English summary

An organization applied to be recognized as a tax-exempt charity under Section 501(c)(3). Its own articles of incorporation described it as a political party, and its stated aims were to build and operate as a political party in a foreign country, mobilize U.S. public opinion around a crisis there, establish laws and a constitution, and support one nationality's cause. The IRS denied the exemption on two independent grounds. First, it fails the "organizational test": the articles do not limit its purposes to exempt (charitable/educational) ones and say nothing about dedicating assets to charity on dissolution. Second, it fails the "operational test" because it is an "action" organization, both because a substantial part of its activities is trying to influence legislation (establishing laws abroad) and because it will operate as a political party that intervenes in political campaigns. The IRS distinguished a revenue ruling allowing exemption for balanced public forums and cited the Supreme Court's rule that a single substantial non-exempt purpose defeats exemption. This is the final adverse determination; it became final because no protest was filed within 30 days. It reproduces both the final letter (Letter 4038) and the proposed adverse letter (Letter 4034).

Ruling snapshot

• Question: Does an organization formed to establish and operate a political party in a foreign country qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (final adverse determination; fails both the organizational and operational tests; is an "action" organization).
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(b), (c)(3); Rev. Rul. 66-256; Better Business Bureau v. United States, 326 U.S. 279

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 01/26/2023
Tax Exempt and Government Entities Employer ID number:
IRS PO Box 2508
Cincinnati, OH 45201

Form you must file:

Number: 202316011 Tax years:
Release Date: 4/21/2023

Person to contact:

UIL: 501.00-00, 501.03-00, 501.38-01

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
PO Box 2508
IRS Cincinnati, OH 45201
Date: December 7, 2022

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = State 501.00-00
C = Date 501.03-00
D = Country 501.38-01

E = Nationality

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 formed as a non-profit corporation in B on C. Your Articles of Incorporation state that the character
of your business is that of a political party. Otherwise, your articles are silent as to your specific purposes and
the disposition of your assets upon dissolution. You indicated on your application for exemption that your
organizing document does not meet the organizational test.

Your Bylaws state you are a "civil democratic party" based on E citizenship where the law prevails and protects
the rights of all. You will seek to win over the E people in the United States, to make their sound heard. You
will organize demonstrations to support the cause of E people. You will establish long-term political relations
between the immigrants to the United States from D and the American people. You gain public opinion and
mobilize American organizations to make the American people aware of the crisis in D. You raise funds to
support the and affected people of D through coordination with the

, and other organizations concerned with D. You establish relationships with legislators and American
decision makers at the state and federal levels.

You described your activities in your application as "partisan activity" conducted by a "group of members and
people" in D. You are funded through donations. When we asked how the activities further your exempt

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

2

purpose you said, "Not specified." In your application you indicated that you would not attempt to influence
legislation and you would not support or oppose candidates in political campaigns. However, you went on to
state that you will operate in the foreign country of D as "an E political party."

You submitted a document which describes this political party. It discusses unity, freedoms, and building
society as well as "building the state." Building the state "includes infrastructure, departments, institutions,
services, law, and placing the individual in the right place."

Your "party's goal is to support the cause politically and morally toward change in D and to support the "
people of D by collecting donations from people, charitable organizations, and civil society organizations.

The conditions of affiliation with the party include:

1. Be of E nationality.

2. He must not be convicted of a crime involving , , involved in the
   E people, or involved in

3. Should not be or and does not differentiate between the and components of the E
   people.

4. Will not violate the party's internal system and policy, and not disclose and publish documents without
   consulting.

5. In the event of non-compliance with these conditions, the member will be held accountable and
   dismissed from the party.

6. Believe in the principles and constants of the party.

You have a project where you will "work for the people as a government of law not of people or groups." The
only goal of this project "is to better the people of D safe and secure [sic] working for sovereignty on internal
affairs by securing D's security cooperating [sic] with other countries but without them interfering in internal
affairs."

You will work on the of and back to the people of D. You will establish a

to bring to . You will create job opportunities for all. You will protect and care for
women, children, and the elderly. You will also provide activities inviting E people to meet and greet. You will
contact them by phone or in person to set up a welfare program to help refugees.

There are members of your party "having to register more members" and also helping people
who can't afford to buy food or other necessities, etc. You have tried to contact legislative members, but at this
time you have not participated or intervened in any political campaigns. You are "planning to for on
the level in D next [sic] so we have not have [sic] any projections of amount of time or money
that will be spent when the time comes."

Your website includes a description of your activities and purposes, which includes, in part:

• Build a strong and by law,

• Rewrite, draft, and enact a constitution,

• Establish strict and deterrent laws for anyone who the state,
• Establish laws that support family and children, and

• Establish laws.

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

3

Your revenue at this time comes from your president's own company, but you expect you will raise money
from the public over the next years. Your expenses will be for office rent, supplies, software, equipment,
advertising, and welfare programs.

Law

IRC Section 501(c)(3) describes a corporation organized and operated exclusively for religious, charitable,
educational, and other purposes, provided that no part of its net earnings inures to the benefit of any private
shareholder or individual and which does not participate in, or intervene in, any political campaign on behalf of
(or in opposition to) any candidate for public office.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that to be 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)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization limit its purposes to one or more exempt purposes and
do not expressly empower it to engage, otherwise than as an insubstantial part, in activities which in themselves
are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) provides that an organization is not organized exclusively for one or
more exempt purposes unless its assets are dedicated to an exempt purpose. Assets will be considered dedicated
if, upon dissolution, assets would be distributed for 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 regarded as exempt if
more than an insubstantial part of its activities furthers a non-exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(c)(3)(i) states that an organization is not operated exclusively for one or more
exempt purposes if it is an "action" organization as defined in subdivisions (ii), (iii), or (iv) of this
subparagraph.

Treas. Reg. Section 1.501(c)(3)-1(c)(3)(ii) states that an organization is an "action" organization if a substantial
part of its activities is attempting to influence legislation by propaganda or otherwise. For this purpose, an
organization will be regarded as attempting to influence legislation if the organization:

(a) Contacts, or urges the public to contact, members of a legislative body for the purpose of proposing,
supporting, or opposing legislation; or
(b) Advocates the adoption or rejection of legislation.

The term legislation, as used in this subdivision, includes action by the Congress, by any State legislature, by
any local council or similar governing body, or by the public in a referendum, initiative, constitutional
amendment, or similar procedure. An organization will not fail to meet the operational test merely because it
advocates, as an insubstantial part of its activities, the adoption or rejection of legislation.

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

4

Treas. Reg. Section 1.501(c)(3)-1(c)(3)(iii) provides that an organization is an "action" organization if it
participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any
candidate for public office.

Revenue Ruling 66-256, 1966-2 C.B. 210, states that a nonprofit organization formed to conduct public forums
at which lectures and debates on social, political, and international matters are presented qualifies for exemption
from federal income tax under IRC Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court

held that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for
exemption regardless of the number or importance of truly exempt purposes. Thus, the operational test standard
prohibiting a substantial non-exempt purpose is broad enough to include inurement, private benefit, and
operations that further nonprofit goals outside of the scope of IRC Section 501(c)(3).

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, we conclude that
you fail both tests.

You do not meet the organizational test under Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) because your Articles
of Incorporation do not limit your purposes to one or more exempt purposes specified in IRC Section 501(c)(3).
Additionally, your articles are silent regarding the disposition of your assets upon your dissolution, which also
precludes exemption as described in Treas. Reg. Section 1.501(c)(3)-1(b)(4).

Although you will provide some services and care for individuals in your community, more than an
insubstantial amount of your activities furthers the purpose of creating and maintaining a political party in D.
Therefore, you are not operated exclusively for one or more exempt purposes as set forth in Treas. Reg. Section

1.501(c)(3)-1(c)(1).

You do not meet the operational test under IRC Section 501(c)(3) because you are an "action" organization, as
described in Treas. Reg. Section 1.501(c)(3)-1(c)(3)(i). As explained in Treas. Reg. Section 1.501(c)(3)-
1(c)(3)(ii), an organization is an "action" organization if a substantial part of its activities is attempting to
influence legislation by advocating for the adoption or rejection of legislation. A substantial part of your
activities includes attempting to establish laws in the foreign country of D. As further explained in Treas. Reg.
Section 1.501(c)(3)-1(c)(3)(iii), you are also disqualified from exemption under Section 501(c)(3) as an
"action" organization because you will operate as a political party in D, where you will participate in or
intervene, directly or indirectly, in a political campaign on behalf of or in opposition to any candidate for public
office.

You are dissimilar to the organization described in Rev. Rul. 66-256 because you are not conducting balanced
public forums on political or international issues. Rather, you are creating and supporting a specific foreign
political party, which will include the establishment of laws, which is a non-exempt purpose. This substantial
non-exempt purpose, as explained in Better Business Bureau of Washington, D.C., Inc., destroys your claim for
exemption regardless of the number or importance of truly exempt purposes.

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

Conclusion

Based on the above facts and analysis, you do not qualify for exemption under IRC Section 501(c)(3). You fail
both the organizational and operational tests. You fail the organizational test because your organizing document
doesn't limit your purposes to those described in Section 501(c)(3) and your assets are not dedicated to an
exempt purpose upon your dissolution. You fail the operational test because you were formed for the substantial
non-exempt purpose of establishing and promoting a political party and related legislative activities in D.
Accordingly, you are precluded from exemption under Section 501(c)(3).

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:

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

6

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