IRS revokes a members-only horse boarding club for serving private, not public, interests

Plain-English summary

The IRS revoked the 501(c)(3) exemption of an organization that runs a horse boarding facility for its own club members. The group collects dues and fees from members to cover operating costs (grounds keeping, utilities, and repairs), and members provide their own horses and clean their own stalls. The audit found that the facility mainly works to reduce costs for a restricted group of members rather than to benefit the general public; while the organization had once raised money for community events, it had not done so in years. To pass the "operational test," a 501(c)(3) must be operated to further public rather than private interests and must engage primarily in activities that accomplish an exempt purpose. Because the organization operated to serve the private interests of its members, the IRS concluded it failed the operational test and proposed revocation, and the organization agreed. Contributions are no longer deductible under § 170, the organization must file Form 1120 corporate returns going forward, and it has 90 days to seek declaratory judgment under § 7428. The lesson: a members' cost-sharing cooperative, even one built around animals, does not qualify as a charity when its main benefit flows to a closed group rather than the public.

Ruling snapshot

• Question: Does a members-only horse boarding facility that reduces costs for a restricted group qualify as operated exclusively for exempt purposes under IRC § 501(c)(3)?
• Outcome: Revoked for failing the operational test (organization agreed; final determination; 90 days to seek declaratory judgment under IRC § 7428)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d); Rev. Rul. 58-617; IRC § 170

Full text (IRS public release)

(Scanned document; OCR-proofread. Obvious scan misreads were corrected; wording is preserved verbatim. This release combines the final adverse determination (Letter 6337), the proposed revocation (Letter 3618), and the audit report (Form 886-A). Blanks where identifying details, amounts, and dates were redacted appear as gaps in the original.)

Department of the Treasury                    Date:
Internal Revenue Service                      February 23, 2023
Tax Exempt and Government Entities
                                             Taxpayer ID number (last 4 digits):
Exempt Organizations Examinations
                                             Form:
                                             Tax periods ended:
Release Number: 202321006
Release Date: 5/26/2023                       Person to contact:
UIL Code: 501.03-00                           Name:
                                             ID number:
                                             Telephone:
                                             Fax:
Last day to file petition with United States
Tax Court: May 24, 2023

CERTIFIED MAIL - Return Receipt Requested

Dear :

Why we are sending you this letter
This is a 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), effective
. Your determination letter dated , is revoked.

Our adverse determination as to your exempt status was made for the following reasons: You have not
demonstrated that you are both organized and operated exclusively for charitable, educational, or other exempt
purposes within the meaning of IRC Section 501(c)(3). To meet the operational test, an organization must be
operated to further "public" rather than "private" interests. Your organization maintains a horse boarding facility
which operates to reduce costs for a restricted number of people, not the public. Therefore, your organization
failed the operational test for an organization exempt under IRC Section 501(c)(3).

Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns
and pay tax, where applicable. For further instructions, forms and information please visit IRS.gov.

Contributions to your organization are no longer deductible under IRC Section 170.

What you must do if you disagree with this determination
If you want to contest our final determination, you have 90 days from the date this determination letter was

mailed to you to file a petition or complaint in one of the three federal courts listed below.

How to file your action for declaratory judgment
If you decide to contest this determination, you can file an action for declaratory judgment under the provisions
of Section 7428 of the Code in either:

* The United States Tax Court,
* The United States Court of Federal Claims, or
* The United States District Court for the District of Columbia

You must file a petition or complaint in one of these three courts within 90 days from the date we mailed this
determination letter to you. You can download a fillable petition or complaint form and get information about
filing at each respective court's website listed below or by contacting the Office of the Clerk of the Court at one
of the addresses below. Be sure to include a copy of this letter and any attachments and the applicable filing fee
with the petition or complaint.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E


You can eFile your completed U.S. Tax Court petition by following the instructions and user guides available
on the Tax Court website at ustaxcourt.gov/dawson.html. You will need to register for a DAWSON account to
do so. You may also file your petition at the address below:

United States Tax Court
400 Second Street, NW
Washington, DC 20217
ustaxcourt.gov

The websites of the U.S. Court of Federal Claims and the U.S. District Court for the District of Columbia contain
instructions about how to file your completed complaint electronically. You may also file your complaint at one of
the addresses below:

US Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
uscfc.uscourts.gov

US District Court for the District of Columbia
333 Constitution Avenue, NW
Washington, DC 20001
dcd.uscourts.gov

Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for
declaratory judgment under IRC Section 7428.

Information about the IRS Taxpayer Advocate Service

The IRS office whose phone number appears at the top of the notice can best address and access your tax
information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate
Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't
working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects
taxpayer rights. Contact your local Taxpayer Advocate Office at:

Internal Revenue Service

Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights,
go to taxpayeradvocate.IRS.gov. Do not send your federal court pleading to the TAS address listed above.
Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time
to file an action for declaratory judgment.

Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for

more comprehensive information.

Find tax forms or publications by visiting IRS.gov/forms or calling 800-TAX-FORM (800-829-3676). If you
have questions, you can call the person shown at the top of this letter.

If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best
time to call, and a copy of this letter.

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E

You may fax your documents to the fax number shown above, using either a fax machine or online fax service.
Protect yourself when sending digital data by understanding the fax service's privacy and security policies.

Keep the original letter for your records.

Sincerely,

Lynn A. Brinkley
Director, Exempt Organizations Examinations

Enclosures:
Publication 1
Publication 594
Publication 892

Letter 6337 (Rev. 8-2022)
Catalog Number 74808E


Department of the Treasury                    Date:
Internal Revenue Service                      06/02/2022
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:

Dear

                                             Response due date:

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 501(c)(3) 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,

Lynn A. Brinkley
Acting Director, Exempt Organizations Examinations

Enclosures:
Form 886-A
Form 6018

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


Form 886-A
(Rev. January 1994)
EXPLANATION OF ITEMS                          Schedule number or exhibit

Name of taxpayer    Tax Identification Number    Year/Period ended

Issue:
Whether , ( ), located in ,
continues to qualify for exemption under Section 501(c)(3) of the Internal Revenue Code?

Facts:

is an Exempt Organization that member's for their club members. The
members provide : their own and are responsible for cleaning their
individual

collects dues and fees from their members to run their business. The
membership includes for and visits (for and to
make sure the are free ).

also holds different events in the community, the organization uses the funds for
operating expenses for their club (grounds keeping, utilities and repairs for the facility).

In an initial conversation , stated they only raise money to fund their
for the members of . The organization once raised money for the
community, but the they used for the public events was
or years ago and hasn't had fund raising events for the community since then.

Law and Analysis

IRC 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.

Tax Regulation 1.501(c)(3)-1(d)(i) states that an organization may be exempt as an
organization described in 501(c)(3) if it is organized and operated exclusively for one or
more of the following purposes: religious, charitable, scientific, testing for public safety,
literary, educational, or prevention of cruelty to children or animals.

Tax Regulation 1.501(c)(3)-1(a)(1) of the regulations provides that in order to be exempt as
an organization described in section 501(c)(3) of the Code, the organization must be one
that is both organized and operated exclusively for one or more of the purposes specified in
that section.

Tax Regulation 1.501(c)(3)-1(c)(1) of the regulations 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
section 501(c)(3)

Revenue Ruling 58-617, 1958-2 CB 260, (Jan. 01, 1958) Rulings and determinations letters
granting exemption from federal income tax to an organization described in section 501(a) of
the Internal Revenue Code of 1954, to which contributions are deductible by donors in
computing their taxable income in the manner and to the extent provided by section 170 of the
Code, are effective only so long as there are no material changes in the character of the
organization, the purposes for which it was organized, or its methods of operation. Failure to
comply with this requirement may result in serious consequences to the organization for the
reason that the ruling or determination letter holding the organization exempt may be revoked
retroactively to the date of the changes affecting its exempt status, depending upon the
circumstances involved, and subject to the limitations on retroactivity of revocation found in
section 503 of the Code.

GOVERNMENT'S POSITION

Failure to Meet the Operational Test

The EO has failed to show us that they meet the operational test for a 501(c)(3) organization
for the year under examination. In order to meet the operational test, they must show that they
engage primarily in activities which accomplish one or more of such exempt purposes
specified in section 501(c)(3). We will not regard an organization as having met this test if
more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

We are proposing revocation because they do not operate for exempt purposes.

TAXPAYER'S POSITION
The Exempt Organization agrees with the revocation.

CONCLUSION

The EO was incorporated
and received their exemption status
The EO was originally established as a 501(c)(3).

As a result of the examination, we have determined the EO is not operating for exempt
purposes as a 501(c)(3) organization. They have not provided any information to the contrary.
Accordingly, since the organization failed to operate primarily for exempt purposes, we are
proposing revocation of their tax-exempt status, effective

does not operate for religious, charitable, scientific, testing for public safety, literary, or
educational purposes or for the prevention of cruelty to children or animals.

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

Form 886-A (1-1994)   Catalog Number 20810W   publish.no.irs.gov   Department of the Treasury-Internal Revenue Service