IRS revokes a members' club's 501(c)(3) status because its activities were primarily social and recreational

Plain-English summary

The IRS revoked the 501(c)(3) exemption of a members' club that had been organized around promoting a standard and educating people about care requirements (its articles simply say it operates "as a non-profit group"). On examination, the IRS found that the club's primary activities were social in nature, letting individuals join together to provide themselves recreation on a mutual basis, rather than operating exclusively for educational or other exempt purposes. To keep a 501(c)(3) exemption an organization must pass the "operational test," meaning it must engage primarily in activities that accomplish an exempt purpose. Citing Rev. Rul. 58-617 (an exemption holds only so long as there is no material change in the organization's character, purposes, or methods of operation), the IRS concluded the club had been conducting activities inconsistent with 501(c)(3) purposes and failed the operational test. The exemption was revoked, contributions are no longer deductible under § 170, and the organization was told it would need to file a Form 1024 to be recognized under § 501(a) (the path a social club takes). The lesson: a club that functions mostly as a members' recreational or social group does not qualify as a 501(c)(3) charity, even if its founding documents mention education.

Ruling snapshot

• Question: Does a members' club operate exclusively for exempt purposes under IRC § 501(c)(3) when its primary activities are social and recreational for its members?
• Outcome: Revoked for failing the operational test (final determination; 90 days to seek declaratory judgment under IRC § 7428); may seek recognition under § 501(a) via Form 1024
• 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.)

Internal Revenue Service
Tax Exempt and Government Entities
IRS Exempt Organizations Examinations

Department of the Treasury                    Date: March 3, 2023

                                             Taxpayer ID number (last 4 digits):
                                             Form:
                                             Tax periods ended:
Release Number: 202321008
Release Date: 5/12/2023                       Person to contact:
                                             Name:
UIL Code: 501.03-00                           ID number:
                                             Telephone:
                                             Fax:
Last day to file petition with United States
Tax Court:

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). Your primary activities are social in nature, allowing
individuals to join together to provide themselves recreation on a mutual basis. As such, you failed to meet the
operational requirements of IRC Section 501(c)(3) and Treasury Regulations Section 1.501(c)(3)-1(a).

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.

Enclosures:
This letter
Publication 1
Publication 594
Publication 892

[illegible signature]
Director, Exempt Organizations Examinations

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


Department of the Treasury                    Date: June 7, 2022
Internal Revenue Service                      Taxpayer ID number:
IRS Tax Exempt and Government Entities

                                             Form:
                                             Tax periods ended:

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

                                             Manager's contact information:
                                             Name:
                                             ID number:
                                             Telephone:

                                             Response due date:
                                             July 7, 2022

CERTIFIED MAIL - Return Receipt Requested
Dear

Why you're receiving this letter

We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we
propose to revoke your tax-exempt status as an organization described in Internal Revenue Code
(IRC) Section 501(c)(3).

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.

After we issue the final adverse determination letter, we'll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

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.

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


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.

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.

For 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).

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


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

Sincerely,
Digitally signed by Eli N. Munoz   Date: 2022.06.07 13:58:50
for Lynn A. Brinkley
Acting Director, Exempt Organizations

Enclosures:
Form 886-A
Form 6018
Pub 892
Pub 3498

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


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

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

ISSUE:
Whether . operates exclusively for educational purposes?
Whether the tax-exempt status of . should be revoked,
because it does not meet the operational requirements for exemption under Section
501(c)(3) of the Internal Revenue Code?

FACTS:

. was incorporated under the laws of the
as a non-profit corporation on , for the purpose of the following:

Articles of Incorporation
Article III Purpose
The purpose for which the corporation is organized is: The Club is to operate as a
non-profit group.

Constitution (Updated )
Article I — Name and Objectives
Section 2. The objectives of the Club shall be:

* To do all possible to bring the natural qualities of
* To urge members to accept the standard of as the only standard
* To do all in its power to protect and advance the interests
* To conduct under the rules
* To educate regarding specific care requirements
* To provide education on a community basis
* Educate regarding care

On . was recognized to be exempt from
federal income tax as an organization described in IRC Section 501(c)(3).

During telephone discussion on , the organization's representative stated
history of the organization.

It appears . initially filed a Form 1023-EZ to be recognized
as an exempt organization under 501(c)(3) on ,
. was recognized by the Service as a 501(c)(3) on . A Form
1024 signed on , and postmarked , to be recognized as
an exempt organization under 501(a) was received by the Service from
. on . There were no other records (i.e. Final
Determination Letter) regarding the filing of the Form 1024.

LAW:

IRC § 501(c)(3) exempts from federal income tax organizations which are organized
and operated exclusively for religious, charitable, scientific, testing for public safety,
literary, or educational purposes, or to foster national or international amateur sports
competition (but only if no part of its activities involve the provision of athletic facilities
or equipment), 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 (except as otherwise provided in subsection (h)),
and which does not participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of (or in opposition to)
any candidate for public office.

Tax Reg. § 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 Reg. § 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 Reg. § 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.

TAXPAYER'S POSITION:

Unknown

GOVERNMENT'S POSITION AND CONCLUSION:

As demonstrated in Rev. Rul. 58-617, an organization's exempt status will remain in
effect 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. In
the case of . the organization has been conducting
activities that are not in accordance with the exempt purposes specified in section
501(c)(3). As such, . fails to meet the operational
requirements to continue its exemption status under IRC 501(c)(3). Therefore, the
effective revocation date will be .

. would need to file a Form 1024 in order to be recognized
as an exempt organization under 501(a).

If you agree to this conclusion, please sign the attached Forms.

If you disagree, please submit a statement of your position.

Form 886-A (Rev. 4-68)   Department of the Treasury - Internal Revenue Service