IRS denies 501(c)(3) charity status to a recreational soccer-league organization

Plain-English summary

An organization that runs youth and adult soccer leagues, already tax-exempt as
a 501(c)(7) social club, applied to be recognized as a 501(c)(3) charity, a
status that would let donors deduct their gifts. The IRS denied the application.
The sticking point was the operational test: although the youth programs and
some instruction have educational value, a substantial share of the group's
activity is running adult recreational soccer leagues and tournaments, which
serves a social and recreational purpose rather than a charitable or educational
one. Under the Supreme Court's rule in Better Business Bureau v. United States, a
single substantial non-charitable purpose defeats exemption no matter how many
exempt purposes also exist. The group also does not count as a "qualified
amateur sports organization" under section 501(j)(2), because it does not foster
national or international competition. Because the organization did not protest
the proposed denial within 30 days, the denial became final. Its 501(c)(7)
status stays in effect, but contributions to it are not deductible under section
170.

Ruling snapshot

• Question: Does an organization operating youth and adult recreational soccer leagues qualify for exemption under section 501(c)(3)?
• Outcome: Denied (final adverse determination)
• Key authorities: IRC § 501(c)(3); IRC § 501(j)(2); Treas. Reg. § 1.501(c)(3)-1; Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945); Rev. Rul. 70-4; Rev. Rul. 77-365; Rev. Rul. 80-215

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 04/17/2023
Tax Exempt and Government Entities Employer ID number:

IRS Box 2508
Cincinnati, OH 45201

Form you must file:

Number: 202328021 Tax years:
Release Date: 7/14/2023

Person to contact:

UIL: 501.03-00, 501.03-19

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

We sent a copy of this letter to your representative as indicated in your power of attorney.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 437

Redacted Letter 4034
Redacted Letter 4038

cc:

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


Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: February 13, 2023

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = Date 501.03-00
C = Date 501.03-19
D = State
E = Number range
F = Number

r percent = Number
s percent = Number

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 are currently exempt under IRC Section 501(c)(7). You submitted the Form 1023 on B to request
exemption under Section 501(c)(3). You were formed as a corporation on C under the state law of D. Your
purpose in your Articles of Incorporation is to assist youth and adults to learn to play soccer, understand
sportsmanship, increase health and fitness, develop strong character traits, and enhance individual dignity. The
Articles of Incorporation further state that you will hold classes, practices, games and league tournaments with
coaches and sports trainers to develop soccer skills and further the quality of life of participants, improve
health and fitness and become better prepared to participate in society. They also state you are organized
exclusively for charitable purposes.

Your specific activities consist of conducting both youth and adult soccer leagues. You stated that the goal of
the youth leagues which is for ages in the range of E will not only to play the game of soccer but to learn
athletic skills, soccer rules, sportsmanship, cooperation, health and fitness and make friendships. Approximately
r percent of your participants are involved in the youth soccer leagues. You explained that participants in the
youth leagues will be required to attend two practices per week and play games on or . The

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

2

goal of the adult soccer leagues which are for those over the age of F is to teach soccer athletic techniques,
skills, rules, sportsmanship, cooperation and leadership necessary to participate in team and league soccer
games and tournaments that you conduct. You further stated that another goal of the adult program is that as
adults play, their children, family and friends will observe and may also get involved in soccer activities geared
to their age group. Approximately s percent of your participants will be adults.

The only requirements to participate in your adult soccer program is that the individual must be a member in
good standing; must be over the age of F; and must have shin guards and cleats. You indicated that you will
advertise via social media, printed flyers, and word of mouth by adults already participating in the program. As
such, your target audience consists of all interested adults, and once the above-mentioned requirements are met,
any adult can play in the league.

Your activities will be funded by participants’ registration fees. Your expenses include salaries, occupancy
expenses, soccer supplies, trophies, uniforms, and soccer-supervisors.

You further stated that you have not in the past fostered national or international sports competitions or sports
programs, nor do you plan in the future to foster national or international sports competitions or sports
programs.

Law

IRC Section 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 to foster national or international amateur sports competition, or for the
prevention of cruelty to children or animals.” No part of the net earnings may inure to the benefit of any private
shareholder or individual.

IRC Section 501(j)(2) defines a "qualified amateur sports organization” as an organization organized and
operated exclusively to foster national or international amateur sports competition if it is also organized and
operated primarily to conduct or to support and develop amateur athletes for national or international
competition in sports.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that, in order for an organization to be exempt under
IRC Section 501(c)(3), it 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 or operational test, it is not
exempt.

39

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 such
exempt purposes specified in 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)(3) defines “educational” as instruction or training of the individual for the
purpose of improving or developing his capabilities and/or the instruction of the public on subjects useful to the
individual and beneficial to the community.

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

3

Rev. Rul. 70-4 1970-1 C.B. 126 held that an organization was formed for the stated purposes of promoting the
health of the general public by encouraging all persons to improve their physical condition and of fostering by
educational means public interest in a particular sport for amateurs. The organization engaged in promoting and
regulating a sport for amateurs is not exempt under Section 501(c)(3) but is exempt under Section 501(c)(4).

Rev. Rul. 77-365, 1977-2 C.B. 192, held an otherwise qualifying nonprofit organization that conducts clinics,
workshops, lessons, and seminars at municipal parks and recreational areas to instruct and educate individuals in a
particular sport is operated exclusively for educational purposes and qualifies for exemption. The instant
organization's instruction program was open to anyone in the community for a nominal fee. The organization
did not establish rules, set standards for equipment, or sponsor league competition for the sport in which it
provided instruction. No compensation was paid to its directors or officers, and instructional activity was
performed by volunteers without pay. The organization's income is used principally for the purchase of
equipment necessary for the sport. Any difference between income and expenses is made up by contributions
from interested members of the community.

Rev. Rul. 80-215, 1980-2 C.B. 174 held that an organization formed to develop, promote, and regulate a sport
for individuals under 18 years of age by organizing local and statewide competitions, promulgating rules,
organizing officials, presenting seminars, distributing a newsletter and otherwise encouraging growth of the
sport qualified for exemption under IRC 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.

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). 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.

Application of law
You are not described under IRC Section 501(c)(3) or Treas. Reg. Section 1.501(c)(3)-1 (a)(1) because you fail
the operational test.

You do not meet the provisions in Treas. Reg. Section 1.501(c)(3)-1(c)(1). Although some of your activities for
adults may have an educational component and you operate numerous youth programs, you organize and run
adult soccer leagues and conduct adult soccer tournaments. You also explained s percent of the participants in
your soccer leagues are over the age of F. This shows you have a nonexempt recreational and social purpose
which is substantial in nature and precludes exemption under IRC Section 501(c)(3).

You are not a qualified amateur sports organization, as defined in IRC Section 501(j)(2) because you do not
foster national or international amateur sports competition or support and develop amateur athletes for national
or international competition in sports. Rather, you are organized and operated to offer to persons of all ages an
opportunity to both learn and play soccer.

You are like the organization described in Rev. Rul. 70-4 that failed to qualify under IRC Section

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

4

501(c)(3). You are organizing soccer leagues for individuals of all ages of which s percent of the participants
are over the age of F. This is conducted in a manner that neither exclusively improves nor develops the
capabilities of individuals within the meaning of Treas. Reg. Section 1.501(c)(3)-1(d)(3). You are also not
exclusively engaged in the instruction of the public on subjects useful to the individual and beneficial to the
community within the meaning of the regulations.

You are not like the organization described in Rev. Rul. 77-365 that was granted exemption under IRC Section
501(c)(3). Although you do provide some soccer instruction to adults and children, you also offer numerous
recreational and social opportunities for adults to play soccer. This precludes exemption under IRC Section
501(c)(3). Further, you are not like the organization described in Rev. Rul. 80-215 because your programs are
opened to all ages rather than limited to those under the age of F.

Similar to the court case St Louis, while adults may receive some soccer instruction and you offer youth
programs, the recreational and social purposes of your adult soccer programs, outweigh any IRC Section
501(c)(3) purpose. As stated above, while you do conduct some activities and serve purposes that are exempt
under Section 501(c)(3) you also serve more than insubstantial purposes that do not qualify under Section
501(c)(3). You are like the organization described in Better Business Bureau. Although you may have some
educational and charitable purposes, you are operated for substantial nonexempt social and recreational
purposes. The presence of these substantial non-exempt purposes prevents exemption under Section 501(c)(3).

Conclusion

Based on the facts and information submitted, you fail the operational test. You are not operated exclusively for
exempt purposes as set forth in IRC Section 501(c)(3), and have more than an insubstantial amount of social
and recreational activities. Accordingly, you do not qualify for exemption under IRC Section 501(c)(3) and you
must file federal income tax returns. Contributions to you are not deductible under Section 170.

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.

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


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.

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.

We sent a copy of this letter to your representative as indicated in your power of attorney.

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

Your exemption under IRC Section 501(c)(7) remains in effect.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

ce:

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