Horse competition organization denied charitable status

Plain-English summary

An organization applied for section 501(c)(3) status to promote the breeding, development, training, and competition of purpose-bred event horses. It planned to collect entry fees, publicize contestants and breeders, and distribute most of its expenses as competition awards and prizes. The IRS found that its primary activities promoted equestrian sport and the market interests of breeders, trainers, handlers, and contestants rather than an exclusively charitable or educational purpose. It therefore failed the operational test, served private interests more than incidentally, and had a substantial non-exempt purpose. The organization did not protest the proposed denial within 30 days, so the IRS made the adverse determination final.

Ruling snapshot

• Question: Did the horse competition and promotion organization qualify for exemption under section 501(c)(3)?
• Outcome: Denied because its activities substantially furthered private and non-exempt purposes
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 71-421; American Kennel Club, Inc. v. Hoey; Ann Arbor Dog Training Club, Inc. v. Commissioner

Full text (IRS public release)

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

Date:
07/10/2023

Employer ID number:

Tax years:
All
Release Number: 202340020 Person to contact:
Release Date: 10/6/2023
UIL Code: 501.01-00,
501.03-00, 501.33-00

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
Cincinnati, OH 45201
Date: May 8, 2023

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = date 501.01-00
C = state 501.03-00
D = number 501.33-00
E = event 1
F = organization 1
G = event 2

H = organization 2

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 were incorporated on B, in C. 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 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 IRC Section 501(c)(3).

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

2

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

* 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 the above
attestations.

You stated your mission is to promote the breeding, development and training of the US purpose bred event
horses through a financial reward based on competition results. You will develop a market for purpose
bred/produced event horses through media exposure and publicity, to develop and promote a pool of
professionals who are willing and able to develop the young event horse to the top level of the sport, to develop
and align a network of breeders, trainers, and riders to the pool of young horse talent in the US, to engage the
general public into the world of young horses and young event horse training, to develop a fan base for young
horses and young horse trainers.

Your Articles of Incorporation state you are formed to (1) promote event bred sport horses through equestrian
sports competition on the local, state, and national levels (2) conduct and hold agricultural expositions or
exhibitions including horse, pony, breeding shows, races and performance competitions (3) conduct and hold
forums, seminars and educational clinics and conferences on matters related to horse and pony productions,
training, exhibitions, marketing, performance and health (4) provide a means of promoting and fund other
501(c)(3) organizations, including but not limited to: entities conducting scientific research on human or equine
diseases or injuries, entities created to assist in the preservation of natural resources, wildlife habitat or
endangered species, and any other worthy charitable cause (5) participate in, conduct, and investigate all fund
raising opportunities (6) support and subscribe to any charitable or public intuition, organization, or club that
may be for the benefit of the corporation; or to organize or to assist in organizing such institutions,
organizations, or clubs if it shall be deemed necessary or beneficial to the corporation (7) do everything
permitted by law and suitable or proper for the accomplishment of any of the purposes herein set forth.

The eligibility requirements for your events are as follows: completion of an application, open to D years old
horses eligible for the E, US purpose bred only, age verification with application, commitment of riders/trainers
to provide bi-monthly training update in the form of a vlog, horse and rider compete as a team and be registered
with the F, must be eligible and complete the requirements for the G championships and participate in the
championships to be considered for the final award, must satisfy all H requirements, and must sign a hold

harmless agreement.

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

To enter the event applicants must submit an application form and fee. Your social media page will post each
contestant bi-monthly. The social media page will develop a dialog on assessment of pedigrees, training of
young horses with transparency, typical setbacks, etc., so allowing those not familiar with young horses to
understand the patience and skill required. This could include a focus on breeding, with the breeders to
contribute information, or will show groundwork or the starting of the horse under saddle, so as to expose the
public to how young horses are started. If applicants do not post for two consecutive months, they will be
eliminated from the program.

Awards will be presented at the E. The money that was collected will be distributed in the following manner
after expenses are met. % to the breeder of highest scoring contestant, % to the highest scoring contestant,
% to second place, % to third place, % to fourth place, and ribbons to the top          entrants. An award will
also be given to the winner of a drawing from all of those who correctly picked the highest scoring horse in a
polling the week before the championships. Your income is from participant futurity entries; approximately
% of your expenses go towards awards/prizes.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, in order to be exempt as an organization 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(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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not operated exclusively for one or
more exempt purposes unless it serves a public rather than a private interest. It must not be operated for the
benefit of designated individuals or the persons who created it.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and
distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen
neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The
term “charitable” also includes lessening of the burdens of government.

Revenue Ruling 71-421, 1971-2 CB 229, held that a dog club exempt under IRC Section 501(c)(7) formed to
promote the ownership and training of purebred dogs and conduct obedience training classes may not be

reclassified for exemption under Section 501(c)(3). Beyond the obedience course, members are encouraged to
continue the training of their dogs in sporting and show events. “While the owner receives some instruction in
how to give commands to his dog, it is the dog that is the primary object of the training. The dog is also the

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

4

primary object of the subsequent training in sporting and show events.” Therefore, the organization's training
program for dogs is not within the meaning of educational as defined in the regulations.

In American Kennel Club, Inc. v. Hoey, 148 F.2d 920 (1945), the court held that the taxpayer wasn’t exempt
from federal taxation under the predecessor to IRC Section 501(c)(3) because regulating the sport of dog shows
and field doesn’t further charitable, educational, or scientific purposes. The corporation was formed to adopt
and enforce uniform rules regulating and governing dog shows and field trials, to regulate the conduct of
persons interested in exhibiting, running, breeding, registering, purchasing and selling dogs, to detect, prevent
and punish frauds in connection therewith, to protect the interests of its members, to maintain and publish an
official stud book and an official kennel gazette, and generally to do everything to advance the study, breeding,
exhibiting, running and maintenance of the purity of thoroughbred dogs. The taxpayer's membership was found
to be primarily interested in sport.

In Ann Arbor Dog Training Club, Inc. v. Commissioner, 74 T.C. 207 (1980), the court held that the taxpayer
wasn’t exempt from federal taxation under IRC Section 501(c)(3) because the training of dogs was a substantial
purpose of the taxpayer, wasn’t incidental to the taxpayer's achieving its alleged educational purpose of training
the individual, and wasn’t an educational purpose as described in the code.

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
IRC Section 501(c)(3). You do not meet the operational test under IRC Section 501(c)(3) because you are not
operating exclusively for charitable purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). You are
formed to promote the breeding and training of horses through a financial reward based on competition results.
While the prevention of cruelty to animals may be an exempt purpose you are instead primarily formed to
promote sport horse competitions. As provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2), you have not
established that your operations accomplish exclusively charitable purposes.

You do not meet the requirements of Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you serve private
interests, namely, the business interests of the breeders of the horses, more than incidentally. In addition to
promoting the horses through the competition you are developing a market for them through media exposure.
You are promoting the breeders and trainers of these horses and this pool of professionals. The provision of
these services is not providing any benefit to a charitable class described in Treas. Reg. Section 1.501(c)(3)-
1(d)(2) but is instead benefitting private individuals.

You are similar to the organizations in Revenue Ruling 71-421 and Ann Arbor Dog Training. You are formed
to support the development, breeding and training of event horses. Similar to the dog club, you promote the
participation of these horses in competitive shows and exhibitions. While you offer some education on horses,
and owners are educated through your website and events, your primary purpose is not educational but to
promote breeding and market these horses and their handlers. Further, while breeders or handlers are being
educated your focus is the promotion and training of horses, not the individual.

You are similar to American Kennel Club, Inc. because you are regulating and promoting equestrian sports
competitions. Similar to the organization in the court case you have adopted rules for eligibility and
participants, market participants for media exposure, are aimed at developing and promoting breeding and
generally advance the sport. That activity doesn’t further charitable, educational or scientific purposes.

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

5

Substantial promotion of equestrian sport for competition prizes does not exclusively further exempt purposes
under IRC Section 501(c)(3).

Conclusion

We have determined that you do not meet the requirements for tax exemption under IRC Section 501(c)(3).
Your operations serve the private benefit of contestants and you are operating for a substantial non-exempt
purpose. Accordingly, you are not operated exclusively for exempt purposes.

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