Medical fundraiser denied charitable exemption

Plain-English summary

An organization formed to raise money for a designated individual's medical expenses applied for section 501(c)(3) status using Form 1023-EZ. It later acknowledged that it had no organizing document, which meant it failed the organizational test for exemption. The organization had already held a fundraiser whose proceeds paid the individual's medical and doctor bills, and it did not explain whether insiders or their relatives could receive funds. The IRS concluded that the organization served a private interest rather than a public charitable purpose and therefore also failed the operational test. Its exemption application was denied, so contributions generally were not deductible under section 170.

Ruling snapshot

• Question: Did a medical-expense fundraiser for a designated individual qualify for section 501(c)(3) exemption?
• Outcome: Denied
• Key authorities: IRC §§ 170, 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367; Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner; Better Business Bureau of Washington, D.C., Inc. v. United States

Full text (IRS public release)

Department of the Treasury                                      Date: 08/14/2023
Internal Revenue Service
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201

Employer ID number:

Form you must file:
Form 1120
Tax years:

All Years

Person to contact:

Release Number: 202345011
Release Date: 11/10/2023
UIL Code: 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
PO Box 2508

Cincinnati, OH 45201

Date: 6/20/2023

Employer ID number:

Person to contact:
Name:

ID number:
Telephone:
Fax:

Legend: UIL:

B = Date 501.03-30
C= Name 501.33-00
x dollars = Amount

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 attest that you were formed on B. 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 the 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 Section 501(c)(3).

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
Letter 4034 (Rev. 01-2021)

Catalog Number 47628K

2

* 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

In the narrative provided with Form 1023-EZ you indicate that you are formed to conduct fundraising or benefit
events to raise money for donations for medical expenses.

Detailed information was subsequently requested. You do not have an organizing document. You conducted a
benefit/fundraiser to raise money to offset medical expenses. Participants were friends, family and some
complete strangers. Approximately x dollars were raised. The funds were used for the sole purpose of paying
medical expenses and doctor office bills. You did not provide an answer as to whether board members, their
relatives, or members of the committee who select your recipients are eligible to receive funds. Information
obtained from the internet that was sent to you indicates that your fundraiser was help with C medical expenses.

Law

Internal Revenue Code (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(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization:

(a) Limit the purposes of such organization to one or more exempt purposes; and
(b) Do not expressly empower the organization to engage, otherwise than as an insubstantial part of its
activities, in activities that in themselves are not in furtherance of 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 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.

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

Rev. Rul. 67-367, 1967-2 C.B. 188, describes a nonprofit organization whose sole activity was the operation of
a ‘scholarship’ plan for making payments to pre-selected, specifically named individuals. The organization did
not qualify for exemption from federal income tax under IRC Section 501(c)(3) because it was serving private
rather than public or charitable interests.

In Wendy L. Parker Rehabilitation Foundation, Inc. v. Commissioner, T.C. Memo 1986-348 (1986), the
organization was created by the Parker family to aid an open-ended class of "victims of coma." However, the
organization stated that it anticipated spending 30 percent of its income for the benefit of Wendy Parker,
significant contributions were made to the organization by the Parker family, and the Parker family controlled
the organization. Wendy Parker's selection as a substantial recipient of funds substantially benefited the Parker
family by assisting with the economic burden of caring for her. The benefit did not flow primarily to the general
public as required under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Therefore, the Foundation was not exempt
from federal income tax under Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (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.

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

You do not meet the organizational test described in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) because you do
not have an organizing document.

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 raise funds for the benefit of
a pre-selected individual. You are not described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because you
operate for private rather than public interests.

You are like the organization described in Revenue Ruling 67-367 because you serve private interests rather
than public or charitable interests. You operate to benefit a pre-selected individual.

Like the organization described in Wendy L. Parker Rehabilitation Foundation, Inc., your benefits do not flow
primarily to the general public. You were formed specifically to benefit a pre-selected individual. Therefore,
you do not qualify for exemption under Section 501(c)(3) of the Code.

Like the organization in Better Business Bureau of Washington, D.C., Inc. v. United States. you have a

substantial non-exempt purpose. You raise funds for the benefit of a pre-selected individual.

Conclusion

Based on the information submitted, you are not organized or operated exclusively for exempt purposes. You do
not have an organizing document and are not operated for a public purpose. You are operated for the private
interest of a designated individual. Therefore, you do not qualify for exemption under IRC section 501(c)(3).

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

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:

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

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

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