Independent strike fund denied labor-organization exemption

Plain-English summary

An organization sought exemption under section 501(c)(5) so it could operate a national strike fund for workers who lacked access to other strike funds. It planned to raise donations digitally and distribute money to striking workers, but the recipients would not be members or dues payers. The organization had only one director and member, was not created or controlled by a labor union, had no stated union affiliation, and had no authority to represent workers on wages, hours, or employment conditions. The IRS distinguished an exempt strike fund created and controlled by a union from a nonexempt private organization that merely paid benefits during strikes. It concluded that this organization was not a labor organization in the commonly accepted sense and denied exemption under section 501(c)(5). The denial became final when the organization did not protest within 30 days.

Ruling snapshot

• Question: Does an independently controlled, donation-funded strike fund qualify as a labor organization under section 501(c)(5)?
• Outcome: Denied
• Key authorities: IRC §§ 501(a), 501(c)(5), 7428(b)(2); Rev. Rul. 67-7; Rev. Rul. 76-420

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 09/20/2023

Tax Exempt and Government Entities
IRS PO Box 2508 Employer ID number:
Cincinnati, OH 45201

Tax years:
All

Person to contact:

Release Number: 202350016
Release Date: 12/15/2023
UIL Code: 501.05-00

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)(5). 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.

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.

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
IRS PO Box 2508

Cincinnati, OH 45201

Date:
July 24, 2023
Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B = date 501.05-00
C = state
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)(5).
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)(5)? No, for the reasons stated below.

Facts

You attested you were incorporated on B in C. You indicated a membership of only your board of directors of
which there is only one director. You do not have Bylaws or a conflict of interest policy. You did not provide
details on how you select this director or how you set compensation. Your organizing document, the Articles of
Incorporation, lists only one trustee and incorporator.

Your purpose is to better the conditions of workers by providing a national strike fund for workers on strike,
enabling them to stay on strike longer and improve their working conditions. You will not receive payment or
dues from workers who might receive funds. Rather, you are funded through digital fundraising and donations
from grassroot activists. You will disburse funds to workers with the objective of bettering the conditions of
those workers who otherwise would not have a strike fund available. You are not formed through collective
bargaining nor have you indicated any affiliation to a particular union or membership. You will not perform
services for members, as workers who might receive funding are not your members.

Law

IRC Section 501(c)(5) provides that labor organizations entitled to exemption from Federal income taxation are
those which (1) have no net earnings inuring to the benefit of any member, and (2) have as their objects the
betterment of the conditions of those engaged in such pursuits, the improvement of the grade of their products,
and the development of a higher degree of efficiency in their respective occupations.

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

2

Rev. Rul. 67-7, 1967-1 C.B. 137, an organization established by a labor union to provide strike and lockout
benefits to its members may be exempt from federal income tax as a labor organization under IRC Section
501(c)(5). The organization was formed to provide financial assistance to members of a labor union who are
involved in strikes or lockouts. It is controlled by the executive board of the union. Funds are derived from dues
paid by members and disbursements are made to pay benefits to members on strike or lockout. Benefits are
directed to furthering a labor union's primary purpose of representing its members. The payment of such
benefits to members is a proper activity of a labor organization. An organization engaged in activities
appropriate to an exempt labor union may itself qualify for exemption under Section 501(c)(5).

Rev. Rul. 76-420, 1976-2 C.B. 153, an organization, controlled by private individuals, that provides weekly
income to its members in the event of a lawful strike by the member's labor union in return for an annual
payment by the member does not qualify for exemption as a labor organization under IRC Section 501(c)(5).
Because the organization has no authority to represent or speak for its members in matters relating to their
employment, such as wages, hours of labor, working conditions, or economic benefits, it is not a ‘labor
organization' in the commonly accepted sense of that term as it is used in Section 501(c)(5). The organization is
not controlled by or connected with any of the labor organizations to which its members belong. It does not
directly support the efforts of any labor organization to better employment conditions.

Application of law

IRC Section 501(c)(5) provides that labor organizations entitled to exemption from federal income tax are those
which have as their objects the betterment of the conditions of those engaged in such pursuits. Your sole
activity is to provide funds to workers that are on strike. As seen in Revenue Ruling 67-7, the provision of funds
to members on strike may be a qualifying activity exempt under Section 501(c)(5). In that ruling, however, the
organization was established by a labor union and was formed to provide benefits to dues paying members of
that union. Benefits in that case further a specific labor union’s cause. You have not indicated an association to
any particular labor union. You have one director, also your only member, that controls operations. You are not
considered a labor union because you are not controlled by a labor union and don’t have a direct involvement
with bettering working conditions for members.

In Revenue Ruling 76-420 an organization, controlled by private individuals, that provided weekly income to
members during a strike by the member's labor union in return for an annual payment by the member, did not
qualify for exemption under IRC Section 501(c)(5). Similar to that organization, you are controlled by private
individuals, provide weekly income to striking workers, and have no authority to represent labor union
members. You have not indicated any connection with or control by any particular labor organization or union.
You do not directly support the efforts of any labor organization to better employment conditions and are not a
labor organization in the commonly accepted sense of that term as it is used in Section 501(c)(5).

Conclusion
You do not qualify for exemption under IRC Section 501(c)(5) because you are not considered a labor
organization. Your strike fund is not controlled by a labor union but rather a single director and hold funds to
provide health benefits to employees.

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.

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

3

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

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.

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

4

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