Classic-car club denied section 501(c)(3) status

Plain-English summary

An organization brought classic-car enthusiasts together for car shows, cruises, and social gatherings. It also planned a toy drive, shows at retirement homes, and drive-by cruises for sick and elderly people, but stated that all of its time would be spent on social activities. The IRS found that the charitable aspects were incidental and that a substantial portion of the organization's activities served social and recreational purposes. It therefore denied section 501(c)(3) status under the operational test and stated that donations were not deductible. The denial became final after the organization did not protest the proposed determination within 30 days.

Ruling snapshot

• Question: Did a classic-car club operating shows, cruises, and social events qualify as exclusively charitable under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC §§ 501(c)(3) and 501(c)(7); Treas. Reg. §§ 1.501(c)(3)-1(a)(1) and 1.501(c)(3)-1(c)(1)

Full text (IRS public release)

Department of the Treasury                                      Date:
Internal Revenue Service                                        09/25/2023
Tax Exempt and Government Entities                              Employer ID number:

IRS PO Box 2508

Cincinnati, OH 45201

                                                                Tax years:
                                                                All
                                                                Person to contact:
Release Number: 202351012
Release Date: 12/22/2023
UIL Code: 501.03-00

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: August 1, 2023

                                                               Employer ID number:

                                                               Person to contact:

                                                               Name:
                                                               ID number:
                                                               Telephone:
                                                               Fax:
Legend:                                                        UIL:
X = date                                                       501.03-00
Y = 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)(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 incorporated on X, in the state of Y. 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).

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

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• 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

Form 1023-EZ states that your mission is to bring together classic car enthusiasts and create friendships. It also
states that you will plan car cruises, attend car shows, and plan fundraisers (such as a               ) to donate to
local charities.

During review of your Form 1023-EZ, detailed information was requested supplemental to the above
attestations.

Your response states that your activities include car shows, car cruises and social gatherings. You state that
members meet as a group and attend car shows and you plan and organize your own car cruises and social
gatherings. You organize on average two car show meet ups a month and eight car cruises and social gatherings
annually. You state you also plan car shows for retirement homes, and car cruises for the sick and elderly where
you meet as a group and cruise by the homes and the person comes out or stand by the window as you cruise by.

You stated that for the holiday season, you will plan a toy drive and pick a local charity to donate the toys. All
of your social events are open to children, the elderly and disabled persons. You do not limit who can
participate, your events are open for everyone. Further, you state that all your time will be spent on social
activities.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable, educational, 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, 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.

In Revenue Ruling 67-139, 1967-1 C.B. 129, Situation 2 describes a club formed by mineralogy and lapidary
enthusiasts to disseminate knowledge of mineralogical and lapidary subjects, to promote their application so
that greater pleasure may be derived from these activities, and to promote good fellowship among its members.
To further its purposes, this club held meetings in which its members would discuss gem and mineral topics and
sell, purchase, or exchange rock and mineral specimens. It was determined that the club was organized and
operated primarily for the benefit, pleasure, or recreation of its members. Its activities were only incidentally

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

3

educational, and as such, the club did not qualify for tax exemption under IRC Section 501(c)(3). However, it
did qualify under Section 501(c)(7).

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 Minnesota Kingsmen Chess Association v. Commissioner, T.C. Memo 1983-495 (1983), the organization
sponsored chess tournaments, provided chess magazines and books to libraries, offered free chess lessons, and
published a newsletter that primarily contained reports of past tournaments and announcements of future ones.
The petitioner sought exemption under IRC Section 501(c)(3) because its purposes and activities were described
as educational. The court found that the promotion of chess tournaments furthered a substantial recreational
purpose, even though individual participants may have received some educational benefits.

Application of law
You are not described in IRC Section 501(c)(3) because you don't meet the operational test outlined in Treas.
Reg. Section 1.501(c)(3)-1(a)(1).

You are also not described in IRC Section 501(c)(3) because you are not operated exclusively for exempt
purposes as required by Treas. Reg. 1.501(c)(3)-1(c)(1). For instance, you conduct car shows, car cruises, and
social gatherings. These facts show more than an insubstantial part of your activities are not in furtherance of a
Section 501(c)(3) exempt purpose, but rather for social and recreational purposes.

You operate like the organization described in Situation 2 of Rev. Rul. 67-139. Although some of your activities
such as a toy drive, car shows for retirement homes, and car cruises for the sick and elderly may serve charitable
purposes, a substantial portion of your activities including car shows, car cruises, and social gatherings serve
social or recreational purposes. This is further clarified in, Minnesota Kingsmen Chess Association, where the
substantial social or non-exempt purposes prohibited exemption under Section 501(c)(3). Therefore, you are not
operated exclusively for an exempt purpose.

As noted in Better Business Bureau of Washington D.C., exemption under IRC Section 501(c)(3) cannot be
granted when an organization has a non-exempt purpose which is more than insubstantial in nature.

Conclusion
Based on the facts you provided, you do not meet the operational test because a substantial portion of your
activities serves social and/or recreational purposes. Thus, you do not meet the standards of exemption under
IRC Section 501(c)(3). Donations to you are not deductible to the donor.

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:

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

4

• 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.

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

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

5

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