Wargaming club denied charitable exemption

Plain-English summary

A club applied for section 501(c)(3) status to grow a wargaming community through in-person games and tournaments. It charged participation and membership fees, offered members free entry and guest passes, and described its activities as recreational and social. The IRS found that the club did not operate primarily for education or another charitable purpose, and it was not a qualified amateur sports organization because it did not develop athletes for national or international sports competition. Any educational benefit from teaching people to play was incidental to the club's substantial social and recreational purposes. The IRS denied exemption, and the determination became final after the club did not protest within 30 days.

Ruling snapshot

• Question: Did a club centered on wargaming events and tournaments operate exclusively for charitable or educational purposes under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC §§ 501(c)(3), 501(c)(7), 501(j)(2); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-139; Better Business Bureau of Washington, D.C. v. United States; Minnesota Kingsmen Chess Association v. Commissioner

Full text (IRS public release)

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

Date: 10/16/2023
Employer ID number:

Form you must file:
1120

Release Number: 202402012
Release Date: 1/12/2024
UIL Code: 501.00-00,
501.03-00, 501.03-30

Tax years:
All
Person to contact:

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: 08/07/2023

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend: UIL:
B= Date Application Submitted 501-00.00
C = Formation Date 501-03.00
D = State of Formation 501-03.30

E = Game Type

F = Name of Game

G = Governing Body

H= Rankings

J = National Organization

x dollars = Participation Fee

y dollars = Monthly Membership Fee
z dollars = Annual Membership Fee

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, Streamline Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code on B.

You attest that you were incorporated on C, in the state of D. 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 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).

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 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 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

Your mission, as stated on your Form 1023-EZ, is that you are an E club. Your goal is to grow the E community
by holding wargaming tournaments and other events related to the hobby.

Detailed information was subsequently requested. Your activities are in person events to play E. Your current
game is known as F, although you do plan on branching out to other games. Your plan is to grow the hobby by
attracting new players and teaching them how to play. You have plans to hold tournaments at the local level and
the national level. You consider the activities as recreational and social based on the interaction between the

players.

When you run a tournament, you will be registered with the G, and any player who participates in an event with
at least players will receive the G ranking. Every participant that receives a high ranking may be invited to
try out for a spot in their country’s team for the H. You indicated there is not affiliation with J. Your
organization doesn’t provide a training program to the members.

Participants include all ages, with a recommended age of at least _—_years old to participate. You have a space
for hosting games that has a capacity of people and has tables available to play the game.

There is an x dollars table fee per game, per player. A day tournament costs y dollars per participant. Your
monthly membership fees are also y dollars. Your 12 months membership fee is z dollars. You determined these
fees through a combination of what you are willing to pay yourselves and operating costs. In the future, you
anticipate the price for larger, multi-day events, will be based on the price of the venue, any staff you may need
to hire, and other costs.

You offer members free entry to the small one-day tournament. These members do not to pay the table fee and
they will receive guests passes per month that also waive the table fee.

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.

IRC Section 501(j)(2) defines a “qualified amateur sports organization” as an organization organized and

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

3

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) states that, in order to 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 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 that 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.

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
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
of the United States interpreted the requirement in IRC Section 501(c)(3) that an organization be “operated
exclusively” by indicating that an organization must be devoted to exempt purposes exclusively. The presence
of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of
the number and 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.

In St. Louis Science Fiction Limited v. Commissioner, T.C. Memo. 1985-162, the Tax Court held that a science
fiction society failed to qualify for tax-exempt status under IRC 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

IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. As stated in Treas. Reg.
Section 1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3).

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

You do not meet the provisions in Treas. Reg. Section 1.501(c)(3)-1(c)(1). Specifically, you devote your time
and resources to social and recreational E activities, with both adults and children are eligible to take part. These
facts show you are operated for substantial nonexempt recreational and social purposes which precludes you
from 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 operated to provide to persons of all ages the opportunity
to participate in E activities for recreational and social purposes.

You operate like the organization described in Situation 2 of Rev. Rul. 67-139, a substantial portion of your
activities including playing a game and hosting tournaments at the local level that bring your members together
for fun, recreational and social purposes. This fact demonstrates that you operated primarily for social and
recreational purposes.

You are like the organization described in Better Business Bureau. Although you may have some educational
purpose, you are operated for substantial nonexempt recreational and social purposes. The presence of these
substantial non-exempt purposes prevents exemption under IRC Section 501(c)(3).

This is further clarified in Minnesota Kingsmen Chess Association v. Commissioner and St. Louis Science
Fiction Limited v. Commissioner, where the substantial recreational or non-exempt purposes prohibited
exemption under Section 501(c)(3).

Conclusion

Based on the facts above, you are not operated exclusively for exempt purposes as set forth in IRC Section
501(c)(3). Specifically, a substantial portion of your activities have social and recreational purposes. Therefore,
you do not qualify for exemption from federal income tax as an organization described in IRC Section
501(c)(3).

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:

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

5

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
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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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