A rural tourism marketing group that promotes its members' attractions and businesses does not qualify for 501(c)(3) exemption

Plain-English summary

To be exempt under Section 501(c)(3), an organization must operate exclusively for
charitable or educational purposes and serve the public, not the common business
interests of its members. Here, a membership organization applied for charitable status.
Its purpose was to brand a rural area as a tourist destination and drive visitors to its
members' sites through collective marketing: a shared website and directory, signage,
printed materials, social media, maps, and day-trip planners, plus selling advertising
placements to members at tiered fees. Members (individuals, nonprofits, small businesses,
and tourism groups within a 30-mile radius) get networking, listings, and promotion. The
IRS denied exemption. Its activities are primarily promoting members' businesses to
increase their foot traffic, which is a substantial non-exempt purpose that serves
private business interests, and marketing organizations for a fee is not an educational
activity. The group did not limit its help to a blighted area or a charitable class, so
it is unlike the economic-development organizations the IRS has treated as charitable.
Because advancing members' common business interests was a substantial non-exempt
purpose, exemption was denied (such a group looks more like a business league than a
public charity).

Ruling snapshot

• Question: Does a destination-marketing membership group that promotes its members' attractions and businesses qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (substantial non-exempt purpose of advancing members' common business interests)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d)(1)(ii), (d)(2); Rev. Rul. 69-632; Rev. Rul. 71-504; Rev. Rul. 74-587; Rev. Rul. 77-111; Better Business Bureau v. United States, 326 U.S. 279 (1945); § 7428(b)(2)

Full text (IRS public release)

                       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



                                                                               Date:
                                                                                06/13/2025
                                                                               Employer ID number:


                                                                               Person to contact:
                                                                                Name:
                                                                                ID number:
                                                                                Telephone:
                                                                                 Fax:



Legend:                                                                       UIL:
                                                                              501.00-00
B = Date                                                                      501.33-00
C = State
d percent = Amount
e percent = Amount
f percent = 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 were formed as a nonprofit corporation on B in C. In addition to being formed for exclusively for IRC
Section 501(c)(3) purposes, your Articles of Incorporation state you were formed to promote engagement with
and education about your historic area of C. You will also engage in activities that encourage the growth and
development of visitors to rural areas of C in the vicinity of your principal office. You will foster collaborative
efforts that educate, foster economic development through projects that design, promote, organize, and fund the
cultural attractions in rural C communities.

Your Bylaws state that you are a membership organization. Your membership consists of tiered levels for
individuals, nonprofit organizations, small businesses and municipal, corporate, and tourism groups. Each
registered entity receives one vote. Membership is focused on a geographical area that is a 30-mile radius from
a particular intersection and organizations in towns with smaller populations or unincorporated areas.

In your application you explained that the overall intention of your activities is to increase the number of
visitors to each member’s site in order to increase the number of educational opportunities and programs you
                                                                                        Letter 4034 (Rev. 01-2021)
                                                                                        Catalog Number 47628K
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deliver. You intend to drive visitors to member organizations’ websites to draw new visitors and traffic to
member destinations. Your activities are to create collective marketing materials including a website to provide
advertising for members and to brand your rural area as a tourist destination. You intend to meet with local
advertising companies to negotiate advertising purchases. Currently, you spend d percent of your time on
membership meetings and d percent on updating current communication tools.

In the future, you anticipate spending d percent of your time on information sharing and planning meetings.
These meetings support your mission to first educate each other, which allows you to see opportunities for
future collaborations and cross-promotions.

You will spend e percent of your time to create collective marketing materials, such as signage, printed
materials, and visual media, in addition to communication tools, such as a website and social media accounts.
You will reproduce your media as low-cost or for free at individual sites that will drive traffic to your website,
which then directs them to your membership organizations. These activities are done in conjunction with a
contracted consultant.

You will spend about f percent of your time seeking new members. As you continually develop the
infrastructure of your collective marketing efforts, you are also engaging with potential new members by
inviting them to meetings and sharing the benefits of membership.

Another f percent of your time will be spent to procure advertisers for your website. This helps underwrite your
basic operating costs, which allows you to reserve funding for larger media purchases such a billboards,
television, paid social media, etc.

In the future, you will allocate more time and resources towards larger marketing campaigns as you grow your
membership and advertiser base. It will ultimately allow you to grow your individual audiences and visitors,
which will allow your members to better fulfill their missions related to art, culture, education, the environment,
and recreation.

Your members receive networking and training opportunities via monthly meetings. These meetings allow for
opportunities to improve member businesses including information-sharing and networking opportunities. You
do not have any programmatic activities of your own. Your goal is to increase the visitors who benefit from
education provided by the members’ organizations. You will purchase advertising, which you stated will benefit
your members who often cannot afford it. You also plan to create maps and day trip planners for visitors to plan
trips around the members’ organizations offerings and events.

You offer different levels of membership with the fee varying based on the level. Any organization can join for
the networking opportunities at no cost. For placement on current and future advertising, members can purchase
it at various levels for a monthly fee. You offer various levels to allow organizations of all sizes to benefit from
being part of the collective group. For example, one level of membership includes the following benefits: listed
in your online directory (with a link to the member’s website), event listings, a social media post after the
member joins, a spot in your newsletter, and networking events.

Your largest source of revenue is from membership fees. You also receive donations and advertising revenue.
Your local tourism board provided you with a startup grant. The majority of your expenses are for advertising
purchases, professional fees, and email subscriptions.



                                                                                       Letter 4034 (Rev. 01-2021)
                                                                                       Catalog Number 47628K
                                                        3

Law
IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for charitable, educational, or other enumerated 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 qualify under 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 moot either the organizational or operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) states 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) provides that an organization is not organized and operated
exclusively for charitable purposes unless it serves a public rather than a private interest.

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 69-632, 1969-2 C.B. 120, describes a nonprofit organization composed of members of a
particular industry to develop new and improved uses for existing products of the industry. It was held not to be
exempt under IRC Section 501(c)(3) because any public benefit was secondary to the private benefit derived by
the organization's members.

Rev. Rul. 71-504, 1971-2 C.B. 231, describes an organization exempt under IRC Section 501(c)(6) that
primarily directed its activities to the promotion of the common business purposes of its members. The
organization could not be reclassified as an organization described in Section 501(c)(3) because its activities
were directed primarily at the promotion of the medical profession and thus furthered the common business
purpose of its members.

Rev. Rul. 74-587, 1974-2 C.B. 162, held that an organization which had economic development activities was
exempt under IRC Section 501(c)(3). The declared objectives were relief of poverty and combating community
deterioration in economically depressed areas through financial assistance, among others. The assistance
included technical support and counseling and making loans to low-income businesses unable to obtain funds
from conventional sources. The financial aid was limited to a blighted area and to a charitable class.

Rev. Rul. 77-111, 1977-1 C.B. 144, held that two organizations formed to promote economic development in
deteriorated areas did not qualify for exemption under IRC Section 501(c)(3). In situation 1, the organization
was formed to increase local business patronage in a deteriorated area mainly inhabited by minority groups. In
situation 2, the organization's purpose was to revive retail sales in an area suffering from economic decline. The
Service held that although the organizations' activities may achieve purposes described in Section 501(c)(3),
neither qualify for exemption under Section 501(c)(3), because their programs did not limit the financial aid to a
blighted area and to a charitable class.



                                                                                      Letter 4034 (Rev. 01-2021)
                                                                                      Catalog Number 47628K
                                                        4

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 the 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 are not operated exclusively for exempt purposes
as required by Treas. Reg. Section 1.501(c)(3)-l(a)(l). Most of your activities are directed at promoting your
members’ businesses to increase foot traffic. Your activities aren’t accomplishing one or more exempt purposes
as required by Treas. Reg. Section 1.501(c)(3)-l(c)(l).

The promotion of organizations and businesses in C for a fee is not an educational endeavor. Like the
organization in Rev. Rul. 71-504, you are promoting the common business purposes of your members. Thus,
you are precluded from exemption under IRC Section 501(c)(3).

Your membership is available to anyone (individual, organization, business, etc.) in a 30-mile radius. You
didn’t indicate that the area was blighted or that your services were limited to a charitable class. You aren’t
relieving the poor and distressed as defined in Treas. Reg. Section 1.501(c)(3)-1(d)(2). Accordingly, you are
like the two organizations described in Rev. Rul. 77-111, which did not qualify for exemption. You are unlike
the organization described in Rev. Rul. 74-587, which was considered charitable, because you aren’t relieving
poverty or combatting community deterioration in a depressed area and the assistance you provide isn’t limited
to a charitable class.

An organization may meet the requirements of IRC Section 501(c)(3) only if it serves a public, rather than a
private, interest. You are not operated exclusively for exempt purposes under Treas. Reg. Sec. 1.501(c)(3)-
l(d)(l)(ii) because, like the organization described in Rev. Rul. 69-632, substantially all your activities are
directed primarily at the promotion of the common business purposes of your members. As explained by the
court in Better Business Bureau of Washington, D.C., Inc., your substantial non-exempt purpose precludes you
from qualifying for exemption.

Conclusion
You do not qualify for exemption under IRC Section 501(c)(3) because you are not operated exclusively for
exempt purposes. You have the substantial non-exempt purpose of advancing the common business interests of
your members, which furthers private interests. Accordingly, you do not qualify for exemption under 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



                                                                                     Letter 4034 (Rev. 01-2021)
                                                                                     Catalog Number 47628K
                                                         5

   • 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
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




                                                                                        Letter 4034 (Rev. 01-2021)
                                                                                       Catalog Number 47628K
                                                      6

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