IRS denies 501(c)(3) status to an insurance sales awards and training organization

Plain-English summary

An organization held a corporate-funded gala recognizing high-performing insurance employees and offered seminars about insurance products and consumer protection. Awards were based on issued policies, and the training was limited to employees of independent contractor-agents associated with a major for-profit insurer. The IRS denied Section 501(c)(3) status because both the awards and education helped a select group increase insurance sales. Although the instruction could be educational in form, it primarily served the private interests of participating employees, agents, and related for-profit businesses. The IRS distinguished an industry-wide educational program that was open to employees of all banks in its area. Here, the substantial private benefit and sales-generating purpose caused the organization to fail the operational test. The organization did not protest within 30 days, making the denial final.

Ruling snapshot

• Question: Does an organization that rewards insurance production and trains selected insurance employees qualify under IRC Section 501(c)(3)?
• Outcome: denied (final adverse determination; substantial non-exempt purposes and private benefits caused failure of the operational test)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 68-504; Rev. Rul. 74-116; Better Business Bureau of Washington, D.C., Inc. v. United States; American Campaign Academy v. Commissioner; Quality Auditing Company, Inc. v. Commissioner

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
IRS Tax Exempt and Government Entities

Date:
08/19/2025
Employer ID number:

Form you must file:

Tax years:

Release Number: 202552036
Release Date: 12/26/2025
UIL Code: 501.03-00, 501.33-00, 501.35-00

Person to contact:
Name:
ID number:
Telephone:

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

Date:
06/26/2025

Employer ID number:

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

Legend:
C = Date
D = State
f percent = Percent

UIL:
501-03.00
501-33.00
501-35.00

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 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 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

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

2

• 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 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

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

You recognize excelling employees at a corporate-funded gala and provide education to further their
knowledge. You clarified that this meant an award ceremony, as well as seminars and other education to the
employees of independent contractor-agents of a major insurance provider. Both the independent contractor-
agents and the major insurance provider are for-profit entities. You dedicate an equal percent of time to the
awards ceremony and your educational activities, f percent, with the remaining time spent planning for both
activities.

The awards ceremony focused on the performance in a specific line of insurance. Your collected fees cover
dinner, a plaque, decorations, tokens, guest speakers, etc. You track each employee’s progress month by month.
Your performance target is excellence in educating customers on the importance of being protected and guiding
consumers in making informed decisions. You track based on issued policies, with various levels based on
quantity of policies issued and experience for the purpose of recognizing the most successful producing team
members in your market area. Your time spent tracking performance allows you to assess progress and identify
areas of improvement. You indicate that awardees will receive a complimentary photo with the leadership team
from a professional photographer, with casual photos available for a small fee.

Your educational efforts focused on knowledge and tools about benefits and protection, including the financial
implications of not having protection for the clients of the independent contractors. You offer video chat
courses that cover various topics related to insurance, including types of policies available and how each policy
contributes to consumer financial security. The courses are taught by the independent contractors, who
volunteer time and expertise, and the students are employees, many of whom stay with their current employers.

Your revenue consists of corporate sponsorship, not including the major insurance provider, and fees collected
from employers and gala participants. Your fees and sponsorships go to the awards ceremony/performance
tracking. Your fees cover your costs without generating a profit.

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.

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

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

3

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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) of the regulations provides that an organization is not organized or
operated exclusively for exempt purposes unless it serves a public rather than private interest.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) defines the term educational as the instruction or training of the
individual for the purpose of improving or developing his capabilities or the instruction of the public on subjects
useful to the individual and beneficial to the community.

Revenue Ruling 68-504 1968-2 C.B. 211 held that an organization conducting an educational program specific
to the banking industry, open to employees of all banks in its area, conducting occasional and insubstantial non-
exempt activities may qualify under IRC Section 501(c)(3) as improving business or professional capabilities.

Rev. Rul. 74-116 1974-1 C.B. 127 held that an educational organization designed to provide specific technical
information to its members, and limited to its members, was not exempt under IRC Section 501(c)(3) because
providing specialized information to its members served the private interests of its members, not the public.

In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67,
1945 C.B. 375 (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.

American Campaign Academy v. Commissioner, 92 T.C. 1053, 1076-78 (1989) held that a school that trained
individuals for careers as political campaign professionals was not described in Section 501(c)(3) because its
operations benefited the private interests of entities and candidates associated with a single political party. The
Tax Court observed that an organization’s conferral of benefits on disinterested persons (i.e., unrelated third
parties) may cause the organization to serve private rather than public interests.

In Quality Auditing Company, Inc. v. Commissioner, 114 T.C. 498 (2000), the Tax Court found that the
development and administration of a quality certification program, at the request of and for the structural steel
industry, had a focus on aiding industry participants, with any benefit to the general public being merely
secondary. The private interests served were found to be substantial in comparison to the benefit reaped by the
general public. Furthering private interests constitutes a nonexempt purpose. Petitioner did not establish that it
was operated exclusively for exempt charitable purposes and was found not to be entitled to exemption from
taxation as a charitable organization described in Section 501(c)(3).

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification for exempt status. As stated in Treas. Reg.
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3). Based on the information provided in your application and supporting documentation, we
conclude that you fail the operational test.

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

4

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) requires an organization show that it is not organized or operated for
private interests. Although you may conduct some educational activities at your gala, this education is provided
to a select group of individuals with the goal of assisting these individuals in increasing their insurance sales.
Your activities provide a substantial private benefit to the participants in this gala. While these educational
activities may be described in Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i), these activities are operated in a
manner that serves private interests. Any benefit to the public is incidental to the benefit conferred to the
recipients of your educational activities.

Your key performance metric for the awards ceremony is issued policies/insuring individuals, in other words,
sales of policies, making your definition of excelling employees production based. While you track performance
to assess progress and identify areas for improvement, the improvement is in employee sales. You limit your
awards to the employees of a specific group of for-profit entities. You operate for the substantial non-exempt
purpose of generating sales for your participants. As such, you are not operated exclusively for exempt purposes
as described in Treas. Reg. Section 1.501(c)(3)-1(c)(1).

You provide general business knowledge on the insurance industry and knowledge specific to the policies of a
major insurance provider, to the employees of the provider’s agents, with many employees staying with their
current independent contractor-agent. Unlike the organization described in Rev. Rul. 68-504, your educational
activities provide a direct benefit to the employees and agents of a major insurance provider rather than to the
industry as a whole or the general public.

Like the organization described in Rev. Rul. 74-116, you provide specialized information to a limited pool of
individuals, in a way that serves the private interests of those individuals rather than the interests of the general
public. Therefore, you should not be exempt under IRC Section 501(c)(3).

Similar to the organizations described in Quality Auditing Company, Inc., and American Campaign Academy
your education program focuses on aiding a select group of insurance professionals in increasing their sales.
The private interests served are substantial in comparison to the benefit reaped by the general public.

You are like the organization described in Better Business Bureau. Although you do have some educational
purposes, you have substantial non-exempt purposes of serving the private interests of your gala attendees. 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.

Conclusion

You are not operated exclusively for IRC Section 501(c)(3) purposes. Your activities have substantial non-
exempt purposes and substantially benefit private individuals. Therefore, you do not qualify for exemption
under 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.

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

5

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

6

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