Final adverse determination denying 501(c)(3) exemption to a business-networking group that serves its members' private commercial interests

Plain-English summary

An organization that describes itself as a "chamber of commerce" applied
to be recognized as a tax-exempt charity under Code section 501(c)(3). It
runs monthly workshops and networking events to help entrepreneurs from a
particular community market and grow their businesses, funded by
membership fees. The IRS denied the exemption. Even though the group runs
some educational activities, the IRS found that a substantial part of what
it does, promoting members' businesses and hosting networking events,
serves the private commercial interests of its members rather than the
public. Under the "operational test," a single substantial non-exempt
purpose defeats exemption, so the group flunks. The IRS compared it to
revenue rulings denying charity status to a medical society and a bar
association, and to the Supreme Court's Better Business Bureau decision.
Because the organization did not protest the earlier proposed denial
within 30 days, this determination became final. As a result, donors
generally cannot deduct contributions to it under section 170, and it must
file federal income tax returns. This document reproduces both the final
adverse letter (Letter 4038) and the underlying proposed adverse letter
(Letter 4034) that explains the reasoning.

Ruling snapshot

• Question: Does a business-networking / "chamber of commerce" group organized to promote its members' businesses qualify for exemption under section 501(c)(3)?
• Outcome: Denied (final adverse determination; failed the operational test due to a substantial non-exempt purpose)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d)(1)(ii); Rev. Rul. 71-504; Rev. Rul. 71-505; Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945)

Full text (IRS public release)

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

Date: 10/06/2025
Employer ID number:
Form you must file:
Tax years:
Person to contact:

Release Number: 202601015
Release Date: 1/2/2026
UIL Code: 501.03-00, 501.03-05

Dear [redacted]

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 476328

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 476328

Department of the Treasury
Internal Revenue Service

Date: 08/14/2025
Employer ID number:
Person to contact:
Name:
ID number:
Telephone:
Fax:

Legend: UIL:
B = Date | 501.03-00
C = State | 501.03-05
D = Organization
E = City
F = Ethnicity

Dear [redacted]

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 formed as a corporation on B in the state of C. You describe your activities as a "chamber of commerce." You state you actively participate in F community fairs where you promote F entrepreneurs. Your focus is to educate and guide business owners in key areas such as marketing, management, finance, and business advisory services. You also hold meetings with entities to promote awareness among the F community.

You currently participate in community fairs and organize specialized workshops where you provide practical training and strategic tools for F entrepreneurs. Your workshops provide F entrepreneurs with effective tools and strategies to strengthen their businesses through both digital and traditional marketing. You also promote networking meetings among business owners, creating opportunities for connections, business collaborations, and strengthening the local entrepreneurial community.

Your activity calendar includes a workshop and a networking event every month. Educational activities are held at D's facilities, and you are in discussions with E to utilize community space for events. Networking meetings take place at the businesses of your members (restaurants, ice cream shops, supermarkets). You are exploring virtual networking options for the F business community.

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

2

You funded exclusively by membership fees. Membership fees are dependent of the number of employees a business has or individual plans. Affiliated members do not pay for workshops as their membership covers all educational events.

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 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) provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest. To meet this requirement, an organization must establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests.

Revenue Ruling 71-504, 1971-2 C.B. 231, describes a city medical society exempt under IRC Section 501(c)(6), that primarily directed its activities to the promotion of the common business purposes of its members which was found not to qualify under IRC Section 501(c)(3).

Rev. Rul. 71-505, 1971-2 C.B. 232, describes a city bar association, exempt under IRC Section 501(c)(6), that could not be reclassified as an educational or charitable organization exempt under Section 501(c)(3). Although the organization had a number of charitable and educational activities, a substantial portion of the organization's activities were directed at the promotion and protection of the practice of law and therefore furthered the common business purpose of its members.

In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court stated that the presence of a single nonexempt purpose, if substantial in nature, will preclude exemption under IRC Section 501(c)(3) regardless of the number or importance of statutorily exempt purposes.

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).

You do not meet the operational test under IRC Section 501(c)(3) because you are not operating exclusively for exempt purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). Your networking events and

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

3

business promotion activities serve the private interests of your members and the businesses, rather than public interests, as required by Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Any educational or charitable activities you may conduct are incidental to your overall purpose of promoting the businesses of your members.

You are similar to the organizations described in Rev. Rul. 71-504 and Rev. Rul. 71-505. Although you conduct some charitable and educational activities, a substantial portion of your activities are directed at the promotion of F entrepreneurs and their businesses, furthering the common business purposes of your members.

As held in Better Business Bureau of Washington, D.C., Inc., a single non-exempt purpose, if substantial, will preclude tax exemption under IRC Section 501(c)(3). You have a substantial non-exempt purpose of hosting networking events and promoting businesses. Therefore, you are not operating exclusively for exempt purposes as described in Section 501(c)(3).

Conclusion

Based on the facts and circumstances presented, you do not qualify for exemption from federal income tax as an organization described in IRC Section 501(c)(3). You do not meet the operational test for Section 501(c)(3) because you are operated for the substantial nonexempt purpose of providing your members with business networking opportunities and promoting their businesses.

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:

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.

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

4

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:
Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201

Street address for delivery service:
Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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