IRS denies 501(c)(8) fraternal status to a lodge dominated by public bingo

Plain-English summary

A fraternal organization that operates under the lodge system and pays death benefits to its members applied to be recognized as a tax-exempt fraternal beneficiary society under IRC Section 501(c)(8). The IRS denied it. Section 501(c)(8) requires an organization both to operate under the lodge system (or for the exclusive benefit of members who do) and to provide life, sick, accident, or other benefits to members. This lodge does provide death benefits, but its largest activity by far is running bingo games several times a week, with nearly all bingo customers being non-members, and most of its food and beverage sales also go to non-members. The IRS found this substantial public gaming is not for the exclusive benefit of members and does not further a fraternal purpose. Citing Treas. Reg. 1.501(c)(8)-1(a), Rev. Rul. 73-165, Polish Army Veterans Post 147, and Waco Lodge No. 166 (Elks), it concluded the organization is not operated in furtherance of a fraternal purpose and does not qualify. This is the final adverse determination (Letter 4038); it became final because no protest to the proposed denial (Letter 4034, reproduced below) was filed within 30 days.

Ruling snapshot

• Question: Does a lodge whose largest activity is public bingo and gaming qualify as a fraternal beneficiary society under IRC Section 501(c)(8)?
• Outcome: Denied
• Key authorities: IRC § 501(a), (c)(8); Treas. Reg. § 1.501(c)(8)-1(a); Rev. Rul. 73-165; Polish Army Veterans Post 147 v. Commissioner, 24 T.C. 891 (1955), aff'd 236 F.2d 509 (3rd Cir. 1956); Waco Lodge No. 166, Benevolent & Protective Order of Elks v. Commissioner, 42 T.C. Memo (CCH) 1202 (1981)

Full text (IRS public release)

Department of the Treasury                     Date:
Internal Revenue Service                        10/24/2025
IRS Tax Exempt and Government Entities          Employer ID number:

                                                Form you must file:
                                                Tax years:

                                                Person to contact:
Release Number: 202603001
Release Date: 1/16/2026
UIL Code: 501.00-00, 501.08-00

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)(8). 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.

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.

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:
08/26/2025

Employer ID number:

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

Legend:                                         UIL:
B = State                                       501.00-00
C = Date                                        501.08-00
d percent = Percent
e percent = Percent
f percent = Percent

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)(8).
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)(8)? No, for the reasons stated below.

Facts

You incorporated in B on C. You operate under the lodge system and provide death benefits for your members.
You have three classes of membership: beneficial, non-beneficial, and dual. Your members pay dues, which
allows them to receive benefits like access to your memorial foundation for family protection and discounts
through partners.

You conduct bingo games multiple times each week, along with two weekly drawings. You indicated that your
largest activity is the operation of your bingo games and nearly all of the bingo customers are non-members.
You indicated on your application that you do not you operate for the exclusive benefit of the members of an
organization operating under the lodge system.

Members and non-members are allowed to participate in all activities, except for one weekly drawing that is
open to members only. You indicated that your bingo games and one of your weekly drawings are open to the
public, as are all your fundraisers.

Most of your food and beverage sales, d percent, are to non-members. In addition, you operate a social room,
which is open to your members seven days a week; however, you indicated that your social room does not
generate enough income to sustain your facilities.

You hold fundraising events to raise money for charitable organizations. Your bingo activities are funded by the
sale of bingo packs, which you set to be competitive with other bingo halls, and the sale of pull tab tickets. Your
weekly drawings are funded by the sale of tickets and the fundraisers are funded by the sale of raffle tickets,
auctions, pull tabs, and donations.

You indicated that approximately e percent of bingo income is spent to resupply paper and pull tabs sold
throughout the week. The remainder of that income is used to pay utility bills, as allowed by the state gaming
commission rules and regulations, and donations to charitable activities. In addition, the percentage of income
from the social room spent restocking the kitchen, bar and snack bar is approximately f percent on a weekly
basis. The remainder is used to pay bills that are not allowed to be paid through charitable gaming income. The
remainder of your expenses are for salaries and wages.

You indicated that your activities further your exempt purpose because your primary purpose is to benefit your
community through charitable giving and social initiatives, rather than to generate profit for your members.

Law

IRC Section 501(c)(8) states that fraternal beneficiary societies, orders, or associations are exempt from federal
income tax, if they are (a) operating under the lodge system or for the exclusive benefit of the members of a
fraternity itself operating under the lodge system, and (b) providing for the payment of life, sick, accident, or
other benefits to the members of such society, order, or association or their dependents.

Treasury Regulation Section 1.501(c)(8)-1(a) states that a fraternal beneficiary society is exempt from tax only
if operated under the lodge system or for the exclusive benefit of the members so operating. Operating under the
lodge system means carrying on its activities under a form of organization that comprises local branches,
chartered by a parent organization and largely self-governing, called lodges, chapters, or the like. In order to be
exempt, it is also necessary that the society have an established system for the payment to its members or their
dependents of life, sick, accident, or other benefits.

Revenue Ruling 73-165, 1973-1 C.B. 224, discusses the necessary ratio of fraternal activity to beneficial
activity required of an IRC Section 501(c)(8) organization, and states that there is no requirement that either
feature predominate so long as both are present. The ruling is clear that in order for an organization to be
described in Section 501(c)(8) it must contain substantial fraternal features and conduct substantial fraternal
activities.

Polish Army Veterans Post 147 v. Commissioner, 24 T.C. 891 (1955), affd. 236 F.2d 509 (3rd Cir. 1956),
concluded that an organization had not established its exemption as a fraternal beneficiary society because the
social members actually eliminated any chance the Post had for exemption as a fraternal beneficiary society.
They comprised about ninety percent of its membership. The court stated that they can readily agree they were
friends of the Post but they did not possess the statutory fraternal requisite which the active members had. They
were not made members of the Veterans Association. They had no say in the management or control of the Post
and were not entitled to sick or death benefits. Undoubtedly they were well disposed towards the organization,
glad to help and to be admitted to the club rooms but those things standing alone were never intended by
Section 101(3) to be sufficient to establish exemption as a fraternal beneficiary society.

Waco Lodge No. 166, Benevolent & Protective Order of Elks v. Commissioner, 42 T.C. Memo (CCH) 1202
(1981), held that a Section 501(c)(8) organization's income from operation of a weekly bingo game constituted
unrelated business taxable income under Section 511 and Section 513. The gambling activities were open to the
public. When a guest gambles with his own money, the fraternal organization is providing recreational activities
directly to a non-member rather than as a service to members. When a fraternal organization provides
recreational activities, to non-members directly, those activities do not have a substantial causal relationship to
the organization's exempt purpose of providing social and recreational activities to the members.

Application of law

You are not described in IRC Section 501(c)(8). Although you are operating under the lodge system and
provide death benefits to members, you are not operated for the exclusive benefit of your members as required
by Treas. Reg. Section 1.501(c)(8)-1(a). Rather, a substantial portion of your activities are open to non-
members, including gambling, which does not further fraternal purposes.

You are unlike the organization described in Rev. Rul. 73-165 that was granted exemption under IRC Section
501(c)(8) because, unlike this organization, your activities consist of substantial non-member activity through
gaming operations and sales of goods. As stated in Waco Lodge No. 166, Benevolent & Protective Order of
Elks, when a fraternal organization provides recreational activities, such as gambling, to non-members directly,
those activities do not have a substantial causal relationship to the organization's exempt purpose of providing
fraternal activities to the members. These facts demonstrate a substantial non-exempt purpose inconsistent with
Section 501(c)(8).

Like the organization in Polish Army Veterans Post 147, most of the individuals that participate in your
gambling activities, which is the source of most of your revenue, aren't your members and aren't entitled to
benefits. Therefore, you are not operating in furtherance of an exempt purpose of a fraternal organization as
described in IRC Section 501(c)(8).

Conclusion

Based on the information provided, you are not described in IRC Section 501(c)(8). A substantial part of your
activities consists of is non-member gaming, which doesn't further a fraternal purpose amongst your members.
Because your activities aren't for the exclusive benefit of your members, you are precluded from exemption
under Section 501(c)(8).

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.

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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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