Final adverse ruling denying 501(c)(3) exemption to an employee-aid fund that serves private, not public, interests

Plain-English summary

To be tax-exempt as a charity under section 501(c)(3), an organization must
operate exclusively for public purposes, not to benefit a private group. Here,
an unincorporated association applied for 501(c)(3) status using the
streamlined Form 1023-EZ. Its only activity was collecting voluntary donations
from the residents (and their families) of two facilities and passing that
money to the employees of those facilities as a thank-you, with amounts based
on hours worked. The IRS determined the group fails the operational test: its
primary purpose is to serve the private interests of the employees, not the
public. Citing revenue rulings and cases like Capital Gymnastics Booster Club
and Better Business Bureau (a single substantial non-exempt purpose defeats
exemption), the IRS issued a final adverse determination. Because the
organization did not protest the earlier proposed denial within 30 days, that
denial became final. Donors generally cannot deduct contributions to the group
under section 170, and it must file federal income tax returns.

Ruling snapshot

• Question: Does an organization whose sole activity is funneling
  donations to the employees of two facilities qualify for exemption under
  IRC § 501(c)(3)?
• Outcome: Denied (final adverse determination).
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (c),
  (d); Rev. Rul. 67-367; Rev. Rul. 69-175; Capital Gymnastics Booster Club,
  Inc. v. C.I.R., T.C. Memo. 2013-193; 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                       Date:
Internal Revenue Service                         12/22/2025
IRS Tax Exempt and Government Entities           Employer ID number:
                                                 Form you must file:
                                                 Tax years:
Release Number: 202612010
                                                 Person to contact:
Release Date: 3/20/26                            Name:
UIL Code: 501.03-00, 501.03-30, 501.33-00        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:
11/03/2025

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

Legend:                          UIL:
B = Date                         501.03-00
C = State                        501.03-30
D = Fund                         501.33-00
E = Name
F = Name

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 attested that you were formed as a unincorporated association on B, in the state of C. You attested that you
have the necessary organizing document, that your organizing document limits your purposes to one or more
exempt purposes within the meaning of the 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
Section 501(c)(3).

You attested that you are organized and operated exclusively to further charitable purposes. You attested that
you have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically,
you attested you will:

• Refrain from supporting or opposing candidates in political campaigns in any way

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

• Ensure that 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 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.

You state that you solicit voluntary donations for the D from residents and/or families of residents of E and F.

You state that the D was established as a way for the residents of E and F, and their families, to express their
appreciation for the assistance provided by the employees of E and F.

You stated that the D for F was approved by the corporate office of F because the distribution of funds was
determined based on the number of hours each employee worked. You stated that you are now working with
other residents of E to develop a distribution plan for the D for E.

Your sole activity is the soliciting of donations which are then distributed to designated employees of E and F.

You are funded solely by donations. Your only expenses include printed checks from the bank, the Form 1023-
EZ application fee, and distributions to employees of E and F.

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
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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively
for one or more exempt purposes unless it serves a public rather than a private interest. It must not be operated
for the benefit of designated individuals or the persons who created it.

Revenue Ruling 67-367, 1967-2 C.B. 188, describes a nonprofit organization whose sole activity was the
operation of a 'scholarship' plan for making payments to pre-selected, specifically named individuals. The

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

3

organization did not qualify for exemption from federal income tax under IRC Section 501(c)(3) because it was
serving private rather than public or charitable interests.

Rev. Rul. 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils attending
a private school. The organization provided bus transportation to and from the school for those children whose
parents belonged to the organization. The organization did not qualify for exemption under IRC Section
501(c)(3) because it served a private rather than a public interest.

In Capital Gymnastics Booster Club, Inc. v. C.I.R., T.C. Memo. 2013-193 (2013), the court held that the
gymnastics booster club wasn't operated exclusively for tax-exempt purposes under section 501(c)(3) because it
operated in a manner that allowed substantial private inurement and promoted private, non-public interests by
earmarking almost all of its fundraising proceeds for the benefit of the parent members who actually did the
fundraising by dedicating those funds to their children's fees for competitions and other expenses.

In 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 claim for
exemption regardless of the number or importance of truly exempt purposes.

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests for an organization
to be recognized as exempt. An organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3). Based on the information provided, you fail the operational test.

You are not operating exclusively for exempt purposes as described in Treas. Reg. Section 1.501(c)(3)-1(c)(1)
because you were formed primarily to provide funds to the employees of E and F. Operating this employee aid
fund serves the private interests of the employees of E and F as opposed to the interests of the public at large as
described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

Like the organizations described in Rev. Rul. 67-367 and Rev. Rul. 69-175, you were formed to provide
benefits to the employees of E and F. By operating this program, you are primarily serving the private interests
of the employees of E and F rather than the public interest.

Similar to the organization in Capital Gymnastics Booster Club, Inc., you raise funds from residents of E and F
and their families, and provide these funds to the employees of E and F. Providing these funds serves the private
interests of the employees of E and F. Providing these funds to the employees of E and F also conveys a benefit
to the residents that are donating the funds in the form of improved care by the employees.

While your employee aid program offers charitable assistance to the employees of E and F, the programs
primary purpose is to serve the private interests of those individuals. The presence of this substantial non-
exempt purpose, as described in Better Business Bureau, precludes exemption under Section 501(c)(3).

Conclusion

Based on the information provided, you are not operated exclusively for exempt purposes within the meaning of
IRC Section 501(c)(3). You operate for the substantial non-exempt purpose of serving the private interests of
employees of E and F rather than a public interest.

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

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

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

5

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