501(c)(3) exemption denied to a member bereavement-aid group

Plain-English summary

A membership group applied to be recognized as a tax-exempt charity under IRC
§ 501(c)(3), and the IRS said no. The group collects donations and membership
fees, then pays that money out to its own members when a member suffers a
death in the family or a long-term illness. The IRS concluded the group serves
the private interests of its members rather than the public. That fails the
"operational test" for charity, because § 501(c)(3) requires an organization
to operate exclusively for public, not private, benefit. The IRS lined the
group up against Rev. Rul. 67-367, Rev. Rul. 69-175, and Rev. Rul. 75-286, and
the Tax Court's Korean-American Senior Mutual Association case, all of which
denied exemption to member-benefit groups. Because the group did not protest
the proposed denial within 30 days, this is the final adverse determination:
donors can't deduct gifts under § 170, and the group must file regular income
tax returns. Mutual-aid and burial-benefit societies routinely stumble on this
public-versus-private line.

Ruling snapshot

• Question: Does a membership group that pays bereavement and illness benefits to its own members qualify for exemption under § 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), -1(c)(1), -1(d)(1)(ii); Rev. Rul. 67-367; Rev. Rul. 69-175; Rev. Rul. 75-286; Better Business Bureau v. United States, 326 U.S. 279 (1945); Korean-Am. Senior Mut. Ass'n v. Commissioner, T.C. Memo. 2020-129

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 02/20/2026
IRS Tax Exempt and Government Entities Employer ID number:

Form you must file:
Tax years:

Person to contact:

Release Number: 202620006
Release Date: 5/15/26
UIL Code: 501.03-00, 501.33-00

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)(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
Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service

Date:
01/05/2026

Employer ID number:

Person to contact:

Name:
ID number
Telephone
Fax:
Legend: UIL:
Q = State 501.03-00
R = Date 501.33-00
S = Region
T = Number
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 incorporated in the state of Q on R.

Your membership is open to any person from two zones of the S who live in the state of Q. Your purpose is to
help members financially and emotionally in times of family loss with bereavement and illness. When a
member experiences death and funeral service you collect donations to help the grieving family in the culturally
practiced grieving process. These donations are distributed to the grieving family by check. Board members do
not decide on the donation amounts, rather they receive the donations and provide it to the member affected.

Similarly, you also collect donations for members experiencing a long-term illness for more than T days, if it is
proven that the member did not receive any other benefits from the government or other charitable
organizations. These donations are distributed to the members who have experienced long term illness and are
limited to one time a year. Board members do not decide on the donation amounts, rather they receive the
donations and provide it to the member affected. You are primarily funded through membership fees.

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

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) provides 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 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 operates exclusively for exempt purposes
if it engages primarily in activities that accomplish exempt purposes specified in IRC Section 501(c)(3). An
organization must not engage in substantial activities that fail to further an exempt purpose.

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

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 preselected, specifically named individuals. The
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 formed by parents of pupils attending a private
school. The organization provided school bus transportation for its members' children. The organization's
income approximately equaled the expenses involved in its operations. The ruling states that when a group of
individuals associate to provide a cooperative service for themselves, they are serving a private interest. By
providing bus transportation for school children, the organization enabled the participating parents to fulfill
their individual responsibility of transporting their children to school. Thus, the organization serves a private
rather than a public interest. Accordingly, it is not exempt from federal income tax under IRC Section 501(c)(3).

Rev. Rul. 75-286 1975-2 C.B. 210, held that an organization enhancing the value of its members' property
rights, by the restricted nature of its membership and the limited area in which its improvements are made,
indicate that the organization is organized and operated to serve the private interests of its members within the
meaning of Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Accordingly, although the organization is primarily
engaged in promoting the general welfare of the community, it is not organized and operated exclusively for
charitable purposes and does not qualify for exemption under IRC Section 501(c)(3).

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

In The Korean-Am. Senior Mut. Ass'n v. Commissioner, T.C. Memo. 2020-129 (U.S. Tax Ct., 2020), the court
held that an organization was not operated exclusively for any of the purposes indicated in IRC Section
501(c)(3) because it was a membership organization whose main purpose was to provide burial grants for the

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

3

private benefit of its members. Therefore, the law does not permit it to qualify as an exempt organization
described in Section 501(c)(3).

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests to qualify for exempt
status. An organization must be both organized and operated exclusively for purposes described in Section
501(c)(3). Furthermore, Treas. Reg. Section 1.501(c)(3)-1(c)(1) states that to be operated exclusively for one or
more exempt purposes, an organization must engage primarily in activities that accomplish one or more exempt
purposes specified in Section 501(c)(3).

You are like Rev. Rul. 67-367, Rev. Rul. 69-175, and Rev. 75-286 that share a similar fact pattern:

. A limited membership,
° Dues paid for membership, and
. Benefits provided to the members.

Given those facts, each of the rulings held the organization served private interests rather than the public
interest. You share the same fact pattern of a limited membership, dues paid for membership, and benefits
provided to members, and you serve the private interest of your members rather than the public interest. You,
therefore, fail the operational test and do not qualify for exemption as an organization described under IRC
section 501(c)(3). See Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i).

You are like the organization described in The Korean-Am. Senior Mut. Ass'n that was denied exemption under
IRC Section 501(c)(3) because you are a membership organization whose only purpose is to provide financial
help to your members in times of family loss with bereavement and illness which furthers the private interests
of your members.

You are like the organization described in Better Business Bureau of Washington D.C., that was denied
exemption under IRC Section 501(c)(3) because you have a substantial nonexempt purpose. Collecting
membership fees and donations and only dispersing these funds to your members in their time of need, furthers
the private interests of your members rather than public interests, which is a nonexempt purpose.

Conclusion
Based on the information provided, you substantially serve the private interests of your members rather than the
interests of the public. Therefore, you do not qualify for IRC Section 501(c)(3) status.

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

4

« 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

5

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