Employee aid organization denied exemption under Section 501(c)(3)

Plain-English summary

The IRS issued a final adverse determination to an employee aid organization that sought exemption under IRC Section 501(c)(3). The organization provided flowers, fruit baskets, and occasional financial assistance to employees of a union organization who became ill, were injured, or lost a family member. The IRS concluded that the organization primarily served the private interests of its members rather than a public charitable interest. The proposed adverse determination became final after no protest was filed within 30 days.

Ruling snapshot

• Question: Did the employee aid organization qualify for exemption under IRC Section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC §§ 170, 501(c)(3), 6104(c), 6110, 7428; Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 67-367, Rev. Rul. 68-14, Rev. Rul. 69-175, Rev. Rul. 72-147

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 05/29/2026
Internal Revenue Service
Tax Exempt and Government Entities Employer ID number:

Form you must file:

Tax years:
Person to contact:
Release Number: 202634018 Name:
Release Date: 8/21/26 ID number:
Telephone:

UIL Code: 501.03-00, 501.33-00, 501.35-00

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 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 476325

Department of the Treasury
Internal Revenue Service

Date:
03/30/2026
Employer ID number:

Person to contact:

Name
ID number:
Telephone
Fax:
Legend: UIL:
B = Date 501.03-00
C = State 501.33-00
D = Entity §01.35-00

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 B, in the state of C. 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

• Not further non-exempt purposes (such as purposes that benefit private interests) more than
  insubstantially

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

• 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)

e Not provide commercial-type insurance as a substantial part of your activities

You state that you are formed to pay for flowers at funcrals of members and gift cards when members become ill. Your purposes are to provide support and comfort to grieving members of the union organization, and to provide occasional monetary support to sick, injured, or widows of the union organization.

Your membership is limited solely to union employees of D, and any member of the union automatically becomes a member. You do not charge membership dues or require any monetary input from your members. You are funded solely by a vendor who donates a percentage of vending machine profits.

Your activities are primarily conducted by your account manager, who manages funds and handles your services. Your services include flowers or fruit baskets delivery to sick members or even occasional small monetary amount to members who are sick long term.

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) states that in order to meet the operational test, 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) states that an organization is not organized and operated exclusively for charitable purposes unless it serves a public rather than a private interest. To meet this requirement that it serves a public purpose, an organization must establish that it is not organized or operated for the benefit of private interests.

Revenue Ruling 67-367, 1967-2 C.B. 188, describes an organization whose sole activity was the operation of a

scholarship plan for making payments to pre-selected, specifically named individuals. The organization did not

qualify for exemption under IRC Section 501(c)(3) because it was serving the private interests of its subscribers rather than public charitable interests.

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

3

Rev. Rul. 68-14, 1968-1 C.B. 243, held that a nonprofit organization formed to promote and assist in city beautification projects and to educate the public in the advantage of street planting is exempt. While the organization may provide some benefit to the homes in which trees are planted, the overall effect of the organization’s activities are to combat community deterioration.

Rev. Rul. 69-175, 1969-1 C.B.149 describes an organization, formed by parents of pupils attending a private school, that provided bus transportation for its members’ children. It was held this served a private rather than a public interest and did not qualify for exemption.

Rev. Rul. 72-147, 1972-1 C.B. 147, held that an organization formed to provide low-income housing to families but giving preference for housing to employees of a farm proprietorship operated by the individual who created and controls the organization does not qualify for exemption under Section 501(c)(3).

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 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 to qualify for exempt status. An organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). Based on the information provided, you fail to meet 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 to provide flowers, fruit baskets, and funds exclusively to your members. Operating solely for your members’ benefit serves the private interests of the employees of D as opposed to the interests of the public at large described in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i) Instead, you are substantially serving private interests by providing services exclusively to your members.

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

You are unlike the organization described in Rev. Rul. 68-14, which was formed to promote and assist city beautification projects. The overall effect of the organization’s activities provided a benefit to the community as a whole. In contrast, your activities provide a benefit to the employees of D, and any benefit to the public is incidental to the benefits to these private parties.

You are like the organization described in Rev. Rul. 72-147, which served the private interests of the creator of the organization. By providing benefits solely to employees of D, you are formed to serve the private interests of those individuals rather than a public interest.

While your employee aid program offers charitable assistance to the employees of D, the program’s 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

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

4

Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3) because you are not operated exclusively for exempt purposes within the meaning of Section 501(c)(3). You do not meet the operational test because you are operated primarily to serve the private interests of your members, which is a substantial non-exempt purpose.

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 | 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:

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

5

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