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Saturday September 22, 2018

Private Letter Ruling

Class Reunion Organization Denied Exemption

GiftLaw Note:
Organization requested tax-exempt status under Sec. 501(c)(3) by filing Form 1023-EZ. Organization attested that its organizational document limits its purpose to one or more exempt purposes and does not empower Organization to engage in activities that are not in furtherance of its exempt purpose. The Service requested supplemental responses to Organization's assertions on its application. Organization was formed for the purpose of holding high school class reunions. Organization plans to hold fundraisers once or twice per year to cover the costs of reunions. Any additional costs will be covered by reunion attendees.

To be exempt under Sec. 501(c)(3), an organization must be both organized and operated exclusively for charitable, religious or educational purposes and no part of its net earnings may inure to the benefit of any private shareholder or individual. Under Reg. 1.501(c)(3)-1)(c)(1), if more than an insubstantial part of the organization's activities are not in furtherance of an exempt purpose specified in Sec. 501(c)(3), the organization will not be regarded as operating exclusively for one or more exempt purposes. Under Reg. 1.501(c)(3)-1(d)(1)(ii), an exempt organization must be operated for a public rather than a private interest. Regulation 1.501(c)(3)-1(d)(2) states that the term "charitable" is used in its generally accepted legal sense, including providing relief to the poor, distressed and underprivileged; combating community deterioration; lessening neighborhood tensions; and eliminating prejudice and discrimination. Regulation 1.501(c)(3)-1(d)(3)(i) defines "educational" as relating to instruction of the public on subjects useful to the individual and beneficial to the community. Here, the Service determined that Organization has not established that its high school class reunion planning activities exclusively accomplish charitable or educational purposes. Therefore, because Organization is not operated exclusively in furtherance of an exempt purpose, the Service denied Organization's application for exempt status.
PLR 201833018 Class Reunion Organization Denied Exemption

8/17/2018 (5/23/2018)

Dear * * *:

We considered your application for recognition of exemption from federal income tax under Section 501(a) of the Internal Revenue Code (the Code). Based on the information provided, we determined that you don't qualify for exemption under Section 501(c)(3) of the Code. This letter explains the basis for our conclusion. Please keep it for your records.

Issues


Do you meet the operational test under Section 501(c)(3) of the Code? No, for the reasons stated below.

Facts


You submitted Form 1023-EZ Streamline Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code on B.

You attest that you were formed as an unincorporated association on C in D. 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 Section 501(c)(3) of the Code, that your organizing document does not expressly empower you to engage, otherwise than as an insubstantial part of your activities that in themselves are not in furtherance of one or more exempt purposes, that your organizing document contains the dissolution provision required under Section 501(c)(3). You attest that you have not conducted and will not conduct prohibited activities under 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

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

During review of your Form 1023-EZ, detailed information was requested supplemental to the above attestations.

You are formed strictly for holding high school class reunions every q years. Class members and their families participate. Your events will be held at local fire companies, VFW's, etc.

You attempt to keep costs minimal for the class members by holding fundraisers once or twice per year. Costs not covered by the fundraisers will be passed to attendees of the reunions. You will have a per person cost intended to cover the remaining event costs.

Law


Section 501(c)(3) of the Code provides, in part, for the exemption from federal income tax of organizations organized and operated exclusively for charitable, religious or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that in order to qualify under Section 501(c)(3) of the Code, an organization must be both organized and operated exclusively for one or more exempt purposes. If an organization fails to meet either the organizational or operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) states 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 Section 501(c)(3) of the Code. 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 operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) provides the term "charitable" is used in Section 501(c)(3) of the Code in its generally accepted legal sense and includes relieving the poor and distressed or the underprivileged, combating community deterioration, lessening neighborhood tensions, and eliminating prejudice and discrimination.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i) provides that the term "educational," as used in Section 501(c)(3) of the Code, relates to the instruction of the public on subjects useful to the individual and beneficial to the community.

Revenue Ruling 66-179, 1966-1 C.B. 139, provides that an organization is not exempt from federal income tax as an organization described in Section 501(c)(3) of the Code if more than an insubstantial part of the organizations activities is not in furtherance of a 501(c)(3) purpose.

Revenue Ruling 70-186, 1970-1 C.B. 128, held that an organization formed to preserve a lake as a public recreational facility and to improve the condition of the water in the lake to enhance its recreational features qualified for exemption under Section 501(c)(3) as a charitable organization that erected or maintained a public work. The ruling determined that, by treating the water, removing algae, and otherwise improving the condition of the water, the organization ensured the continued use of the lake for public recreational purposes and therefore performed a charitable activity. Furthermore, the benefits of the organization's activities flowed principally to the general public through the maintenance and improvement of public recreational facilities.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67, 1945 C.B. 375 (1945), the Supreme Court of the United States interpreted the requirement in Section 501(c)(3) of the Code that an organization be "operated exclusively" by indicating that an organization must be devoted to exempt purposes exclusively. The presence of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of the number and importance of truly exempt purposes.

Application of law


Section 501(c)(3) of the Code sets forth two main tests for qualification of exempt status. As stated in Treas. Reg. Section 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 Section 501(c)(3) of the Code because your activities do not accomplish exclusively for Section 501(c)(3) purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). Specifically, your activities consist of planning and executing high school class reunions for class members and their families. As provided in Treas. Reg. Section 1.501(c)(3)-1(d)(2), you have not established that your activities accomplish exclusively charitable or educational purposes.

You are not operated for an exclusively charitable or educational purpose as described in Treas. Reg. Section 1.501(c)(3)-1(d)(2) and Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i). You organize high school class reunions every q years. You did not provide any evidence demonstrating these events are intended to fulfill any charitable or educational purposes.

As provided in Revenue Ruling 66-179 and Better Business Bureau, exemption is precluded if you have more than an insubstantial non-exempt purpose. Your sole activity is holding a high school class reunion, which serves substantial non-exempt purposes.

Additionally, the funds you do raise are used to offset the costs to the class members. Any expenses incurred above funds you raise are passed to members and your goal is to keep this a minimal amount. As provided in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii), an organization exempt under Section 501(c)(3) must be formed for public, not private interests. You operate to keep class reunion costs low for class members, which benefits only the private interests of the class members and their families attending this reunion.

You are distinguished from the organization in Revenue Ruling 70-186 because the benefits from your operations only benefit the class members and their families, not the general public.

Conclusion


Based on the above facts and analysis, you do not qualify for exemption under Section 501(c)(3) of the Code because you are not operated exclusively for a 501(c)(3) purpose.

If you don't agree


You have a right to file a protest if you don't agree with our proposed adverse determination. To do so, you must send a statement to us within 30 days of the date of this letter. The statement must include:
  • Your name, address, employer identification number (EIN), and a daytime phone number
  • A copy of this letter highlighting the findings you disagree with
  • An explanation of why you disagree, including any supporting documents
  • The law or authority, if any, you are relying on
  • The signature of an officer, director, trustee, or other official who is authorized to sign for the organization, or your authorized representative
  • One of the following declarations:
For an officer, director, trustee, or other official who is authorized to sign for the organization:

Under penalties of perjury, I declare that I examined this protest statement, including accompanying documents, and to the best of my knowledge and belief, the statement contains all relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including accompanying documents, and to the best of my knowledge and belief, the statement contains all relevant facts 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 he or she hasn'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 provided a basis for us to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't provided a basis for reconsideration, we'll forward your case to the Office of Appeals and notify you. You can find more information about the role of the Appeals Office in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court at a later date because the law requires that you use the IRS administrative process first (Section 7428(b)(2) of the Code).

Where to send your protest


Please send your protest statement, Form 2848, if needed, and any supporting documents to the applicable address;

U.S. mail:

Internal Revenue Service
EO Determinations Quality Assurance
Room 7-008
P.O. Box 2508
Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Room 7-008
Cincinnati, OH 45202

You can also fax your statement 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 he or she received it.

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.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If you have questions, you can contact the person listed at the top of this letter.

Sincerely,

Director, Exempt Organizations
Rulings and Agreements

Enclosure:
Publication 892

Published August 24, 2018
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