department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date uil code dear contact person identification_number contact number employer_identification_number this is our final_determination that the subordinate clubs in your group ruling do not qualify for exemption from federal_income_tax as organizations described in internal_revenue_code sec_501 recently we sent you a letter that proposed an adverse determination on your request that we modify the exempt status of the subordinate clubs in your group ruling from code sec_501 to code sec_501 the letter explained the facts law and rationale and gave you days in which to file a protest you requested an additional days in which to submit a protest and we approved the extension because you did not file a protest within the extended period the proposed adverse determination is now final because the subordinate clubs in your group ruling do not qualify for exemption as organizations described in code sec_501 donors may not deduct contributions to them under code sec_170 based on our previous group ruling letter your subordinate clubs remain exempt under code sec_501 annual information returns on form 990-n 990-ez or depending on their levels of gross_receipts and assets see the instructions to the information returns for the years and for more specific guidance on which information_return to file your subordinate clubs should continue to file under separate cover we are sending you a final_determination that you also remain exempt under code sec_501 we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions if you disagree with our proposed deletions follow the instructions in notice lf you agree with our deletions you do not need to take any further action if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter if you have any questions about your subordante clubs’ annual requirements to file forms n 990-ez or or about other filing_requirements please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is enclosures notice redacted proposed adverse determination_letter redacted final adverse determination_letter sincerely rob choi director exempt_organizations rulings agreements department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number uil index tax_exempt_and_government_entities_division date legend x - b- c- d- x- y- e- f- g- h- i- j- k- l- m- n- o- p- q- r- s- t - i c i l s dear we have considered your request for a group ruling for your subordinate clubs pursuant to the provisions of revproc_80_27 1980_1_cb_677 based on the information provided we have concluded that you do not qualify for a modification of your group ruling changing classification of your subordinates from sec_501 to sec_501 of the internal_revenue_code irc the basis for our conclusion is set forth below a determination on your request for individual exemption will be issued under separate cover issue is it in the interest of sound tax_administration to approve your request for a modification of your group ruling to sec_501 no for the reasons explained below - alternative issue if in the future changes are made to your operations and it is determined you qualify for a group ruling under sec_501 should the changes and corrections result in a ruling prior to the effective date of the changes and or corrections no for the reasons explained below facts you x are a national organization with approximately x member clubs and more than y members you were originally formed as an unincorporated association and were later incorporated under the laws of the state of d you were granted exemption under sec_101 of the revenue act of the ruling was affirmed four separate times later in a group ruling and a supplemental group ruling the irs found that you and your subordinate clubs qualified under sec_501 as tax-exempt social clubs subsequently you and your subordinate clubs were granted exemption from federal_income_tax under sec_501 of the code as organizations not organized for profit but operated exclusively for the promotion of social welfare rather than as social clubs as described in sec_501 your group ruling exemption under sec_501 remains in effect you filed a form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code with your form_1023 you also requested to be reclassified under sec_501 for a group exemption on behalf of the e which i sec_2 a member club that has agreed to be bound by your constitution and bylaws because we determined that your group ruling_request extended beyond just one subordinate you were asked to select ten member clubs to act as a representative sample and the representative sample should consist of clubs from different states and varying sizes you were also asked to submit each member clubs’ organizational documents and income statements for the last three years you provided financial documents as well as organizing documents for six subordinate clubs we identified additional clubs to sample and in total information was received on the following representative subordinate clubs g h oj k e l m n o p q r a a summary of the information submitted including websites narrative information and meeting minutes is set forth below furthermore each of the member clubs submitted articles of amendment stating the purposes for which they are organized as follows the corporation is organized exclusively for charitable and educational_purposes set forth in sec_501 of the internal_revenue_code_of_1986 as now in effect on or as may be amended the code’ without limiting the generality of the foregoing the purposes for which the corporation is organized and will be operated include but are not limited to promoting an active interest in good government and civic affairs inspiring respect for law promoting patriotism and working for international accord and friendship among all people and aiding and encouraging the development of youth nothing herein shall be construed to give the corporation any purpose that is not permitted under sec_501 of the code and the d nonprofit corporation act the act g g holds executive meetings once a month at a local bakery and weekly meetings at a local community center meetings are open to members and guests g conducted several fundraising events such as a chili dinner magic show golf outing fish derby and packer raffles g represented that the purpose of the fundraisers is to raise funds for scholarship programs some of its other activities include an independence day parade tri-star baseball for children w junior miss with scholarship award essay contest and leaf raking for seniors the club provided a copy of its newsletter that states are you interested in developing new social and working relationships with individuals from a cross section in our community demonstrating and developing your leadership skills having fun with people who share your interest in our youth social activities included a christmas party installation dinner picnic and other social events in its meeting minutes the organization stated that members and guests attended the picnic g also submitted a copy of a brochure in which it states b club members receive as much as they give including the fellowship of people who get things done-and the example they set for embracing a similar v mindset new social and working relationships with individuals from a cross section of our community the opportunity to develop and demonstrate leadership skills locally regionally nationally and internationally and the satisfaction of making a difference in lives of children as well as our community h h holds once a month board meetings and twice monthly dinner meetings a newsletter provided by h states club meetings are held on the thursday of each month social 6pm dinner 7pm board meetings are first tuesday of month 7pm the calendar submitted for september of for example listed a total of six meetings one meeting was a board meeting two meetings were dinner meetings social one meeting was the installation banquet and the last meeting was described as a race party at the club house 6pm covered dish in addition to the dinners and parties h holds social events such as a super bowl party valentine’s day dinner and seafood appreciation dinner the board meeting minutes stated there will be a super bowl party at the club building starting pincite this willbe a family affair bring your own bottle and snacks of all sorts furthermore in other meeting minutes h thanked individuals for preparing the great seafood member appreciation dinner seventy six people were in attendance and remarked that the super bowl party held at the club building was a great success and there was a lot of family fellowship h also organized a day trip to an island in the area the club’s newsletter described the trip as follows am island august at after a pleasant ride supported by on saturday hardy souls led by chairman departed for a day trip to a local island blessed by beautiful weather the trip turned out to be both fun and very interesting our bus arrived and we then boarded for a ride to the a few adult beverages and a of camaraderie the group arrived at the island pincite here a guide met us and led us to a restaurant for a fantastic all you could eat lunch after lunch there was time for touring the island visiting gift shops etc before boarding the all in all it was ferry for the return to and reloading of the bus a great and enjoyable trip our thanks to for in organizing this day for our members to get together and enjoy each others company efforts his lot h conducted several fundraising activities such as a bbq fundraiser christmas_tree sales a stew fundraiser shrimp feast and golf tournament per the minutes of the board_of directors meetings the club considers that the fundraisers’ purpose was to raise funds for its charitable and educational causes such as paying for youth tournaments youth appreciation week youth sports tournaments oratorical contest and achievement in educational program local restaurant its financial records show that for each month according to ’s newsletter holds monthly meetings on the and thursday of each month at a beginning jan 07-sept the club spent anywhere from dollar_figure-dollar_figure per meeting on meals for members its other expenditures included dues and other_payments to x as well as expenditures_for medallions t-shirts and other prizes for its youth activities moreover the club held a marching band festival spring band concerts essay contest santa calling and special olympics raises funds through several fundraising activities including raffles j's activities include red ribbon week essay and oratorical contests santa visits j easter party at a cottage student of the month and junior world golf tournament the organization also holds monthly dinner meetings with a guest speaker members paid for their own meals and speakers from the community discussed a range of topics according to the agenda there was an introduction and explanation to members about a ten step program for personal growth the agenda maintains that after completing the program individuals are better b and have gained skills to assist others in their communities k k holds monthly board meetings but did not conduct lunch or dinner meetings for members the club participated in two primary fundraising events a golf outing at a country club and a comedy night at a high school some of the other club activities include youth connection holiday gift donation bell ringing for salvation army oratorical contest youth appreciation fishing derby safety booklets bike decoration and bike safety and tridge trot youth fitness in one of k’s brochures k states the programs and guest speakers offer the members an opportunity to learn grow and improve themselves the club listed several social and or recreational activities on its website including k golf outing and a baseball game outing you explained the k golf outing served as a fundraiser for the club as well as a member solicitation event the event was open to the public and approximately hours of volunteer time was spent in the activity baseball game outing as a served as an event to encourage new members to join k’s name was posted on the scoreboard at the stadium for advertisement for new members volunteer hours were less than social event among members of the club but also in that same letter you described the l lmet on a weekly basis and the weekly meeting was open to members and guests the club holds monthly board meetings the articles of amendment contain c language however one of the other purposes listed in its articles of incorporation is in of the use rule golden to encourage the all human relationships to strengthen the individual through the pursuit of high ideals and to tighten the bonds of fellowship among all men to exchange ideas methods information and business counties between members to engage in any and all activities such as are carried on by clubs known and designated as service clubs to cooperate with other organizations in the carrying out of any objective or purpose of this corporation the organization conducted several very large fundraisers such as the v fun day a car show and air races and rv park where it raised dollar_figure in describing the air races and rv park fundraiser the club said that over the years the r v park has assumed a greater significance than a mere fundraiser effort each year our members look forward to your stay with us your visits are very enjoyable events for us it is a time of renewing old acquaintances and making new friends the club sponsors two boy scout troops conducts essay and oratorical contests partner in education program a christmas party respect for law challenger little league and a scholarship program m m conducts the following activities dress a child hotline to santa family safety day oratorical contest respect for law banquet boy scout troop sponsorship high school rodeo sponsorship and a festival of lights m also held weekly friday lunch meetings the meetings lasted an hour and included a presentation by a speaker a raffle anda -20 meal in which each member paid dollar_figure the profit and loss statements for showed that two major fundraisers were conducted dress a child and x day m's brochure states that while it does support local charities and other organizations that are centered on children it is also not just about community service though we also like to have fun our meetings friday at lunch can become raucous and irreverent we enjoy our installation banquet each fall our christmas parties and our times when we just get together to be with friends n n holds weekly lunch time meetings with various speakers the club described its meetings as a gathering of friends informative guest speakers and social activities such as seasonal activities golf tournament fundraiser and bowl-a-thon fundraiser the club held two primary fundraising activities friends of youth golf tournament and bowl-a-thon n described its bowl-a-thon as follows it’s a party and it’s a fundraiser just as in our previous bowl-a-thons we will have some really great prizes to registered members who are most successful in raising money for the club’s community service work in an edition of n’s newsletter under the heading t the organization lists upcoming social events for its members e e let's see the city’s basketball team have a call into the city’s basketball team for a group rate for these games-let’s discuss which one you would like to attend and we will pick one for b night a night at the theatre this is the premiere of the best selling book by have reserved tickets for the group price of dollar_figure confirm them by feb 20th if we get a group together we can plan to meet for dinner before the show this is a delightful theater very intimate they also have a fabulous museum to visit during intermission each but must another issue of the newsletter describes a symphony night as season finale week and b night at the symphony special rate of dollar_figure music director brings the symphony season to an inspiring conclusion with odes and celebrations with post-concert discussion the club has service committees for the following activities that it conducts essay contest slam dunk for life scholarship luncheon vocational scholarship a memorial and other scholarships oratorical contest childhood cancer campus bike award gold youth leadership seminar citywide bike rodeo and annual installation banquet n also provided a description of its internal operations committees as follows e e weekly programs and speakers arrange for appropriate speakers on varied and timely topics fellowship-sign in table ‘weekly meeting greeters e e e e new member recruiting orientation integration organize a program that will enroll new members all year round encourage individual responsibility in getting new members see that new members have adequate introduction to c make sure they are being absorbed into the club cheer-check on ill or shut-in members bring greeting cards for members to sign when appropriate membership directory parties socials plans any social events the club desires such as christmas holiday party attendance at sports events family picnic etc all social events must be self-supporting q according to its form 990-ez o’s primary purpose is to support youth and community service activities the activities conducted by the club include a program for special abilities seniors road clean-up providing cultural and recreational opportunities for residents at a group home who come from dysfunctional family backgrounds an annual event where members assist in giving handicapped children an opportunity to fly in a small airplane kids news day christmas dinners for needy military families student appreciation scholastic awards oratorical contest essay contest tutoring and melodrama o conducted several large events described as fundraisers including craft shows football fun and golf and basketball tournaments the club provided social activities for its members including pancake breakfasts past presidents new years breakfast chili cook-off movie night kettle corn st patrick’s dinners st valentine’s party and an installation brunch o’s st patrick’s and valentine's day dinners parties are described by the club as primarily a fun social gathering of members spouses and invited guests the club regularly holds a movie night for its members the club uses the community room serves hot dogs chili popcorn and soft drinks and invites anyone interested at no charge the calendar of events listed movie nights the morning meeting minutes states that one of the members has extra tickets for a museum tour the club also holds breakfast meetings once a week for members and guests and monthly board_of director meetings per minutes of board_of directors meetings the club holds other meetings contained a reminder regarding an upcorning meeting don't forget next thursday's meeting will be an evening byo bbq 6pm so bring your own entrée to bbq-corn on the cob salads deserts and beverages will be provided-all for only dollar_figure the club has christmas pot-luck dinner clubhouse building craft fairs fellowship membership internal vp committees including committees for casino night movie night pasta night personal growth program st patrick’s day dinner and valentine’s day dinner p p’s website states that one meeting per month is a social event and that this event is different each month we try to find a different place to visit as a group from time to time we may invite a guest speaker to talk about youth a youth program or some interesting topic about our community this allows for fun and fellowship and we will most likely have something good to eat here you explained the meeting was designed to encourage recruitment of new members and whose purposes involve reaching out to youth must encourage social interaction among its members so those members will be able to successfully reach out to a younger generation that any organization q q stated on its website whether you're searching for an outlet to help your community personal development or regarding camaraderie and fellowship you will find what you're looking for at q the website further stated although the members of q come from all walks of life we have one thing in common-we know we can make a difference we also know that as b we receive as much as we give through the fellowship camaraderie and good humor we experience at our friday morning meetings and new social and business relationships with people from a cross section of our community one meeting per month was described as camaraderie day and the website provided a list of fun times including e entertainment provided at meeting wives children grandchildren to breakfast each year we try to have a special program for our wives children grandchildren at breakfast during christmas vacation honeymoon weekend each year in june many members and their wives significant others gather in a fun vacation spot for a weekend of honeymooning shared fun at mealtimes and activities and a wide range of activities or just relaxing make this a standout time and most enjoyable weekend holiday party q puts on a holiday party after the christmas_tree lot closes this event is usually at and is a fun way to meet new members and spouses and have a great time with music dancing and good food and libations summer picnic in late summer q puts on a summer picnic for members and their families usually try to coordinate this with a concert in the park sponsored by the city of the club provides a barbeque and drinks golf event each may the duffers get together and play a hole par course using only a putter and one other club we invite wives friends and have prizes and a picnic afterwards we also have numerous other golf outings during the summer including couples golf bridge group a monthly group plays couples bridge hosted in rotation at the participant's house join this fun activity as a great way to meet and compete with other members of the club e western dance each year a square dance is organized to keep us swinging and fit join this great activity as a fun way to socialize with members and have a rousing good time also it is a great way to bring guests to introduce them to club members and encourage them to join q’s newsletter described a day at the ballpark as follows the club will have a fundraiser handing out free jerseys at the game against a rival team there are only jerseys available so we won't have to work long and can then attend the game for free the newsletter further described the honeymoon weekend as a premium private accommodation honeymoon weekend that was attended by fishing shopping golf hiking pontoon boat rides a two hour cruise cocktail party saturday dinner and sunday brunch and another edition described the events that took place at the couples such activities included when asked to explain the purpose of the honeymoon weekend you stated that this was not a formal activity of the club this social function to the extent members elect to participate strengthened the bond of members to the organization you explained that the golf and bridge groups were likewise not a formal club activity you stated the golf event was merely a group of members getting together to encourage member interaction and to assist recruitment of new members you explained the holiday party summer picnic and western dance were designed to encourage member recruitment and member interaction r r’s website states in addition to its community service activities we also enjoy social events throughout the year which include our annual installations banquet club christmas party las vegas night and super bowl party as b we share the bond of fellowship enthusiasm and faith in the future vegas night is described as a night of gambling camaraderie and a few liquid refreshments the club christmas party is a christmas social for club members and their families and the super bowl social is a social activity held at a local establishment for adult club members and adult guests for dinner and beverages and the football game you explained that the purpose of vegas night was primarily designed as a member recruiting device in addition to serving as a fundraiser for the club sdollar_figure stated on its website that besides helping kids we also take time to have some s fun for ourselves including picnics project pizza parties and a christmas dinner party the website further stated our guest speaker program enables us to learn about community youth programs local services important events unusual occupations and professions and interesting public issues while enjoying good fellowship and good food the club’s website described field trips that the club regularly takes they say that variety is the spice of life well we provide that spice by periodically going on field trips in place of a regular club meeting in the past we have gone on a tour of the downtown fire station visited a local museum toured the remodeled ymca had an outside meeting at the gardens and toured a remodeled hotel in addition to the information you provided about the representative sample of subordinate clubs you also provided documentation about the structure of your member clubs and their general operations relating to social activities you explained the social and recreational activities conducted by your subordinates by stating as nearly all x member clubs rely exclusively on volunteers to provide services to achieve their charitable and educational goals if the club cannot offer its volunteers some degree of camaraderie and or fun in return for these needed services the club will have great difficulty in obtaining necessary volunteer support you stated any_tax exempt_organization must establish a sense of community or bonding among its existing members and continually recruit new members or the organization is destined for failure you further stated you provide member benefits such as fellowship and training to include personal development financial management and leadership development you provided fellowship by the very nature of our club structure you have others within your community to associate with like-minded people your website contained downloadable publications your member clubs can use in club administration including a diagram of a model club which is structured to contain committees for new club building club director of personal growth and fellowship and social functions in another document on your website you described the functions of the fellowship committee this committee stimulates fellowship at club meetings sends cards or flowers to members and their families on significant occasions strives to extend fellowship beyond club and community and plans a well-rounded program of social functions a special committee conducts each social activity furthermore in an article posted on your website to your member clubs concerning a reorganization plan you reassure the clubs that they will continue to provide programs and activities to the youth of their communities provide leadership opportunities to members and enhance social networking in your monthly newsletter that is mailed to all b clubs and other b volunteers you included advertisements encouraging travel tours with other b members as weil as a fundraising cruise for kids law sec_501 exempts from federal_income_tax corporations organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of its net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation except as otherwise provided in subsection h and which does not participate in or intervene in including the publishing or distributing of statements any political campaign on behalf of or in opposition to any candidate for public_office sec_501 provides that civic organizations not organized for profit but operated exclusively for the promotion of social welfare is exempt from federal_income_tax sec_1_501_c_3_-1 of the income_tax regulations provides 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 such exempt purposes specified in sec_501 an organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose sec_1_501_c_4_-1 of the income_tax regulations states that an organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community sec_1_501_c_4_-1 of the income_tax regulations provides that an organization will not qualify for exemption as a civic organization described in sec_501 of the code if its primary activity is the operation of a social_club revproc_80_27 1980_1_cb_677 sets forth procedures under which recognition of exemption from federal_income_tax under sec_501 of the internal_revenue_code may be obtained on a group basis for subordinate organizations affiliated with and under the general supervision or control of a central organization this procedure relieves each of the subordinate organizations covered by a group_exemption_letter from filing its own application_for recognition of exemption the central organization applying for a group_exemption_letter must obtain recognition of its own exempt status revproc_2010_4 2010_1_cb_121 section provides that the service ordinarily will not issue a letter_ruling or determination_letter in certain areas because of the factual nature of the problem involved or because of other reasons the service may decline to issue a letter_ruling or a determination_letter when appropriate in the interest of sound tax_administration or on other grounds whenever warranted by the facts or circumstances of a particular case revrul_65_195 1965_2_cb_164 held that a junior chamber of cornmerce operated exclusively for the purpose of rendering civic services for the promotion of the welfare of the community and its citizens is exempt under sec_501 of the code the facts showed that the organization was primarily engaged in bringing about civic betterments and social improvements by its activities on behalf of youth community benefit programs and community leadership training these youth activities consisted in part of free instruction in sports and the organization of contests and conducted other projects for the youth of the community in addition to its youth programs the organization conducted numerous other programs for the benefit of the community at large including improvement of health and safety conservation city beautification promotion of patriotism and entertainment at hospitals and veterans homes the organization also conducted training designed to teach techniques of effective public speaking and in the rules of parliamentary procedure in furtherance of these purposes the organization maintains and operates a revrul_66_179 1966_1_cb_139 describes situations under which garden clubs may qualify for exemption under sec_501 of the code situation describes an organization that is incorporated as a nonprofit organization to instruct the public on horticultural subjects and stimulating interest in the beautification of the geographic area free library of materials on horticulture and allied subjects instructs the public on correct gardening procedures and conservation of trees and plants by means of radio television and lecture programs holds public flower shows of a noncommercial nature at which new varieties of plants and flowers are exhibited makes awards to children for achievements in gardening encourages roadside beautification and civic planting and makes awards for civic_achievement in conservation and horticulture situation described an organization with the same facts as described in situation except that a substantial part of the organization’s activities but not its primary activity consists of social functions for the benefit pleasure and recreation of its members the organization in situation educational_purposes and qualifies for exemption under sec_501 of the code the facts in situation are distinguishable from those in situation organization in situation conducts substantial social functions not in furtherance of any of the purposes specified in sec_501 accordingly the organization does not qualify for exemption under sec_501 however because the organization is operated primarily to bring about civic betterment and social improvements and the social functions for the benefit pleasure and recreation of the members do not constitute its primary activity the organization qualifies for exemption under sec_501 is organized and operated exclusively for charitable and in that the revrul_68_72 1968_1_cb_250 described an organization formed by a group of churches to operate a coffee house for the purposes of holding discussions on religion current events and social problems and to provide young adults personal counseling on social and vocational problems refreshments and entertainment were made available and a nominal admission fee was charged the revenue_ruling concluded that the social aspects of the organization's activities were merely incidental to and in furtherance of its purposes accordingly the organization is exempt from federal_income_tax under sec_501 of the code revrul_68_118 1968_1_cb_261 provides a nonprofit organization that stimulates the interest of youth in the community in organization sports qualifies for exemption under sec_501 of the code the primary activity of the organization was to furnish free admission to professional sporting events to boys and girls in the community years of age or younger the organization also awarded prizes such as trips to sporting events for various essay contests the service ruled that the organization was providing wholesome entertainment for the social improvement and welfare of the youths of the community that promotes the common good and general welfare of the people of the community revrul_69_384 1969_2_cb_122 provides that a nonprofit organization created for the primary purpose of maintaining an amateur baseball association and conducting amateur baseball games among its members’ teams is exempt under sec_501 of the code the service ruled that by helping to develop good sportsmanship high character and the physical well-being of young adults through the operation of an amateur baseball league the organization was promoting the common good and general welfare of the people of the community revrul_69_573 1969_2_cb_125 provides that a fraternity that maintains a chapter house for active members who are students of the school is not exempt under sec_501 of the code but is exempt under sec_501 although the typical college fraternity does in some degree contribute to the cultural and educational growth of its members during their student years it was not its primary purpose the fraternity was determined to be primarily a social_club in that its major functions were to provide a meeting place for its members living quarters for many of them the place where their meals were served and the headquarters for their entertainment revrul_70_4 1-c b provides exemption under sec_501 of the code to an organization engaged in promoting and regulating a sport for amateurs the organization's primary activities are directed toward reviving and promoting a sport by circulating printed material about the sport by conducting exhibitions to introduce the sport to the public by conducting tournaments and by giving occasional instructive clinics the organization also sets the standards for the equipment to be used establishes the official rules of the games and prescribes the official size of the playing area organization is providing wholesome activity and entertainment for the social improvement and welfare of the community that promotes the common good and general welfare of the people of the community by promoting and regulating a sport for amateurs the service ruled that the revrul_73_439 1973_2_cb_176 held as non-exempt under sec_501 a discussion group that held closed meetings at which personally oriented speeches were given followed by the serving of food and other refreshments each meeting was conducted as to encourage personal contact and fellowship among members the topic discussed by the faculty guest speakers did not necessarily reflect their particular areas of academic expertise it was concluded that there was no evidence that the topics discussed fell within any particular field of inquiry nor did the discussions communicate any organized body of knowledge or information that would develop or improve the individual capabilities of the participants to a significant extent or result in any public benefit the meetings were more akin to the socializing that takes place at meetings of fraternal and professional clubs revrul_75_386 1975_2_cb_211 provides that a nonprofit organization formed to promote the common good and general welfare of the residents of a community and which carries on activities in the general areas of public safety and crime prevention housing and community development recreation and community services qualifies for exemption under sec_501 of the code with regard to its recreational activities the organization held various holiday programs for local residents and sponsored a community basketball league revrul_77_366 c b provides that a nonprofit organization that arranges and conducts winter-time ocean cruises during which activities to further religious and educational_purposes are provided in addition to extensive social and recreational activities is not operated exclusively for exempt purposes and does not qualify for exemption under sec_501 the organization accomplished both charitable and non-charitable purposes through its cruises revrul_77_430 1977_2_cb_194 provides exemption under sec_501 of the code to an organization that was formed to conduct weekend religious retreats that were open to the public the retreats were conducted at a rural lakeshore site that offered recreational opportunities for attendees the service ruled that the use of facilities for recreational purposes was incidental to the organization’s religious purpose better business bureau v united_states 326_us_278 the court held that if an organization is not operated exclusively for charitable purposes it will not qualify for exemption under sec_501 if it has a single non-charitable purpose that is substantial in nature this is true regardless of the number or importance of the organization's charitable purposes in 307_f2d_357 5th cir the court_of_appeals held that a gift to a fund to acquire and maintain a chapter house for a fraternity did not qualify for exemption as a charitable and educational_organization within the meaning of sec_501 of the code the court reasoned that while this activity furthered educational_purposes it also furthered social purposes and thus the organization did not operate exclusively for sec_501 purposes and did not qualify for exemption under sec_501 in 74_tc_396 the court stated that the church failed to show that it successfully segregated the clearly social and political aspects of its supper club meetings and its publication from its purpose to further the doctrine_of ethical egoism as the church operated for social and political purposes to more than an insubstantial degree it fails to qualify for exemption under sec_501 of the code the court stated that an organization will not qualify for exemption if a non-exempt activity is more than an insubstantial part of its overall activities or if an activity has more than an insubstantial non-exempt purpose the court explained that clearly the regulations and cases contemplate that a single activity may be carried on for more than one purpose if a substantial secondary purpose is not an exempt one qualification under sec_501 will be denied analysis based on the information you submitted and for the reasons explained below it is not in the interest of sound tax_administration to approve your request for a group ruling under sec_501 because we have concluded that more than an insubstantial part of your subordinates’ activities are not in furtherance of an exempt_purpose under sec_1_501_c_3_-1 of the regulations your subordinate clubs are currently classified as organizations exempt under a group ruling under sec_501 organizations exempt under sec_501 are generally allowed greater latitude than that allowed to organizations exempt under sec_501 under sec_501 an organization must show that it is organized and operated exclusively for tax-exempt purposes however under sec_1 c - a i of the regulations a sec_501 organization must demonstrate that its activities primarily benefit the community as a whole thus a sec_501 organization may have more than an incidental amount of social or other non-exempt activities and still qualify for exemption as long as those activities are not primary however those same activities if more than insubstantial will disqualify the organization from tax exemption under sec_501 operational_test although your subordinates do conduct charitable and educational activities you have failed to show these subordinates are operated exclusively for one or more tax-exempt purposes as required by sec_501 although your subordinates have revised their governing documents to include c language you have not shown that they have actually changed operations such that they would qualify as an organization described within the meaning of sec_501 more than insubstantial non-exempt purpose although an organization may carry on activities that further one or more tax-exempt purposes it will not be treated as operated exclusively for an exempt_purpose if it has a single non-charitable purpose that is substantial in nature see better business bureau v united_states supra furthermore a more than insubstantial social purpose will defeat exemption under sec_501 of the code see first libertarian church v commissioner of internal revenue supra church that operated for social and political purposes to more than an insubstantial degree failed to qualify for exemption under c see revrul_73_439 supra non-exempt discussion group held meetings that were more akin to socializing that takes place at meetings of fraternal and professional clubs see revrul_77_366 supra winter cruise with religious and educational_purposes as well as social and recreational activities not exempt under c and see revrul_66_179 supra garden club that conducts substantial social functions not exempt under c for example your your internal structure evidences an intent to make social networking and club building more than an insubstantial feature of your operations and as a result more than an insubstantial feature of your subordinate clubs’ operations as well website provides a diagram for a model club which would be structured to contain committees for new club building club director of personal growth fellowship and social functions you state that one of the purposes of the fellowship committee is to plan a well rounded program of social functions many of your subordinates have established these internal operating cornmittees that are social in nature such as n’s fellowship new member recruiting and orientation integration and parties and socials committees o for example has committees for casino night christmas pot-luck dinner clubhouse building craft fairs fellowship membership movie night pasta night personal growth program st patrick’s day dinner and valentine’s day dinner your subordinate clubs are unlike the organization described in revrul_68_72 supra because a substantial part of their club structure is devoted to planning and carrying out activities that do not further an exempt_purpose your marketing and public affairs information on behalf of your member clubs also shows that you are engaged in more than insubstantial social and networking activities in contravention of sec_501 for example in an article to your member clubs concerning a reorganization plan you reassure the clubs that they will continue to provide programs and activities to the youth of their cornmunities provide leadership opportunities to members and enhance social networking in fact in your monthly newsletter that is mailed to all b clubs and other b volunteers you included advertisements encouraging travel tours with other b members as well as a fundraising cruise for kids unlike the organizations described in revrul_77_430 supra and revrul_68_72 supra you failed to show that your social and recreational purposes are merely incidental to your exempt charitable purpose through your marketing and outreach efforts you signal that social and networking activities are key to your subordinate clubs’ operations in addition to your internal structure and marketing and public affairs information an analysis of a representative sample of your subordinate clubs shows that your subordinates are not operated exclusively for tax-exempt purposes under sec_501 due to the nature of their social activities your subordinates’ social activities are conducted at meetings parties trips and recreational events as well as fundraisers they conduct weekly meetings at which members eat a meal and listen to various speakers in the community although these meetings may be characterized to serve your charitable purposes they are primarily social events for your members carried out to further your non-exempt social purposes see revrul_73_439 supra in which a discussion group was held to be non-exempt where its meetings were more akin to the socializing that takes place at meetings of fraternal and professional clubs h described these weekly meetings as social dinners n described their weekly meetings as a gathering of friends informative guest speakers and social activities m holds weekly friday lunch meetings and stated in its brochure that we’re not just about community service though we also like to have fun our meetings friday at lunch can become raucous and irreverent p stated that one meeting per month is a social event stating that the meeting allows for fun and fellowship q provided that one meeting per month was to be a camaraderie day and stated on its website that we also know that as b we receive as much as we give through the fellowship camaraderie and good humor we experience at our friday morning meetings and new social and business relationships with people from a cross section of our community in addition to the weekly meetings your subordinates conducted parties for their members which are not in furtherance of an exempt charitable purpose see sec_1_501_c_3_-1 of the regulations supra these parties included super bowl parties valentine’s and st patrick’s’ day parties christmas parties and other similar holiday events and dinners and social events including movie nights for members in one club for example the calendar for the month of date showed six meetings four of which were social events including dinner meeting socials an installation banquet and a race party at the club house h described its super bowl party as a great success and there was a lot of family fellowship r stated that in addition to its community service activities it enjoyed social events through the year including among others las vegas night and a super bowl party vegas night was described as a night of gambling camaraderie and a few liquid refreshments o described its st valentine and st patrick’s day parties as primarily a fun social gathering of members spouses and invited guests and g discussed in its newsletter developing new social and working relationships as well as having fun with others s partakes in both parties and trips it states that besides helping kids we also take time to have some fun ourselves including picnics after project pizza parties and a christmas dinner party the club describes field trips that the club regularly takes in place of regular meetings including trips to local museums and the ymca etc furthermore some clubs such as n offered what it called v opportunities such as a night at the symphony a night at the theater and tickets to basketball games o holds regular movie nights for its members serving hot dogs chili and popcorn many of the recreational events that the subordinate clubs sponsor for their members include card games golf outings day trips and weekend retreats your newsletter advertises a travel tour for b h organized a day trip to a local island that included a boat ride lunch tour of the island and shopping k sponsored a golf outing and a baseball game outing q sponsored a honeymoon weekend where couples engaged in such activities as fishing shopping golf hiking pontoon boat rides a two hour cruise cocktail party saturday dinner and sunday brunch at a private accommodation this club also sponsored golfing and card games see revrul_69_573 supra in which a fraternity was determined to be a social_club in that its major functions were among other things to serve as the headquarters for their entertainment although an activity may serve more than one purpose such as fundraising the fundraisers conducted by your subordinates are also events designed to foster member interaction and serve more than an incidental non-exempt social networking purpose these events classified as fundraisers include raffles sporting tournaments bbq's comedy nights and golf outings etc n for example held two primary fundraising events friends of youth golf tournament and a bowl-a-thon the bowl-a-thon was described as both a party and a fundraiser l conducted the sun valley fun day and an r v park fundraiser the r v park according to l has assumed a greater significance than a mere fundraiser effort for us it is a time of renewing old acquaintances and making new friends h conducted a bbq fundraiser a stew fundraiser shrimp feast and golf tournament o conducted craft shows football fun and golf and basketball tournaments you are similar to the organization described in phinney v dougherty supra in which the court found that although a tax-exempt purpose existed the organization also furthered social purposes and therefore did not qualify for exemption under sec_501 see first libertarian church v commissioner supra in which the court explained that clearly the regulations and cases contemplate that a single activity may be carried on for more than one purpose if a substantial secondary purpose is not an exempt one qualification under sec_501 is denied when asked to explain the social activities of your subordinates you described some of these outings and other activities as member recruitment events and argued that any_tax exempt_organization must establish a sense of community or bonding among its existing members and continually recruit new members or the organization is destined for failure while it is true that there will be some degree of member interaction and recruitment activities within an organization those non-exempt activities must remain incidental to the organization’s overall charitable purposes for your subordinates the enhancement of social networking and other member recruitment and retention activities are not merely incidental to accomplishing their exempt charitable purposes as the court held in better business bureau v united_states supra the presence of a single non-exempt purpose that is substantial in nature will destroy any exemption under sec_501 social welfare purpose sec_501 provides that a civic organization not organized for profit but operated exclusively for the promotion of social welfare is exempt from federal_income_tax in revrul_65_195 supra the organization was primarily engaged in bringing about civic betterments and social improvements by its activities on behalf of youth community benefit programs and community leadership training however under sec_1 c -1 a ii of the regulations the organization will not qualify for exemption as a civic organization described in sec_501 if its primary activity is the operation of a social_club your subordinates’ primary purposes are to promote an active interest in good government and civic affairs inspire respect for law promote patriotism and work for international accord and friendship among all people and aid and encourage the development of youth your subordinates are similar to the organization described in revrul_65_195 supra in which the service ruled that the organization's youth activities including instruction in sports and the organization of contests and its community leadership training activities furthered social welfare purposes under sec_501 of the code the development of youth through the program annual international essay oratorical and communication contest for the hard of hearing as well as respect for law week promotion of non-violence activities youth appreciation and youth safety activities are all programs conducted for purpose of bringing about civic betterments and social improvement and therefore promote the common good and general welfare of the people in the community see also revrul_75_386 supra an organization that carries on activities in the general areas of public safety and crime prevention housing and community development recreation and community services qualifies for exemption under sec_501 your subordinates participate in your annual international junior golf championship to promote the interest of youth in amateur sports to provide physical fitness and good sportsmanship your subordinates also conduct tri-star sports skills activities that offer children the opportunity to participate in sports such as basketball baseball soccer football and in-line skating the service has ruled that an organization that stimulates the interest of youth in the community in sports qualifies for exemption under sec_501 by promoting the common good and general welfare of the people of the community see revrul_68_118 supra organization that furnished free admission for youth to professional sporting events was considered to provide wholesome entertainment for social improvement and welfare of the community under c see also revrul_69_384 supra the development of good sportsmanship high character and the physical well-being of young adults through the operation of an amateur baseball league promotes the common good and welfare of the people of the community see revrul_70_4 supra the promotion and regulation of a sport for amateurs promotes the common good and general welfare of the people of the community furthermore your subordinates are similar to the organization described in situation of revrul_66_179 supra which was found to be exempt under sec_501 and unlike the organization described in situation which was found to be exempt under sec_501 situation described a garden club that was organized for purposes of instructing the public on horticultural subjects and stimulating interest in the beautification of the geographic area but that also conducted substantial social functions for the benefit pleasure and recreation of its members your subordinates are more like the organization described in situation because although the clubs are operated for the purpose of providing youth development programs through such activities as oratorical contests youth recreational activities and other youth programs they are also operated to further the social purposes of their members more than insubstantially and are therefore more appropriately exempt under sec_501 rather than sec_501 c applicant's position in your responses you proposed various changes including making specific changes to your member clubs you stated assuming the service becomes comfortable with the changes we would ask that the pending group exemption under sec_501 be issued on a prospective basis effective date you explained that the changes were proposed and you asked to engage in settlement type discussions to determine exactly what modifications the service will require in each instance you outlined your disagreement with the service's position and stated that our immediate goal is to determine exactly what modifications must be made to the activities and operations so that a group exemption can be granted the following summarizes your proposed changes and discusses the areas of disagreement proposed changes you proposed changes to your website you stated references to fellowship personal development and association with like-minded people will be eliminated instead the website will read financial management training for the member club and leadership training for club members to encourage future leaders of the merriber club you stated that the organizational renewal plan was rejected and that if it is reinstated you proposed that it will not include any references to social networking you proposed that you will request that the website of f delete the references stating that your members will grow personally and enhance social and business relationships you proposed the model club committees for fellowship and social functions will be abolished you proposed deleting from brochures references to fellowship and social networking you proposed future newsletters will not publicize travel opportunities for members you proposed implementing a club activities report which each member club will be required to complete annually that reports the volunteer hours expended for social activities which are not fundraisers relative to all volunteer hours expended by club members the report will also request information relating to total club costs allocable to social activities which are not fundraisers relative to the costs of all events and activities of the club draft member club pledge you submitted a draft member club pledge and stated that it addressed the issues raised by the service your response included signed pledges from the sampled subordinate clubs the pledge provides that the club agrees all speakers at club meetings must present items of interest to the general_public that are consistent with the charitable and educational_purposes of x speakers will not present topics of personal benefit to club members other than the annual meeting at which club officers are elected all club meetings will be open to the public the club will undertake reasonable efforts to encourage members of the general_public to attend club meetings other than the annual meeting club activities which are not fundraisers and which primarily involve social activities shall be limited as follows a b total volunteer hours expended by club members in organizing and operating activities which are primarily social shall not exceed percent of the total hours expended by club members in organizing and operating all club events for each fiscal_year total costs allocable to activities which are primarily social events shall not exceed percent of the total costs of all costs for all activities of the club for each fiscal_year and c the club will comply with all recordkeeping requirements required by x to confirm satisfaction of the two aforementioned requirements club marketing materials including newsletters designed to encourage participation by new members will not a promote the development of social and networking relationships b promote the improvement of personal skills other than leadership skills which shall be promoted only for the purpose of developing new leaders for x member clubs promote fun or camaraderie promote personal return other than the personal satisfaction that a club member experiences as a result of giving to youth promote personal fellowship or promote the fact that a member will receive something in return for participating other than the feeling one gets when he or she helps out a o o a person in need the club will not maintain a fellowship committee or a social committee nor will any other committee of the club engage in the promotion of any activity described in a through f above areas of disagreement you disagree that member clubs operate for more than an insubstantial non-exempt purpose you contend that to characterize a meeting where a meal is served as social is simply wrong you point out that meetings are almost always open to the public often present speeches from persons outside the club focusing on matters relating to community service to promote youth and public service as well as identify successes in community outreach in addition money raised by member clubs is used to achieve charitable and educational_purposes not for upkeep of meeting houses you also state the purpose of club meetings is to address ways to engage in community outreach further you state the meetings are not the activities which achieve your exempt purposes but instead represent an effective means to design organize and implement activities which achieve your exempt purposes with respect to convention social activities you contend that the service ignores the fact that the social interaction is conducted as an adjunct to an activity which is already related to your exempt purposes specific clubs you contend that many of the events identified by the service as social activities were instead fundraisers with respect to club h you state that even with respect to those events which are not fundraisers but involve social activities such as a super bowl party and seafood appreciation dinner the service ignores the fact that these events are member recruitment events and the time and cost expended on such activities would almost certainly satisfy the rule also with respect to club h you state the fact that the first hour of these meetings is referred to as social is simply a reflection that the first hour which is not mandatory for attendees does not involve the conduct of club business which is specifically reserved for the second hour with respect to club j you state that even if one were to treat the member meetings as a social function the rule would be satisfied both with respect to time and cost associated with these meetings with respect to club k you state that the club golf outing was a fundraiser and the baseball game event was a member recruitment event with respect to club l you contend that the newsletter statement opportunity to renew old acquaintenances and make new friends was taken out of context as the event was to raise funds with respect to club n you state the members’ right to purchase discounted tickets to two community events basketball game and symphony involved virtually no club volunteer time and the club expended no club funds on the activity with respect to club o’s st patrick’s and valentine’s day parties you state the activities are member retention and new member development events with time and expense associated with the events being minimal you also contend the time and costs associated with movie nights was materially insignificant in comparison with the time and costs expended in all club activities further you state craft shows football fun and basketball and golf tournaments are all fundraisers and not social events you state club p is now defunct and no longer included in the group exemption with respect to club q you state the honeymoon weekend bridge group and golf outings are not even formal club events as they involve no expenditure of time and money by the club instead the club’s website was simply used by club members to make other members aware of these non-club activities with respect to club r you state the vegas nights serves two functions member recruitment and fundraising the time expenditure and monetary cost of the club christmas party and super bowl party is very insignificant relative to all club activities with respect to club s you state the club is now defunct and no longer included in the group ruling documentation you provided additional documentation including the back to school workshops applicant's position conclusion you contend that most of the social activities are incidental to either a club meeting designed to discuss ways to achieve exempt purposes or a fundraiser further you contend that other social activities involve such a limited expenditure of time and financial resources for the relevant club that it cannot be classified as anything other than incidental service response to applicant's position we have considered your proposed changes as outlined the facts continue to show your subordinates are not operated exclusively for sec_501 purposes as more than an insubstantial part of your operations include social and other non-501 c purposes revproc_2010_9 updated annually explains that the determination_letter is based solely upon the facts and representations contained in the administrative record proposed activities must be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements for exemption pursuant to the section of the internal_revenue_code under which exemption is claimed both your past and your proposed operations include more than insubstantial social and other non-501 c purposes service response to proposed changes your proposed changes included changes to your website and the websites of several subordinates clarification of your leadership development removal of the appreciation luncheon and entertainment_expenses from your convention agenda removal of references to social networking the abolishment of fellowship and social function committees the deletion in brochures of references to fellowship and social networking and you will not publicize travel opportunities for members while the proposed changes show a willingness to modify several areas where the service found evidence of non- sec_501 operations the facts continue to show in both past and proposed operations evidence of more than insubstantial non- sec_501 operations subsequent reviews of your website and the websites of your subordinates continue to show fellowship and social purposes for example h’s current website listed a social pincite pm and a family gathering at a member’s house where the fellowship of friends and family was memorable in addition an annual picnic was advertised as bring a covered dish and a chair and join the fun m’s website continues to state we also enjoy our installation banquet each fall our christmas parties and our times when we just get together to be with friends r’s website states we enjoy a few social events throughout the year and describes the installation banquet as a social dinner for members and spouses a fun evening with other club members q’s website describes weekly friday meetings as fellowship camaraderie and good humor and new social and business relationships with people from a cross section of our community q’s christmas party was described as a christmas social for the club members and their families service response to draft club activities report and draft member club pledge the report and pledge both attempt to track and monitor various aspects of your subordinate clubs operations as a parent of a group exemption it is your responsibility to ensure that each subordinate meets the requirements of exemption under the subsection under which exemption is claimed the report and pledge as presented do not adequately restrict each subordinates operations to exclusively sec_501 purposes nor do they demonstrate satisfactorily the methodology of monitoring or ensuring compliance with sec_501 purposes the draft report applies solely to volunteer hours expended for social activities and excludes social activities which may also be described as fundraisers there was no explanation provided which distinguished a purely social activity from a social activity that is a fundraiser nor does there appear to be a method of capturing data on all operations not just those that are social and not a fundraiser your draft member club pledge likewise applied only to social activities which are not fundraisers and solely to volunteer hours in addition the pledge used the phrase primarily social and stated that the hours expended may not exceed percent and costs may not exceed percent here too there is no explanation of how primarily social is determined or how a social event may be distinguished from a fundraiser or other club operations further there appears to be no explanation of how an activity is to be characterized when it includes a mix of both social and fundraising purposes the percent threshold is also insufficient as the code simply states that no more than an insubstantial amount be devoted to non- c purposes no more than insubstantial is not numerically defined and instead is based on all the facts and circumstances the removal of certain language from marketing materials and newsletters and the elimination of a fellowship or social committee do not demonstrate sufficiently such purposes and operations have been eliminated by your members clubs service response to areas of disagreement clearly your subordinates conduct numerous sec_501 activities the issue remains to what extent non-501 c activities are conducted the characterization of meetings as social was not made by the service but rather was language taken from the descriptions provided by you and your subordinates in newsletters brochures and websites the facts continue to show that more than an insubstantial part of your subordinates’ operations is for non-501 c purposes service response to specific clubs with respect to clubs h j and k you contend the specified events were member recruitment events and the time and costs expended would satisfy the rule the literature describing the events did not mention member recruitment instead the events were described as a family affair and that there was a lot of family fellowship or you stated that the event was a social event among members of the club but also served as an event to encourage new members to join there was no evidence showing the events were member recruitment activities there was no evidence of solicitation of new members to attend the events the number of prospective members attending or the number of new members acquired as a result of the events further as explained above the code does not numerically define no more than insubstantial with respect to club n even though the amount of time was minimal and no funds were expended the right to purchase discounted tickets to community events was clearly described as a benefit to members and was for a non-501 c purpose with respect to club o you submitted no factual evidence that the st patrick’s and valentine’s day parties were member retention and new member development events the facts describe the events as fun social gatherings you also provided no factual evidence to support that movie nights were materially insignificant or that craft shows football fun and golf tournaments were fundraisers the calendar of events listed movie nights no evidence was provided to support your position that craft shows football fun and golf tournaments were fundraisers with respect to club q you state the club’s website was used by club members to make other members aware of non-club activities as noted above the honeymoon weekend was an annual event the bridge group was a monthly event and the golf events were described as numerous the facts also discussed a number of other social events such as an annual square dance which was a fun way to socialize with members the website did not identify the events as non-club activities instead the facts show the social events were frequent and were promoted as member events with respect to club r you state vegas nights serves two functions member recruitment and fundraising r’s website did not describe the events as member recruitment or as fundraisers instead the website stated that you enjoy social events throughout the year which include las vegas night you go on to state the clubs christmas party and super bowl party are very insignificant relative to all club activities however you did not provide documentation showing how the significance of the events compared to all events was determined service response to applicant's position conclusion even though you state social activities are incidental designed to achieve exempt purposes or involve limited expenditure of time or funds you have submitted no factual evidence to support your claim on the contrary newsletters and websites define events as social and do not describe the events as otherwise conclusion despite your claim that the subordinates meet the requirements for classification under sec_501 the facts revealed numerous examples where non-501 c purposes and activities were present your characterization of the questionable purposes or activities as fundraisers and or member recruitment events did not further your claim but rather weakened it as you provided no facts which supported your characterizations by the same token you failed to demonstrate you have adequate control to ensure your subordinates meet the exclusively standard of sec_501 therefore in accordance with revproc_80_27 and revproc_2010_4 we propose to deny your request for a modification of your group ruling to sec_501 as it is not in the interest of sound tax_administration alternative issue we conclude your proposed changes and corrections are not sufficient as proposed or as adopted further if changes are made to the operations of your subordinates and it is determined you qualify for a group ruling under sec_501 in no event should approval be granted retroactively as the history purposes and operations of your subordinates have clearly extended beyond the scope of sec_501 the group ruling issued to you under sec_501 remains in effect contributions to organizations described in sec_501 are generally not deductible by donors you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if that information affects our determination if your statement does not provide a basis to reconsider our determination we will forward your case to our appeals_office you can find more information about the role of the appeals_office in publication exempt_organization appeal procedures for unagreed issues types of information that should be included in your appeal can be found on page of publication under the heading regional_office appeal these items include a n o r n o the organization’s name address and employer_identification_number a statement that the organization wants to appeal the determination the date and symbols on the determination_letter a statement of facts supporting the organization’s position in any contested factual issue a statement outlining the law or other authority the organization is relying on and a statement as to whether a hearing is desired the statement of facts item must be declared true under penalties of perjury this may be done by adding to the appeal the following signed declaration under penalties of perjury declare that have examined the statement of facts presented in this appeal and in any accompanying schedules and statements and to the best of my knowledge and belief they are true correct and complete your appeal will be considered incomplete without this statement if an organization’s representative submits the appeal a substitute declaration must be included stating that the representative prepared the appeal and accompanying documents and whether the representative knows personally that the statements of facts contained in the appeal and accompanying documents are true and correct an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you during the appeal process to be represented during the appeal process you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs qov forms and publications if you do not intend to protest this determination you do not need to take any further action determination_letter to you if we do not hear from you within days we will issue a final adverse please send your protest statement form_2848 and any supporting documents to the applicable address mail to deliver to internal_revenue_service exempt_organizations p o box cincinnati oh att internal_revenue_service eo determinations quality assurance main street cincinnati oh att you may also fax your statement using the fax number shown in the heading of this letter letter to confirm that he or she received your fax if you fax your statement please call the person identified in the heading of this if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely robert s choi director exempt_organizations rulings agreements


internal_revenue_service number release date index number ------------------------------- ----------------------------- -------------------------- ---------------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number --------------------- refer reply to cc psi b03 plr-107786-10 date august company ------------------------------------------------------------------------------------------------- ----------------------- state ------------ d1 d2 ------------------- ---------------------- dear -------------- this letter responds to a letter dated date and subsequent correspondence submitted on behalf of company requesting a ruling under sec_1362 of the internal_revenue_code facts company was incorporated under the laws of state on d1 company’s shareholders intended company to be treated as an s_corporation as of d2 and relied upon a qualified_tax professional to file the election however a form_2553 election by a small_business_corporation was not timely filed for company company represents that it has reported consistently with company’s intended status as an s_corporation plr-107786-10 law and analysis sec_1362 provides that except as provided in sec_1362 a small_business_corporation may elect in accordance with the provisions of sec_1362 to be an s_corporation sec_1362 provides that an election under sec_1362 may be made by a small_business_corporation for any taxable_year a at any time during the preceding_taxable_year or b at any time during the taxable_year and on or before the 15th day of the third month of the taxable_year sec_1362 provides that if a a small_business_corporation makes an election under sec_1362 for any taxable_year and b the election is made after the 15th day of the third month of the following taxable_year then such election shall be treated as made for the following taxable_year sec_1362 provides that if a an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by sec_1362 for making the election for the taxable_year or no sec_1362 election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat the election as timely made for the taxable_year and sec_1362 shall not apply conclusion based solely on the facts submitted and representations made we conclude that company has established reasonable_cause for failing to make an s_corporation_election thus we conclude that company is eligible for relief under sec_1362 accordingly if company makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 effective d2 within days following the date of this letter we rule that the election shall be treated as timely made a copy of this letter should be attached to form_2553 a copy is enclosed for that purpose except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically no opinion is expressed or implied as to whether company is otherwise eligible to be an s_corporation for federal tax purposes this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent the ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed plr-107786-10 by an appropriate party while this office has not verified any of the material submitted in support of the ruling_request it is subject_to verification on examination in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely s james a quinn senior counsel branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes


office_of_chief_counsel from department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-114723-04 uilc memorandum for director internal_revenue_service center cincinnati oh attn technical unit office of division counsel associate chief_counsel tax exempt and government entities cc tege eoeg et1 - genin-114723-04 railroad retirement act tax status morristown erie railway inc d b a maine eastern railroad ms lucille siebold comptroller post office box morristown new jersey subject in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business became an employer under the railroad retirement act and the railroad unemployment insurance act effective date we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that morristown erie railway inc d b a maine eastern railroad became an employer under the railroad_retirement_tax_act effective date please take the appropriate action regarding this business cc mr wayne van dyck internal_revenue_service first street suite roanoke va __________________ joseph w spires


t c memo united_states tax_court elizabeth varela petitioner and jose m lozano intervenor v commissioner of internal revenue respondent docket no filed date held over i's objection p is relieved from joint_and_several_liability troy c brown for petitioner jose m lozano pro_se brock e whalen and daniel n price for respondent memorandum findings_of_fact and opinion halpern judge petitioner and intervenor married to each other during and made joint returns of income for those years for respondent determined a deficiency in their federal_income_tax of dollar_figure and an accuracy-related_penalty of dollar_figure for he determined a deficiency of dollar_figure and an accuracy-related_penalty of dollar_figure although respondent addressed one notice_of_deficiency to both petitioner and intervenor intervenor did not petition the court for redetermination of the deficiencies and penalties and on account of that failure respondent assessed those amounts against intervenor petitioner on the other hand did timely petition the court she assigned no error to the deficiencies and penalties respondent determined but did ask that we relieve her from liability for those amounts as a so-called innocent spouse as required in such a case we caused intervenor to be notified of petitioner's request intervenor timely gave notice of his objection to our granting petitioner her requested relief respondent now agrees with petitioner that she is entitled to such relief the only issue for decision is petitioner's entitlement to relief from joint_and_several_liability innocent spouse relief unless otherwise indicated all section references are to the internal_revenue_code in effect at all relevant times and all rule references are to the tax_court rules_of_practice and procedure at the conclusion of the trial in this case in which all parties participated we directed the parties to file posttrial briefs see rule a petitioner and respondent complied with our direction intervenor did not while we might hold intervenor in default and dismiss his objections see rule a we will not do so because intervenor raised certain factual issues in the notice of intervention and at trial we make findings_of_fact and address the requirements of sec_6015 residence findings_of_fact petitioner resided in texas at the time she filed the petition intervenor shows his address as in texas in his notice of intervention marital history and relationship petitioner and intervenor married in separated in date and divorced in previously in petitioner began an action for divorce from intervenor but she discontinued that action before it became complete following that action however petitioner changed the way she and intervenor dealt with their finances among those changes petitioner and intervenor kept separate checking accounts and credit card accounts petitioner was employed during and and during those years she caused her employer to deposit her pay into her separate bank account she and intervenor divided responsibility for their household expenses each paid from his or her separate funds those for which he or she was responsible petitioner paid for groceries housekeeping and expenses related to the couple's children including clothing tuition and medical_expenses while intervenor paid such expenses as the mortgage utilities car payments and auto insurance jl unique homes jl unique homes inc jl unique is a texas corporation organized in during the years in issue it was a c_corporation engaged in the business of building homes it has issued no formal stock certificates or other records reflecting ownership of the corporation intervenor its sole shareholder was its president and he operated and managed the company on a daily basis initially petitioner was listed as a director and an incorporator of the company she has not however performed any services as a director petitioner was not employed by jl unique during the years in issue petitioner's only contribution to the company was to assist a newly hired office manager in organizing the company's paperwork she has received no dividend from jl unique intervenor paid his share of household and other expenses out of jl unique's corporate accounts which payments in part gave rise to the deficiencies in tax respondent determined petitioner did not have access to those accounts or to the corporation's books_and_records she did not learn of intervenor's withdrawal of funds from the corporation until during the divorce proceedings returns for and petitioner and intervenor made joint returns of income tracy bristol a certified_public_accountant who regularly performed tax services for petitioner intervenor and jl unique prepared those returns she also prepared jl unique's and returns to facilitate ms bristol's preparation of the couple's tax returns petitioner and intervenor each supplied ms bristol with information relating to their respective income for the year jl unique's office manager also provided ms bristol with information related to jl unique's tax returns for and petitioner never provided any information to ms bristol relating to jl unique's taxes although in she contacted martha torres the office manager of jl unique in order to prompt her to provide the company's tax information to ms bristol on their return petitioner and intervenor reported among other items wages totaling dollar_figure nonemployee compensation from jl unique of dollar_figure and a capital_gain of dollar_figure attached to the return was a schedule e supplemental income and loss on which petitioner and intervenor reported losses totaling dollar_figure in connection with nine rental properties on their return petitioner and intervenor reported among other items wages totaling dollar_figure and nonemployee compensation from jl unique of dollar_figure attached to the return was a schedule e on which petitioner and intervenor reported losses totaling dollar_figure in connection with six rental properties petitioner was not involved with the management of the schedule e rental properties some were jointly owned by petitioner and intervenor intervenor and the employees of jl unique managed those properties intervenor or his employees deposited rents into an account to which petitioner did not have access intervenor and employees of jl unique had the information relating to the income and expenses associated with those properties and petitioner did not have access to it respondent's adjustments after examining petitioner and intervenor's and returns respondent made positive adjustments of dollar_figure and dollar_figure respectively to the income that they had reported he made those adjustments on account of expenditures made from jl unique's bank accounts that he determined constituted constructive dividends to intervenor respondent also made adjustments to the rents and expenses reported in connection with the schedule e rental properties the accuracy-related_penalties were determined under sec_6662 on account of negligence or a substantial_understatement_of_income_tax i introduction opinion as a general_rule spouses who make a joint_return of income are jointly and severally liable for all taxes shown on the return or found to be owing see sec_6013 in certain situations however a joint_return filer can avoid such joint_and_several_liability by qualifying for innocent spouse relief under sec_6015 see sec_6015 c f sec_6015 provides for three types of innocent spouse relief full or apportioned relief under sec_6015 proportionate tax relief for divorced or separated taxpayers under sec_6015 and equitable relief under sec_6015 when relief is unavailable under either sec_6015 or c in her petition petitioner seeks relief under all three provisions respondent now agrees that petitioner is entitled to full relief under sec_6015 intervenor objects on the grounds that the understatements of tax were not solely attributable to intervenor and that petitioner knew or should have known of those understatements as we discuss below we will grant full relief ii analysis sec_6015 provides sec_6015 procedures for relief from liability applicable to all joint filers -- in general --under procedures prescribed by the secretary if-- a a joint_return has been made for a taxable_year b on such return there is an understatement_of_tax attributable to erroneous items of individual filing the joint_return c the other individual filing the joint_return establishes that in signing the return he or she did not know and had no reason to know that there was such an understatement d taking into account all the facts and circumstances it is inequitable to hold the other individual liable for the deficiency in tax for such taxable_year attributable to such understatement and e the other individual elects in such form as the secretary may prescribe the benefits of this subsection not later than the date which i sec_2 years after the date the secretary has begun collection activities with respect to the individual making the election then the other individual shall be relieved of liability for tax including interest penalties and other_amounts for such taxable_year to the extent such liability is attributable to such understatement petitioner and intervenor filed joint returns for and and petitioner has made a timely election for innocent spouse relief both returns contained understatements of tax attributable to constructive dividends from jl unique and erroneous deductions for the schedule e rental property expenses the evidence shows and we find that all of those items are attributable to intervenor generally an erroneous item is attributed to the individual whose activities gave rise to the item without regard to the operation of community_property_laws see sec_1_6015-1 income_tax regs joint_ownership alone does not dictate whether an erroneous item is allocated to both spouses deihl v commissioner tcmemo_2012_176 wl at even where the requesting spouse is listed as a shareholder or a partner or signed investment documents she may at times avoid an allocation of liability where she does not actually participate in the investment or business activity id see also juell v commissioner tcmemo_2007_219 declining to allocate understatements to requesting spouse who did not invest any funds in the partnership attend any partnership meetings or have access to any partnership funds intervenor was the president of jl unique and had sole access to the company's corporate bank accounts during and petitioner credibly testified that she was not employed by jl unique that she did not have access to the company's bank accounts during and and that her only contribution to the business of jl unique during and was to provide an organizational system for the company's newly hired office manager and even though petitioner is listed as an incorporator and a director of jl unique she credibly testified that she never performed any services in that capacity the company never issued formal stock certificates or other records that reflect its ownership and petitioner never received a formal dividend from the company we do not find intervenor credible to the extent that he testified in contradiction to petitioner we have found that intervenor was jl unique's sole shareholder sec_316 defines a dividend as any distribution_of_property made by a corporation to its shareholders from earnings_and_profits a constructive dividend arises where a corporation confers an economic benefit on a shareholder without the expectation of repayment even though neither the corporation nor the shareholder intended a dividend 140_tc_420 we see no basis to conclude that petitioner was either formally or informally a shareholder of jl unique and thus the erroneous omission of constructive dividends from petitioner and intervenor's and joint returns was not the omission of items attributable to her similarly petitioner was not involved with the management of the schedule e properties and did not have access to the information about the expenses related to those properties although certain properties for which deductions were claimed were titled jointly in petitioner and intervenor's names management of those properties was handled exclusively by intervenor or jl unique tenants dealt with and paid rent to intervenor or his office and the rents were deposited into an account to which petitioner lacked access we conclude then that understatements arising from the schedule e adjustments are attributable to intervenor alone and not to petitioner we also find that petitioner neither knew nor had reason to know of the and understatements of tax following petitioner and intervenor's divorce proceedings the couple separated their finances they created and maintained separate checking accounts into which they each deposited their respective wages and from which they each paid their share of expenses during that time intervenor also paid personal expenses out of the bank accounts of jl unique petitioner did not have access to either intervenor's or jl unique's bank accounts and thus did not know that intervenor was withdrawing money from the company's accounts in and or that he was doing so without jl unique's formally declaring a dividend intervenor testified that petitioner knew where the money was coming from certainly petitioner knew that intervenor's funds originated from jl unique as intervenor worked for the company full time but nothing in the record indicates that she was aware that the funds were withdrawn inappropriately or that intervenor failed to report them on their return petitioner was not involved in the company's bookkeeping she did not provide any information for jl unique to ms bristol nor did she review the company's records or tax returns rather intervenor or one of his employees handled that information and petitioner could reasonably have concluded that intervenor paid his portion of household expenses from the amounts reported on the joint returns nor do we find that petitioner had knowledge of the understatement with respect to the schedule e rental properties ms bristol testified that the relevant information was in the possession of and supplied by intervenor or one of jl unique's employees intervenor or his employees at jl unique collected rent dealt with tenants and handled repairs and other expenses associated with the homes the rents received from the rental properties were deposited into intervenor's own separate bank account or at times the bank account of jl unique petitioner did not have access to any of the accounts into which such funds were deposited nor was she privy to information relating to the expenses of the schedule e properties she did not have knowledge of the items for which expense deductions were claimed on the returns she did not provide any information concerning the schedule e properties to ms bristol finally sec_6015 provides that innocent spouse relief is appropriate when in the light of all the facts and circumstances it is inequitable to hold the requesting spouse jointly and severally liable factors we consider include i whether there has been a significant benefit to the spouse claiming relief and ii whether the failure to report the correct_tax liability on the joint_return results from concealment overreaching or any other wrongdoing on the part of the other spouse see 119_tc_306 aff'd 101_fedappx_34 6th cir intervenor concealed the fact that the withdrawn funds were inappropriately taken from jl unique and petitioner did not learn of intervenor's withdrawal of the funds until during the couple's divorce proceedings moreover while the funds were used to pay household expenses for the family we are convinced that petitioner did not receive a benefit that is traceable to the funds beyond ordinary support petitioner has established that she is entitled to relief from joint_and_several_liability pursuant to sec_6015 to reflect the foregoing decision will be entered for petitioner