department of the treasury internal_revenue_service uil tax_exempt_and_government_entities_division release number release date date date taxpayer_identification_number person to contact employee identification_number employee telephone number certified mail - return receipt dear this is a final adverse determination regarding your exempt status under sec_501 of the internal_revenue_code our favorable determination_letter to you dated november 19xx is hereby revoked and you are no longer exempt under sec_501 of the code effective january 20xx the revocation of your exempt status was made for the following reason s organizations described in sec_501 and exempt under sec_501 must be both organized and operated exclusively for exempt purposes if an organization fails to meet either the organizational_test or the operational_test it is not exempt you were not organized for an exempt_purpose under your current bylaws you are not operating exclusively for an exempt_purpose under sec_501 your primary activity is offering short term lodging to the public for payment in a way that is similar to commercial enterprises by operating in the manner described you are furthering a substantial nonexempt purpose contributions to your organization are no longer deductible under sec_170 after january 20xx you are required to file income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the tax_year ending december 20xx and for all tax years thereafter in accordance with the instructions of the return processing of income_tax returns and assessments of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination under the declaratory_judgment provisions of sec_7428 of the code a petition to the united_states tax_court the united_states claims_court or the district_court of the united_states for the district of columbia must be filed before the day after the date this determination was mailed to you please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed publication you may write to the united_states tax_court at the following address uil united_states tax_court second street nw washington dc you also have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely enclosures publication mary a epps acting director eo examinations internal_revenue_service tax_exempt_and_government_entities_division department of the treasury uil date date taxpayer_identification_number form_990 return tax_year s ended person to contact id number x contact numbers manager’s name id number manaaer’s contact number response due_date certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren't an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don't respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies effect of revocation status letter rev catalog number 34809f if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year s shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also - may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn't a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely nanette m downing director eo examinations letter rev catalog number 34803f schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended 20xx 20xx 20xx tax identification_number issues whether the organization's tax exempt status under code sec_501 should be revoked due to the following issues the - code sec_501 based on the amended bylaws was not organized for an exempt_purpose as required by internal_revenue_code revenue code code sec_501 during the years under examination failed to operate exclusively for exempt purposes as required by internal the the was operated primarily for commercial purposes facts organization background the organization was originally incorporated on november 19xx with the name organization the original form_1023 showed the organization intended to operate as a school when it checked yes in part ill question of form_1023 part il question asks is the organization or any part of it a school if yes complete schedule b the organization completed schedule b and answered yes to question on page of form_1023 schedule b schools colleges and universities question on page asks does or will the organization regularly have a regularly scheduled curriculum b faculty of qualified teachers c regularly enrolled student body and d facilities where educational activities are regularly carried on additionally the original form_1023 showed the organization’s source of support was as follows in order of size n o w r tuition and enrollment fees of students income from seminar and cultural events donations weekly rental of rooms and guest cottages form 886-a catalog number 20810w department of the treasury-internal revenue service publish no irs gov page schedule number or exhibit rew _ explanations of items name of taxpayer tax identification_number year period ended 20xx 20xx 20xx the original form_1023 showed the housing on the property was to be used for faculty and student housing the organization expected to charge each student dollar_figure tuition per month the founder of the organization is executive director he has a master’s degree in education is a voting board member and the program service accomplishments on december 19xx the organization filed its form_990 for the year ending december 19xx part ill statement of program service accomplishments stated presented seminars and lectures maintained site and educational materials for self-study courses program service accomplishments on december 20xx the organization filed its form_990 for year ending december 20xx part ill program service accomplishments stated provides facilities facilities for cultural and social events for the community for people of all backgrounds it offers the organization submitted amended articles of incorporation and bylaws to the service with its _ form_990 for december 20xx the amended bylaws read as follows article of the bylaws of this corporation reads now as follows the purpose of this corporation __ is to provide the following services a b it offers a place of it offers cultural events for the community the following areas for people of all backgrounds c itt offers social events for the community the organization completed part iv other information of the form_990 for year ending december 20xx question asked the following question did the organization engage in any activities not previously reported to the irs the organization checked the box no in answer to this question name change the name of the organization was changed to changed its name to in 20xx in 20xx the organization form 886-a catalog number 20810w - page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items 886-a form rev date name of taxpayer tax identification_number year period ended 20xx 20xx 20xx location and guest rooms the is located in the has guest rooms on a five acre property these rooms include four cottages and four main houses all guest rooms are offered as lodging for payment to the general_public hours a day days a week the grounds also include a kitchen quiet room and patio gardens the classes workshops seminars and community events the the also rents out its facilities to groups and holds allows public_charities to use its facilities free of charge is also available for weddings advertising website advertising the website at www com advertises the asa the - home page describes itself as follows is idealfor ‘ weddings getaways workshops as well as conferences and additionally the massage spa treatments yoga classes a variety of workshops and community events stated that it does not allow children under or dogs it also offers telephone book advertising paid to advertise in the 20xx the information was listed in the directory under the following headings bed and breakfasts hotel and motel lodging and directory white pages the contact guides and directories form 886-a department of the treasury-internal revenue service catalog number 0w publish no irs gov page schedule number or exhibit form 886-a rev date name of taxpayer explanations of items year period ended 20xx 20kx 20xx tax identification_number in 20xx the lodging in the was listed in the 20xx news supplemental guide as being voted best the heading is listed in the lodging chamber of commerce business directory as -- under the anyone may reserve a room online at the with their credit card potential guests may also book a room on www hotel com and www breadandbreakfast com _ website www com and pay online sources of revenue the following chart shows the source of the revenue for three years of year revenue donations 20xx 20xx 20xx total s group individual gift certificates rebates etc meeting room rental s ‘se fundraiser income misc income classes reservation refunds accounted for total program income classes events qo _ did not receive tuition or enrollment fees for students the primary source_of_income the came from individual public who pays for a stay in guest rooms group entire grounds or specific meeting rooms the examination showed that group primarily educational classes the exempt activity individual is not receiving more than of its income from an refer to payments from anyone of the general refer to payments for group use of the were the a discount for other uses offered the facility free of charge for non-profit organizations to use for fundraisers or at has verbal arrangements with a yoga instructor and a massage instructor that hold the classes every week the classes are open to required to attend the classes are not part of a scheduled curriculum at guests as well as to the public guests are not class attendees form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number pay the instructors directly the instructors pay a percentage of the fees collected from class attendees to usually of gross_proceeds year period ended 20xkx 20xx 20xx expenses the chart below shows the - expenses for three years expenses executive director other wages includes taxes insurance etc advertising and marketing breakfasts credit card processing fees property_tax insurance maintenance utilities etc housekeeping linen cleaning and supplies other expenses total expenses not including depreciation or interest accrual 20xx 20xx 20xx_ of year total oo o i ‘s a employees wages were the the founder of housekeepers largest expense the had employees in the examination year was employed full-time as executive director the employed breakfast workers and _ gardeners and clerical workers the maintenance workers did not employ any teachers please see the chart below for employee hours per position annual employee hours housekeeping year 20xx 20xx 20xx cierical maintenance breakfasts grounds night manager total hours misc note executive director was salaried in 20xx and 20xx only night manager hours were included in 20xx and 20xx chart executive director changed to hourly in 20xx per board misc includes misc hours inciudes holiday vacation pay and other employees in 20xx and 20xx 20xx - misc hours include the above plus development employees worked on fundraising and grant writing -_’ hours for development employees not included on 20xx or 20xx exec dir hours catalog number 20810w form 886-a department of the treasury-internal revenue service publish no irs gov page schedule number or exhibit explanations of items form ren eran 886-a name of taxpayer year period ended 20xx 20kx 20xx tax identification_number executive director position was struggling financially and has been struggling almost since inception a major the executive director is responsible to prepare educational activities for the however the executive director was unable to invest much time in preparing an educational program because the donor did not agree with his inheritance and also obtained loans to help finance the were primarily to manage the night manager direction and stopped contributing so the executive director used and the employees he also worked sporadically as the the executive director's duties the to stay in empty rooms at compensation has a secondary issue for employment_taxes for its executive director who was allowed most nights the fmv of the rooms were not included in other employee positions the office manager checks guests in and out and receives guest payments issues keys maintains the office and the and maintenance personnel maintain the grounds and make facility repairs breakfast workers prepared and served the continental breakfasts clerical workers included a night manager and weekend receptionist none of theses employees were involved in preparing presenting or publishing educational programs during the examination year or subsequent years website the housekeepers maintained the rooms gardening educational activities actual educational program hours year 20xx hours in one year hrs x days day hours in one year hrs x days actual annual educational program hours at the 20xx actual percentage annual educational program day hours actual percentage annual educational program year hours fo o in form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended 20xx 20xx 20xx had classes and workshops for eight to twenty-one hours each week in year ending the december 20xx the educational such as poetry readings wildlife memorial informal get-togethers concerts etc these are not included in the chart above the website also sponsored community events that are not considered posts its monthly events calendar on its guest room rates website www the com shows that its current room rates range from dollar_figure to dollar_figure per night depending on which day of the week the room is used a room rate list for 20xx was not available during the examination a room rate list from november 20xx showed the room rates were similar to the current rates the chart below shows a price comparison between the rooms microwave the these lower priced rooms are not included in the comparison below and three local hotels for similar rooms with a price range of dollar_figure - dollar_figure per night share bathrooms refrigerator and also offers rooms with shared bathrooms their rates are dollar_figure - dollar_figure in comparison of quest room rates price ranges the the comparison of standard rooms with bathrooms in guest rooms and two room cottages suites dollar_figure - dollar_figure dollar_figure - dollar_figure dollar_figure - dollar_figure dollar_figure - dollar_figure law organized and operated for an exempt_purpose generally an organization that is described in code sec_501 is exempt from income_tax these organizations include corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur 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 the 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 catalog number 20810w form 886-a department of the treasury-internal revenue service publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx 20kx 20xx in order to be exempt as an organization described in code sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in code 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 the existence of a substantial nonexempt purpose regardless of the number or importance of exempt purposes will cause failure of the operational_test an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than private interest thus an organization must establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or creator's family shareholders of the organization or persons controlled directly or indirectly by such private interests operating for the benefit of private parties who are not members of a charitable_class constitutes a substantial nonexempt purpose code sec_501 exempts from federal_income_tax organizations organized and operated exclusively for charitable educational and other exempt purposes provided that no part of the organization's net_earnings inures to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in code sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt sec_1_501_c_3_-1 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 of such exempt purposes specified in code 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_3_-1 describes organizations exempt from tax under sec_501 c as organizations organized and operated for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals educational_purposes are defined i in general -the term educational as used in sec_501 relates to form 886-a department of the treasury-internal revenue service catalog number 20810w publish no irs gov page schedule number or exhibit 886-a form rev date explanations of items name of taxpayer year period ended 20xx 20xkx 20xx a the instruction or training of the individual for the purpose of improving or tax identification_number developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community treas reg section n1 c -1 ii examples of educational organizations -the following are examples of organizations which if they otherwise meet the requirements of this section are educational example an organization such as a primary or secondary school a college or a professional or trade school which has a regularly scheduled curriculum a regular faculty and a regularly enrolled body of students in attendance at a place where the educational activities are regularly carried on example an organization whose activities consist of presenting public discussion groups forums panels lectures or other similar programs such programs may be on radio or television example an organization which presents a course of instruction by means of correspondence or through the utilization of television or radio the operational_test formulated in sec_1_501_c_3_-1 provides c operational_test primary activities an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in 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 the term exclusively has not been construed to mean solely or absolutely without exception an organization that engages in exempt_activities qualifies for exempt status so long as those nonexempt activities are only incidental and less than substantial 326_us_279 79_tc_793 the term charitable is used in sec_501 in its generally accepted legal sense and includes relief of the poor and distressed or of the underprivileged as well as the advancement of education sec_1_501_c_3_-1 in better business bureau of washington d c the supreme court held that the presence of a single non-exempt purpose if substantial in nature will prevent exemption regardless of the number or importance of truly exempt purposes the court held that a trade_association had an form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number underlying commercial motive that distinguished its educational program from that carried on by a university year period ended 20xx 20xx 20xx an organization is not described in sec_501 if it operates a trade_or_business that primarily furthers a nonexempt purpose sec_1_501_c_3_-1 similarly the courts have denied exempt status under what is generally known as the commerciality doctrine see eg 70_tc_352 airlie foundation v commissioner f_supp d d c courts have found that due to the commercial manner in which an organization conducts its activities the organization is operated for nonexempt commercial purposes rather than for exempt purposes among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies reasonableness of financial reserves whether the organization uses commercial promotional methods and the extent to which the organization receives charitable_contributions airlie foundation and cases cited therein competition with commercial firms is strong evidence of the predominance of nonexempt commercial purposes see 302_f2d_934 ct_cl 285_f2d_800 n ct_cl 384_fsupp_776 s d ind in airlie foundation the organization operated a conference center that was not limited to tax- exempt entities the court found that the fact that the organization’s conference center derived substantial income from events that competed with commercial and non-commercial entities constituted strong evidence of a commercial nature and purpose in b s w group the tax_court found that a corporation formed to provide consulting services in the area of rural-related policy and program development to tax-exempt and not-for-profit clients was not entitled to sec_501 status because it was primarily engaged in an activity that was characteristic of a trade_or_business the court found that the organization’s planned service areas were of the sort normaily carried on for profit by commercial businesses and the organization's financing was not typical of sec_501 organizations the organization did not provide any free or below-cost services its clientele was not limited to sec_501 exempt_organizations its support came from fees for services and it did not receive or solicit charitable_contributions in easter house v united_states ci ct aff'd 846_f2d_78 fed cir the court determined that the organization was not exempt because its conduct of adoption services was in furtherance of a non-exempt commercial purpose in the 76_tc_380 a not-for-profit corporation owns and operates a mountain lodge that it characterizes as a religious available to its guests numerous activities religious recreational and social none of which are regularly scheduled or required the record does not show the extent to which the guests participated in any of the activities religious or otherwise facility the lodge makes although the organization's mountain lodge offered guests religious recreational and social activities however none were regularly scheduled or required the court concluded that the form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx 20xx 20xx organization had not met its burden_of_proof to show that the lodge was operated primarily for an exempt religious purpose and that the recreational and social activities at the lodge were only incidental to a religious purpose in making that finding the court stated wholesome family recreation or just sitting on a rock contemplating nature way well provide a family or individual with a religious or at least a spiritually uplifting experience but it is difficult to see how that experience differs if it does from the same experience one can have at any quiet inn or lodge in the beautiful mountains of colorado in 950_f2d_365 cir affg 70_tc_352 the court held that a vegetarian restaurant and health foods store that adhered to the principles of the seventh day adventist church was not operated exclusively for exempt religious purposes but rather for a substantial commercial purpose the court examined the method of operations to infer the purposes the court found substantial evidence to support a conclusion that the organization's activities furthered a substantial nonexempt purpose including a the organization's operations were presumptively commercial b the organization competed directly with other restaurants and food stores c the organization used profit-making pricing formulas common in the retail food business d the organization engaged in a substantial amount of advertising e the organization's hours of operation were competitive with other commercial enterprises the organization's primary activities were managing a restaurant and health food store that was operated in competition with commercial entities charging competitive prices set by formulas common in the retail food business and using commercial promotional methods - in 302_f2d_934 ct_cl ct_cl the court considered the status of an organization that provided analyses of securities and industries and of the economic climate in general the organization sold subscriptions to various periodicals and services providing advice for purchases of individual securities although the court noted that education is a broad concept and assumed for the sake of argument that the organization had an educational purpose it held that the organization had a significant non- exempt commercial purpose that was not incidental to the educational purpose and was not entitled to be regarded as exempt the court found that the corporation's sales of its publications were more analogous to commerce than to education the court concluded that the business_purpose was primary and not incidental to any educational purpose which might have been present form 886-a catalog number 20810w page‘ publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended 20xx 20xx 20xx tax identification_number in united missionary aviation inc v commissioner t c m cch the tax_court held an organization formed to support religious missionary work not exempt under sec_501 because it had a substantial nonexempt commercial purpose the court focused on how the organization carried on its primary activity a tape and equipment supply division no one factor was determinative but the court considered the following operations particularly relevant a the supply division was operated in the same manner as any profitable commercial enterprise b the majority of equipment and tapes sold by the organization were also sold by commercial firms in 75_tc_337 the operational_test focuses on the purpose and not on the nature of the activity in forest press inc v commissioner of internal revenue ‘as long as the corporation was created to further an exempt_purpose and its activities are consistent with that purpose it is irrelevant that other for-profit enterprises engage in the same activity ’ in peoples translation service on the surface the entity's activities were conducted in an ordinary commercial manner the operation was not sufficiently like a commercial enterprise because there was no intent to make a profit in hawaii inc v commissioner 71_tc_1067 ‘an organization may engage in trade_or_business as long as its operation furthers an exempt_purpose and its primary objective is not a production of profits and provided it serves a public rather than a private interest ’ in 93_tc_487 pincite the court stated petitioner's original articles of incorporation are not the only evidence from which petitioner's purposes might be determined rather petitioner's bylaws are also indicative of the ‘objects motivating’ petitioner and therefore must also be considered in copyright clearance center inc v commissioner 79_tc_798 the potential for a substantial profit driving operations and organization are good enough to show a nonexempt purpose form 886-a catalog number 20810w - page - -12 -_publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax sdentification number taxpayer positions year period ended 20xx 20xx 20xx the taxpayer provided six written responses to oral discussion with the agent the details of the taxpayer's written correspondences are shown below in chronological order taxpayer correspondence dated june 20xx in correspondence dated june 20xx the stated the following they were not informed about the irs tax-exempt criteria for educational organizations requested that the irs define the tax-exempt requirements for an education center and possibly harmonize the definition with the definition of it submitted a proposed schedule of events for july 20xx and asked if these events would meet the irs criteria it has been zoned by the county of operate on this property no motel or hotel would be allowed to fora law because it has all of the following amenities it is designed and operated as a and nota motel or hotel i it’s a quiet place no young children surrounded by nature the rooms are simple with no tv radio or telephone ii we have a quiet room with a library of spiritual philosophical and psychological books for reading writing and meditation ili we have a conference room with an author's library and a general library the county allows us to have educational events for up to people in this room or outside iv we have two outdoor event areas a waterfall garden and outdoor event center with a stage to be built taxpayer correspondence dated june 20xx in correspondence dated june 20xx the included the following reports from the two pages from to grant welfare exemption from property_tax dated 20xx report 20xx that included a partial list of the events held at the in 20xx the health healing spirituality the arts and culture and an ongoing film series the also discussed its cooperation with local business and its board and staff stated that it offered over events that focused on the environment statement that it supports local non-profit organizations by allowing them to use their facility free of charge for fundraising events and ata comparison on the differences between ‘ discount for other types of events and three for-profit hotels in national parks lt referred yosemite as part of the interview this referral was in answer to unlike to'old-faithful inn lake yellowstone hotel and wawona hotel in statement that hotels and motels always have television and telephones a the stated these hotels differ from in that they do not provide all of the following form 886-a catalog number 20810w -s page _--13 ---sopubblish no irs gov department of the treasury-internal revenue service 886-a form rev date explanations of items name of taxpayer tax identification_number i events for their guests and the community except tours which appear to be organized by the park events organized by community groups schedule number or exhibit year period ended 20xx 20xx 20xx ii ili yoga iv v vi a conference room for events a quiet room for meditation reading and writing a spiritual and educational library vii no charitable component such as supporting other non-profit organizations stated that according to providing work-exchange programs etc the law an educational center has to have a charitable component as viii ix x well as a community and educational component none of these hotels are in locations zoned for these hotels are rustic national park lodges where there is some emphasis on connecting guests to nature which is probably why they don't offer tvs radios etc or they are just trying to save money however such as quiet peaceful place if we were simply a hotel we would have transformed the quiet room into a bedroom because it would increase our revenue we have always refused to do so despite many suggestions because a quiet room is an important part ofa do not have these amenities because they want to provide a center centers when they sent in their change_of name and orientation they never heard anything about the clause and that they always followed all the rules they were informed about they are in the process of having more and more educational programs they received a dollar_figure grant for educational activities on july 20xx workshops in the areas of their mission stated the following i the is seriously planning for educational in correspondence dated july 20xx the taxpayer correspondence dated july 20xx statement i ii iii iv writing workshops sept 20xx film studies nov 20xx non-violent communication spirituality science etc to educational programs and tax-exempt status taxpayer correspondence dated july 20xx requested a clear definition of an educational in correspondence dated july 20xx the catalog number 20810w - page__14 form 886-a _publish no irs gov department of the treasury-internal revenue service stated the following center in and how it relates schedule number or exhibit 886-a form rev date explanations of items name of taxpayer tax identification_number year period ended 20xx 20xx 20xx requested samples of educational centers that comply with the service definition requested an explanation of the clause be sent with the appropriate text and an exact description as to how this applies to and stated that the rules are simple for a school but not so simple for an educational center they expressed their desire to comply the was granted a welfare exemption from the county of and the state of based on a study of educational programs community and charitable aspects non- profit status educational facility conference room library quiet room etc and zoning the flow of people to educational events exceed sec_50 of their traffic and that income should not be the determining factor this correspondence also stated that over of the people visiting the stay at are given educational events or courses and that even a is educational the received a dollar_figure yearly renewable grant that will increase educational programs substantially the listed four differences between and hotel and a motel the has to be in a quiet place and in i they are located in a county zone for a a quiet neighborhood i the whole tayout of a meeting room quiet room two outdoor event centers three libraries and no tvs and no tel’s in the rooms the regular hotel or mote guests will not come toa is different from the hotel or motel they have a - like theirs the only attracts a specific segment of the population ii iii ‘for quietness reflection writing reading and learning it is people go toa real get-away from it all a they also offer regular educational and cultural programs they rent out their facility to other educational groups taxpayer correspondence on july 20xx in correspondence dated july 20xx and july 20xx the sent a tentative schedule for educational programs for august september october november 20xx and asked for a review the wants to know if the revised schedule meets the service's criteria september 20xx - days of classes workshops seminars and two events october 20xx - days of classes seminars workshops and a community event on environmental achievements ecological projects november 20xx - days of workshops and days for an artistic center gallery seminars taxpayer correspondence on july 20xx in correspondence dated july 20xx the for august 20xx and asked for a review the the service's criteria sent their schedule for educational programs wants to know if the revised schedule meets july - august 20xx - events that include three film showings discussion one fundraiser and five teacher speakers form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service form 880-a name of taxpayer explanations of items tax identification_number government's positions and responses schedule number or exhibit year period ended 20xx 20xx 20xx issue the code code sec_501 based on the amended bylaws was not organized for an exempt_purpose as required by internal revenue based upon the amended bylaws the in relevant part sec_501 limits charitable exemption to an organization organized and operated exclusively for exempt purposes the organizational_test formulated in sec_1_501_c_3_-1 provides in relevant part is not organized for an exempt_purpose organizational_test in general i an organization is organized exclusively for one or more exempt purposes only if its articles of incorporation a limit the purposes of such organization to one or more exempt purposes i iii an organization is not organized exclusively for one or more exempt purposes if its articles expressly empower it to carry on otherwise than as an insubstantial part of its activities activities which are not in furtherance of one or more exempt purposes even though such organization is by the terms of such articles created for a purpose that is no broader than the purposes specified in sec_501 thus an organization that is empowered by its articles to engage ina manufacturing business’ or to engage in the operation of a social_club does not meet the organizational_test regardless of the fact that its articles may state that such organization is created for charitable purposes within the meaning of sec_501 c of the code iv in no case shall an organization be considered organized exclusively for one or more exempt purposes if by the terms of its articles the purposes for which such organization is created are broader than the purposes specified in sec_501 c the fact that the actual operations of such an organization have been exclusively in furtherance of one or more exempt purposes shall not be sufficient to permit the organization to meet the organizational_test similarly such an organization will not meet the organizational_test as a result of statements or other evidence that the members thereof intend to operate only in furtherance of one or more exempt purposes issue required by internal_revenue_code code sec_501 during the years under examination failed to operate exclusively for exempt purposes as the the service has incorporated its position on issue into its responses to the taxpayer's correspondences as shown below and as requested by the taxpayer issue the was operated primarily for commercial purposes the service has incorporated its position on issue into its responses to the taxpayer’s correspondences as shown below and as requested by the taxpayer form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit rev oy name of taxpayer government response to correspondence dated june 20xx year period ended 20xx 20xx 20xx tax identification_number - explanations of item sec_2 notinformed about educational requirements the was informed of the educational requirements of sec_501 c of the internal_revenue_code i ii - is an educational_organization which offers a creative and individualized ‘s newsletter no was included with the original form_1023 application_for the exemption the first paragraph of the newsletter stated the following description in part approach to university level education the original determination_letter was issued based on information in the original form_1023 the subsequent letter dated may 20xx that recognized in its articles of incorporation notified to its purposes and stated the continuance of exemption was based on the original application in its original application_for exemption stated that it would be a school and an educational_institution it would charge tuition employ teachers and have a curriculum 's change that it should inform the service of change sec_3 definition of tax-exempt requirements for educational __ the service does not address a specific meaning in the code for educational noted in regulations sec_1_501_c_3_-1 however it does define educational as i ii iii the i in general -the term educational’ as used in sec_501 relates to is subject_to regulations sec_1_501_c_3_-1 which define educational as a the instruction or training of the individual for the purpose of improving or developing his capabilities or b b the instruction of the public on subjects useful to the individual and beneficial to the community the federal_law does not require organizations exempt for educational_purposes to have a community or charitable component a regulations sec_1_501_c_3_-1 provides that in order to be exempt as an organization described in code sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not ee b regulations sec_1_501_c_3_-1 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 of such exempt purposes specified in code 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 original article of incorporation states that the article v of the dedicate its assets to charitable and educational_purposes within the meaning of the meaning of internal_revenue_code sec_501 and the to truthfully make the statement in article v if it did not know the meaning of the sections of the internal revenue and would not be able codes would form 886-a catalog number 20810w - pege_- department of the treasury-internal revenue service _publish no irs gov schedule number or exhibit form 886-a rev date explanations of items name of taxpayer year period ended 20xx 20xx 20xx tax identification_number july 20xx proposed schedule of events the proposed july 20xx educational program increased the regular schedule by dollar_figure hours the month see chart below for total hours for july 20xx -s normal schedule i sec_22 hours per jul-13 daily hours mon tues wed thur sec_4 fri sat sun ist week monthly hours july hours 4th sth week week 3rd week 2nd week adding hours of classes and workshops to its primary activity of offering lodging for payment hours a day days a week does not make the educational for-profit hotels operate hours a day days a week and also add classes to their primary activity of offering lodging for payment for example the that is also located in shows thatis a ’s website at i ii iii in children zoning as a com advertises it as a iv athird example the for groups and offers its own offers regular yoga classes and massage the website www under are not allowed and neither are pets many types of yoga classes and guided meditation i shows its teacher's biographies on its website the standard’s schedule the standard spa in miami beach website www standardhotels com spa-miami-beach shows that it offers many different yoga classes seven days a week three or more hours per day the standard also customizes the standard offers weekend the for july through august shows about hours of yoga classes for the week in addition they have a film series and other classes this same week agricultural on the zoning map does not show specific zoning for operate the fit in with the residential landscape it is located in a different type of hotel or motel may not be allowed to operate in this location however to operate in a residential area as an establishment that provides lodging on a short term basis as hotels and motels do designed as a __ org the county of has a conditional use permit to location and style of cottages on acres appear as residential homes and as a motel or hotel a hotel is not required to have all of the same characteristics as assessor's parcel number shows it is zoned as rural - stated its facility is designed and operated as a county assessor website at www catalog number 20810w - page_- county is allowing the department of the treasury-internal revenue service and not to form 886-a _publish no irs gov the the the schedule number or exhibit explanations of items ren 886-a name of taxpayer year period ended 20xx 20xx 20xx tax identification_number be comparable commercial enterprises each compete in the free market with their own version of a responds to the potential guests select lodging depending on individual tastes the service distinction below i ii aquiet place surrounded by nature simple rooms without tv radio or telephone having a quiet place surrounded by nature simple rooms without tv radio or telephone does not distinguish the organization from for-profit hotels or motels the is similar to the organization described in the court case - the 76_tc_380 in the schoger foundation v commissioner supra the court stated that just sitting on a rock contemplating nature may well provide a family or individual with a religious or at least a spiritually uplifting experience but it is difficult to see how that experience differs if it does from the same experience once can have at any quiet inn or lodge in the mountains a quiet room and library having a quiet room or library does not distinguish from hotels or motels for example the library hotel in new york city shows on it’s website www libraryhotel com that it has thousands of books available for guests as well as a reading room writer’s den and poetry garden the reading room is open hours aday the post ranch previously mentioned also has a library another example the crowne plaza hotel’s website http awww ihg com crowneplaza hotels us en global exp sleep_adv scmisc nav_sle ep_adv_cp_ shows that it has a quiet zone the crowne plaza hotel is in the city of that it has shows on its website guests can request a room in the quiet zone to relax or rest in the quiet iv awaterfall garden and outdoor event center having a waterfall garden and outdoor iii conference room with library having a conference room does not distinguish the ten meeting rooms available with ocean views as mentioned above hotels also have libraries zone there will be no room attendant housekeeping or engineering activities sunday through to thursday carried out from 00pm to 00am unless specifically requested by a guest from hotels or motels many hotels have conference rooms or outside facilities available to rent for any purpose including educational events for example crowne plaza hotel event center with a stage does not distinguish from hotels or motels many hotels have gardens including those hotels previously mentioned hotels also have outdoor event areas meeting-and-event-spaces htm shows that it has an outdoor another example the sister hotel of many hotels have outdoor event areas department of the treasury-internal revenue service the following on its website website event area -_ mentioned above is a for example the -a for-profit hotel in _ the same city as catalog number 20810w form 886-a _publish no irs gov states the like page ' schedule number or exhibit explanations of items 886-a form rev date name of taxpayer year period ended 20xx 20xx 20xx tax identification_number v the conference room and other rooms at are also available for a fee and the contracts are drawn up in a for-profit commercial manner much like those described in 70_tc_352 the provided sample rental agreements for the use its conference room quiet room waterfall and gardens and group rentals the sample agreements show basic fees required security deposits damage fees set up and clean up fees and cancellation policies weddings are required to pay an additional flat fee depending on whether the party has people or people government response to correspondence dated june 20xx welfare exemption the received its original determination_letter dated august 19xx i ii was tax exempt from property taxes the argument that requested the federal exemption_letter as part of its process to determine that approval for property_tax exemption dated form_1023 application_for that approved its federal exemption the 20xx was after the date the service approved the exemption the the for property_tax exemption to determine whether it was in compliance with federal exemption is erroneous the presented on the original form_1023 application_for exemption there is a significant difference between charging tuition employing teachers and having a curriculum for self-study courses at a university level as contrasted with offering lodging for payment to the general_public as an individual did not request a ruling on its change_of activity from that which was used the approval events in 20xx the nonprofit support the listed seven charitable organizations as a partial list of submitted an events schedule that listed the names of multi- cultural programs that it held in 20xx and a statement that it offered over events that year the service cannot determine how many hours the events covered or whether the events were primarily educational in a way that differs from for-profit hotels that also offer classes workshops and events the reports topics on cooperation with local business the board and staff are not relevant to this discussion organizations that it has provided meeting space free of charge or at a discount the service agrees that providing free or discounted meeting space to nonprofits is a charitable activity however whether these organizations contributed to the educational requirement significantly is not shown it seems that each event may be a few hours long and not more than a few days each thus providing facilities for educational events combined with other classes and workshops are not primary activities additionally there are for-profit entities that offer free or discount space to charities i for example the american saddlebred horse association asha website www asha net news shows that the holiday inn express in springfield illinois offers discount rooms for the midwest charity horse show another example half-price books a dallas bookstore shows on their website www hpb com that it offers free meeting space to nonprofit_organizations in its community room department of the treasury-internal revenue service catalog number 20810w form 886-a publish no irs gov page ii schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number iii iv another example clarkson davis a consulting firm and caddo holdings a real_estate firm offer free meeting space in lakewood towers in dallas texas for nonprofits in airlie foundation v commissioner it was clear that the plaintiff engaged in conduct of both a commercial and exempt nature the question was whether the organization was entitled to tax-exempt status turned to whether its activities were conducted primarily for a commercial or for an exempt purposes year period ended 20xx 20xx 20xx comparison of with hotels in national parks i ii however other hotels do have events events for their guests and the community the three hotels mentioned do not provide the same events as i for example the standard spa- high line new york city shows on its website http standardhotels com high-line meetings-events the-high-line-room availability for many different events the standard -- miami beach mentioned above has events similar to the the how much events held at important to determine if it operates primarily educational hotel operates in mentioned some like activities in its event calendar contribute towards its educational requirement is shows on its website ii iii ' that it offers events organized by community groups as shown above hotels offer conference and meeting rooms to anyone who wants to-use them this includes community groups i visitors convention bureau website states the forexample the following about meeting facilities ii v iii vi _ hotels offer yoga previously mentioned both offers free yoga six days a week exchange programs etc i vii no charitable component supporting other non-profit organizations providing work iv conference room for events as already shown many hotels have conference rooms yoga as shown above for the standard miami beach and the standard offers about hours a week of yoga the offers hours of yoga five days a week available for a variety of events aquiet room for meditation reading and writing the library hotel as previously mentioned has a reading room writer's den and poetry garden a spiritual and educational library the library hotel and have libraries that include many types of books as previously shown some hotels offer discount rooms during charity events such as holiday inn express for midwest charity horse show in springfield il jazz hostels and pink hostels in new york city and miami have a work exchange program for living accommodations the difference between for-profit hotels and non-profit organizations is that non-profit organizations primarily engage in exempt_activities hotels and motels engage primarily in commercial activities such as offering short term lodging for payment to the general_public zoning as shown above the zoning is rural-agricultural the county department of the treasury-internat revenue service catalog number 20810w - page_ does not have form 886-a publish no irs gov zoning viii schedule number or exhibit form rev date explanations of items 886-a name of taxpayer year period ended 20xx 20xx 20xx quiet peaceful place the hotels mentioned offer their facilities for similar reasons as the tax identification_number ix i ii for example the lake yellowstone hotel and cabin website http www usparklodging com yellowstone lake_hotel php states that radio television and internet hook-ups are not available in order to accentuate the natural essence of yellowstone additionally the wawona hotel in yosemite website http avwww yosemitepark com wawona-hotel-lodging aspx states there are no telephones or televisions allowing guests to completely escape and relax while on vacation x as demonstrated above there are several for-profit entities that provide a similar get-away experience such as quietness reflection writing reading and learning they are not required to have exactly the same or all characteristics of the required to not operate in a commercial manner as hotels and motels do however the is is operating like the organization in airlie foundation v commissioner by setting fees which are comparable to those of similar for-profits and by spending significant resources on publicity the in nature has not shown how its lodging sales are not commercial xi the xii_in airlie foundation v commission the courts applied the operational_test by relying on what has come to be termed the commerciality doctrine in many instances courts have found that due to the commercial manner in which an organization conducts its activities that organization is operated for nonexempt commercial purposes rather than for exempt purposes among the major factors courts have considered in assessing commerciality are competition with for profit commercial entities extent and degree of below cost services provided pricing policies and reasonableness of financial reserves additional factors include whether the organization uses commercial promotional methods eg advertising and the extent to which the organization receives charitable donations i ’ fee structure is in direct competition with local as shown in the chart above hotels the ‘ primary source of revenue is from guest room rates the primary for offering guest expenses are to maintain the facilities and operation of rooms as shown by expenses for types of employees breakfasts credit card processing fees and property expenses ii iii uses commercial promotional methods such as advertising on its website the other websites and printed brochures the states it is obvious that the service offered by the organization is one commonly associated with a commercial enterprise the subscribers received full value in exchange for their money is like the organization in american institute for economic research v united government response to correspondence dated july 20xx clause the states that when they sent in their change_of name and orientation they never heard anything about the clause and that they always followed all the rules they were informed about form 886-a department of the treasury-internal revenue service catalog number 20810w _publish no irs gov -page__22 schedule number or exhibit 886-a form rev date name of taxpayer year period ended 20xx 20xx 20xx tax identification_number explanations of items i ii iii iv v_ vi was to have group and individual was to be a school as shown in the original form_1023 that it should inform the service of changes to the original purpose of application_for exemption the amended bylaws submitted to the service with the 20xx form_990 showed the purpose of the _ however part vi other information question did the organization engage in any activity not previously reported to the irs was checked no the service issued a letter dated may 20xx that recognized of incorporation and notified the purposes and stated the continuance of exemption was based on the original application did not inform the service that its purposes had significantly changed from its the original application the qualified for exemption organizations exempt from tax under sec_501 c must be organized and operated exclusively for one or more of the purposes specified in such section anorganization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities that accomplish one or more of such exempt purposes specified in code sec_501 the code does not have strict guidelines for interpreting the terms exclusively primarily and insubstantial however there is practical guidance found in sec_53_4942_b_-1 that shows that more than of total activities is considered primary did not request a ruling to determine whether they still change in its articles its vii the definition of insubstantial is defined as less than this definition is defined as a derivative in terms of the substantially_all test shown in sec_53_4942_b_-1 the daytime hour day hours of the year however using an eight hour day is not fair to for- profit entities such as the standard miami beach that offer sec_35 hours a week of yoga classes in additional to workshops and events held educational programs for of the year and of the viii the financial records show that of income comes from individuals who pay for guest rooms the employee hours and duties show that their primary efforts are also towards maintaining guest stays operated at a loss priced its rooms at comparable rates that competed _ ix although with local hotels as shown above therefore similarly to united missionary aviation inc v guest room lodging was operated in the commissioner t c m cch the same manner as any profitable commercial enterprise and similar rooms were available as those available commercial enterprises grant for educational activities whether this receipt of a dollar_figure grant will increase the educational to operate exclusively for exempt purposes is not determinable at this time activities of proposed use of the grant was not provided to the service planned additional amenities instead of primary activities as previously noted for-profit hotels such as the standard also have hours each week which exceed those at and workshops as well as a significant amount of yoga class and classes are merely workshops the ___ workshops government response to correspondence dated july 20xx department of the treasury-internal revenue service form 886-a catalog number 20810w -page__23 -_publish no irs gov schedule number or exhibit form 886-a explanations of items rev date name of taxpayer tax identification_number year period ended 20xx 20xx 20xx_ - definition of education as stated above in our response to correspondence dated june 20xx the service does not address a specific meaning in the code for educational however it does define educational as noted in regulations sec_1_501_c_3_-1 this regulation is quoted above samples of educational programs and examples of how education relates to tax-exempt status i regulations sec_1_501_c_3_-1 i ii ii examples of educational organizations -the following are examples of organizations which if they otherwise meet the requirements of this section are educational example an organization such as a primary or secondary school a college ora professional or trade school which has a regularly scheduled curriculum a regular faculty and a regularly enrolled body of students in attendance at a place where the educational activities are regularly carried on iii example an organization whose activities consist of presenting public discussion groups forums panels lectures or other similar programs such programs may be on radio or television explanation of the clause as stated above the appropriate text in sec_4 welfare exemption as shown above the flow of people exceed sec_50 of traffic the should have notified the service about its significant partially relied on the federal exemption_letter welfare exemption in april 20xx as that was dated 19xx for its determination to grant discussed above this federal exempt status letter was issued for the activity shown in the original application_for exemption the letter was not reliable for the change in activities that were not covered by the letter additionally educational programs relevance of community and charitable aspects non-profit status educational facility conference room library quiet room etc and zoning are examined against federal_law for federal tax exemption b -1 a ii that shows that more than of total activities is considered primary the is open hours a day days a week as are for-profit hotels the current schedule does not consider that for profit hotels offer similar and even more hours of classes and are not exempt from taxation the states that rules are simple for a school but not so simple for an educational retreat center thus change in activity and requested a ruling to determine whether it still qualified for tax exempt status charges similar rates as hotels and its income expenses and employee duties are similar to hotels income as well as these other factors are determining factors in 950_f2d_365 7th cir affg 70_tc_352 the court held that a vegetarian restaurant and health foods store was operated for substantial commercial purpose the court examined the method of operations to infer the purposes the organization operated in competition with commercial entities charging competitive prices set by formulas common in the retail food business and using commercial promotional methods like living faith is operated in competition with commercial entities and operates in a similar commercial manner in better business bureau of washington d c inc v united_states the court determined i that a single non-educational purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly educational_purposes advertises in a similar manner to a hotel department of the treasury-internal revenue service catalog number 20810w form 886-a publish no irs gov page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended 20xx 20xx 20xx i the activity of providing lodging for payment is substantial as it occur sec_24 hours a day days a week astay at the primary reason for guest stays is not educational guests are paying for lodging education is not ii as-previously stated whether receipt of the dollar_figure renewable annual grant will cause to increase educational activities so that they operate exclusively for exempt purposes is not determinable at this time what correspondence proposes to use the grant for was not stated in taxpayer the differences the taxpayer listed between and hotels or motels are addressed below i ii iii layout as demonstrated above there are several for- profit hotels that have similar layout as telephones in rooms with meeting rooms quiet room event centers libraries no tv and no each hotel attracts a different type of guest depending on the accommodations location and amenities these guests desire i as demonstrated above there are several for-profit hotels that provide a similar get-away experience such as quietness reflection writing reading and learning some offer much a much larger library and more hours of classes than rent meeting rooms for all kinds of purposes as demonstrated above hotels and businesses offer discount meeting rooms to nonprofits they are not required to be exactly like the key factor is whether activities are primarily educational many hotels the programs according to payroll records the working on grant writing and fundraising fundraising and grant writing are not educational activities however they do make educational activities possible the majority of lodging employees manage and maintain currently has one to three persons however for the purpose of offering government response to correspondence dated july 20xx in correspondence dated july 20xx the programs for september october november 20xx and asked for a review the know if the revised schedule meets the service's criteria sent a tentative schedule for educational wants to the agent prepared the chart below of proposed educational hours and percentage of facility use and assumed an eight hour day to give considerationto hours are included and whether each day is an eight hour day was not stated in the taxpayer's correspondence proposal how many actual -_-- form 886-a catalog number 20810w page _publish no irs gov department of the treasury-internal revenue service schedule number or exhibit 886-a form rev date explanations of items oct nov name of taxpayer sept tax identification_number operate sec_24 hours a day days year period ended 20xx 20xx 20xx the a week month hours in one month hrs x days day hours in one month hrs x days proposed monthly educational program hours if hour day proposed percentage of day hours proposed percentage of month hour sec_21 as stated above therefore participants enrolled in educational courses educational events educational workshops or educational seminars that were held for at program are insubstantial the lodging revenue should be treated as unrelated_business_income is operating hours a day days a week as other hotels as may be primarily educational if guests primarily stayed at the without enrolling in a if guest stays at classes are offered but are not mandatory to visitors the adjustments to schedule do not negate unfair competition to taxable entities that provide similar location layout experience amenities and as many or more classes the educational in nature for guests that would distinguish it or demonstrate an exclusively educational or charitable purpose the operates in a manner consistent with a commercial business has no activities that can be deemed likewise as in united missionary aviation inc v commissioner the particular manner in which an organization's activities are conducted the commercial hue of those activities competition with commercial firms are all relevant evidence in determining whether an organization has a substantial nonexempt purpose this court and others have consistently held that an organization's purposes may be inferred from its manner of operations government response to correspondence dated july 20xx in correspondence dated july 20xx the for august 20xx and asked for a review the the service's criteria sent their schedule for educational programs wants to know if the revised schedule meets the showings discussion one fundraiser and five teacher speakers correspondence showed july - august 20xx - events that include three film form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form rev date 886-a explanations of items name of taxpayer july august 20xx - none of the events appear to be longer than a few hours event hours are in addition to regular classes regular classes include yoga five days a week for hours each day and a weekly dialogue for hours a week this is a total of hours of regular classes year period ended 20xx 20xx 20xx tax identification_number taxpayer’s response to government's preliminary report on october 20xx the examining agent issued a preliminary report proposing revocation of exempt status under sec_501 for the tax years ended december 20xx the december 20xx and december 20xx the page letter and pages of attachments see attached page letter representative replied to the service's preliminary report on january 20xx with a the follow up response stated that operational tests of sec_1 c -1 a the also raised arguments that the different from for-profit entities such as hotels and inns representative activities further an exempt_purpose and are fundamentally satisfied the requirements for the organizational and government’s rebuttal to taxpayer’s response the _ response does not alter the government's position organizational_test the the organizational_test is incorrect in stating that only the articles of incorporation are considered in meeting the tax_court has stated that original articles of incorporation are not the only evidence from which an organization’s exempt purposes might be determined in 93_tc_487 pincite the court stated petitioner's original articles of incorporation are not the only evidence from which petitioner's purposes might be determined rather petitioner's bylaws are also indicative of the ‘objects motivating’ petitioner and therefore must also be considered the court further stated the question of whether petitioner is organized exclusively for one or more exempt purposes is purely a factual inquiry we could not judiciously decide such a factually intensive question if we were to myopically consider only petitioner's original articles of incorporation to the exclusion of all other evidence relevant to the issue as we have previously stated form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service year period ended 20xx 20xx 20xx schedule number or exhibit 886-a form rev date explanations of items name of taxpayer tax identification_number it is well settled that is primarily a question of fact not to be determined merely by the issue of organized an examination of the certificate of incorporation but by the actual objects motivating the organization and the subsequent conduct of the organization 585_f2d_1219 cir 144_fsupp_74 d n j commissioner 72_tc_42 peoples translation service v the organization’s purposes are determined when articles and enacted bylaws are read together it is not permissible for bylaws to specifically allow an organization to engage in substantially fails the organizational_test nonexempt purposes thus the service maintains that the because its bylaws allow it to devote more than an insubstantial part of its activities to purposes which are not in furtherance of an sec_501 exempt_purpose the examination is based on the bylaws in effect during the examination as shown in form 886-a page page page and page as we previously discussed with your representative amendments to bylaws made after the examination must be evaluated by the filing of anew form_1023 application_for recognition of exemption under sec_501 c of the internal_revenue_code a irs letter dated may 20xx the letter from the service dated may 20xx indicates that the service acknowledged the name change shown in the organization’s articles of incorporation filed with the state on march 20xx as a result of the service’s examination of bylaws in effect during our examination we have proposed revocation effective as of january 20xx operational_test a 75_tc_337 cites 75_tc_337 the for the proposition that the operational_test focuses on the purpose and not on the nature of the activity while goldsboro does stand for that proposition the court further stated among the factors we consider in determining whether an organization is operated to further a substantial commercial purpose are the particular manner in which an organization's activities are conducted the commercial hue of these activities and the existence and amount of profit from these activities citing 70_tc_352 in goldsboro the organization operated two art galleries which exhibited and sold artworks without a written contract in a county where there were no other galleries or similar facilities in competition with it conversely is in competition with other for profit establishments as form 886-a catalog number 20810w - page__28 _publish no irs gov department of the treasury-internal revenue service schedule number or exhibit _ explanations of items rew on tax identification_number name of taxpayer evidenced by its own advertisements and monitoring of its reviews on travel websites exhibit shows the visitor's guide under places to stay and the the described itself as correspondence however in its ads exhibit nothing in the ad would attract guests to the the same way used for its letter to the chamber is different than that used in its ad the a non-profit corporation c to the chamber in its chamber of commerce to protest not being included in the subsequent ad additionally the letterhead see exhibit and for educational_purposes this is year period ended 20xx 20xx 20xx described itself on its website described itself as 's letter to the is unlike goldsboro in which the purpose of the art gallery and art market was primarily the to foster community awareness and appreciation of contemporary artists constant flow of art for students to study art and painting techniques other art museums or galleries in the area and that works were chosen for representation of modern trends not salability significantly influenced the court to conclude the petitioner's purpose was primarily to educate rather than to sell conversely the on occupancy rates in comparison with other local entities profi it and loss discussions and commercial advertising and emphasis on gaining market share of the industry show that the fact that there were no board_of director discussions it also provided a had a substantial nonexempt purpose excerpts from the was operated board reports set forth below demonstrate the commercial manner in which we are still late with some bills but it seems that we should be okay by the end of the month the reservations are clearly picking up even nationwide according to our to board feb 20xx item marketing expert email from guestroom prices we moved them slightly up for march and april dollar_figure in average for weekdays and dollar_figure in average for weekends see prices now with and there is a room to board feb 20xxx item for all price ranges from dollar_figure to dollar_figure email from trip advisor we have moved up in rank from no to no email from board apr 20xx item to occupancy rate april - may occupancy rate june occupancy rate june - as projected will increase email from to board jun 20xxx item - weekdays national rating all guest comment websites combined tripadvisor yelp travel com and no in the category etc we are no in the category of similar sized places in of all places in advisor alone however we are no but very close to email from board july 20xx item independent of size this includes the on trip to catalog number 20810w form 886-a page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer excerpts from manner in which board meeting minutes set forth below also demonstrate the commercial year period ended 20xx 20xx 20xx was operated tax identification_number an eco friendly spa will generate more income and can be used for multiple purposes such as special events weddings etc raised for_the_use_of the spa time period that the spa is in use for a special event board minutes dated feb 20xx re it was decided by the board that all room rates can be if special events are planned guests will be notified for the project- last paragraph page and first paragraph on page reported that the online trip advisor service rates the various items has total in popularity among b bs in guest reviews on this site of which are rated excellent and o are rated very good there are no average poor or terrible ratings to provide the best experience possible their efforts are paying off handsomely board minutes dated july 20xx item and staff work diligently each day of the week is at this point in time as and the industry in we went over the april occupancy is way above average for general we agreed occupancy should be april not till may and that it should be this way from now on ie from the first day till the last day of that month ‘p l statement- dollar_figure was a record high dollar_figure was added in due to a bookkeeping error board minutes dated may 20xx finances a occupancy rate may 20xx b p l it was negative apprx dollar_figure due to extremely high and unusual expenses board minutes dated june 20xx june profit - income was dollar_figure with an occupancy rate and a profit of dollar_figure board minutes dated july 20xx jan - june 20xx average dollar_figure monthly profit compared to 20xx which was dollar_figure loss each month board minutes dated july 20xx the overall balance_sheet and improvement of the profit and loss overview for - he showed that the average january to june 20xx was explained by monthly profit was dollar_figure - a great improvement over 20xx 20xx and all previous years before the remodeling was undertaken and finally completed about july 20xx strategies for improving the financial condition of suggested and analyzed as follows a focusing on attracting guests between the weekends b gradually increasing some room rates while leaving a couple of inexpensive ones c taking a second look at internet booking companies like expedia orbitz and priceline d continue to transfer as many bills as possible to level pay plans for the rest of 20xx were department of the treasury-internal revenue service form 886-a catalog number 20810w _publish no irs gov -page_ schedule nurnber or exhibit 886-a form rev date explanations of items name of taxpayer tax identification_number a c non-profit and offer appropriate rewards for e sell memberships in various levels of contributions f continue to have fundraising events for the general and reserve funds as well as for the development fund half of which would go back into the reserve fund e making a yearly appeal for donations and hiring a professional fundraiser who should or should not be a member of the national fundraising foundation and abide by its guidelines board minutes dated august 20xx year period ended 20xx 20xx 20xx the current financial condition of the and he noted that a record higher occupancy rate in april and prepayments by some guests for future stays helped with two major payments in april board minutes dated april 20xx was reviewed by director grant writing projects b a grant writing committee has been created the board requests that priority be given to grants that pay for operating_expenses and or general maintenance_expenses mainly for the gardens board minutes dated june 20xx overall financial situation even though the occupancy rate is increasing in may there is a monthly shortfall of approx dollar_figure - due to a high mortgage interest rate minutes dated june 20xx is in the process of applying for a better rate with several banks board see exhibit for details of the board reports and meeting minute discussions from 20xx as the place to stay rather than primarily as an newsletters from 20xx that show through 20xx also included in exhibit are the substantial promotion of the educational center catalog number 20810w form 886-a page_ b 22_tc_265 relies on forest press inc v commissioner of internal revenue and states that as the long as the corporation was created to further an exempt_purpose and its activities are consistent with that purpose it is irrelevant that other for-profit enterprises engage in the same activity in forest press the tax_court determined that an organization devoted to developing and propagating the use of the dewey decimal classification system and related index was a charitable_organization forest press' primary activity was the ongoing development of the system which required continuous revision to this end forest press regularly employed an editor-in-chief and four editorial assistants and an additional two to three editorial assistants as publication dates approached by the time forest press was formed the system had been adopted by more than percent of the libraries in the united_states to classify and index their collections and was in publish no irs gov department of the treasury-internal revenue service schedule number or exhibit explanations of items form 886-a rev date name of taxpayer year period ended 20xx 20xx 20xx use in countries thus the court concluded that the system was an important aid to education and research and not a commercial enterprise tax identification_number in forest press the organization did not fix prices with any intent to make a profit over and above the expenses involved in the corporation and publishing the system additionally the organization in the forest press case did not advertise its publications in the conventional sense the organization's creation as well as the activities it engaged in was for educational_purposes this is not true of the regularly monitored its position in the industry and was in competition with other inns for guest room occupancy the board also made adjustments in guest room rates to maximize profitability see exhibit for sample board reports and meeting minutes show that the board advertising and exhibit board meeting minutes the as shown above and in form 886-a page sec_15 and the examination determined that fails the organizational_test due to nonexempt purposes included in its bylaws unlike forest was not created to further an exempt_purpose additionally with a charitable purpose instead they show a substantial nonexempt purpose activities are inconsistent c educational programs submitted a list of programs that were offered to its in exhibit of its reply to the service overnight guests and the community at large from january 20xx - december 20xx stated that it averaged educational programs per month this average is inaccurate the as it does not include the 20xx examination year which only offered approximately hours of educational programs for the entire year the after the examination ensued since more accurate measurement of activities as noted on form 886-a page is open hours a day days a week hours are a list also includes scheduling changes made activities in 20xx as charitable literary or likewise even if the agent counted all of educational the total is still insignificant in comparison to its promotion and maintenance of its _ calendar and whether the lodging activity additionally subsequent changes to organization offers a significant amount of charitable programs were previously discussed with _ representative the representative was referred to rulings and agreements to file a new form_1023 application_for recognition of exemption under sec_501 of the internal_revenue_code d overnight accommodations relative to educational programs stated that overnight guests stay at the the educational or literary purpose the educational programs compared to overnight stays the number of overnight guests versus local attendees at various events held at the additionally the advertising as an inn the proximity and similarities to other for-profit hotels the listed the number of persons it believes attended does not have a breakdown of the because they have come to the for an department of the treasury-internal revenue service form 886-a catalog number 20810w _publish no irs gov -page_32 schedule number or exhibit 886-a form rev date explanations of items name of taxpayer emphasis on competing for travelers’ accommodations and the intent to make a profit contradict the statement that overnight guests come for educational or literary purposes year period ended 20xx 20xx 20xx tax tdentification number e 72_tc_42 refers to peoples translation service to support its argument that while on the the surface the entity's activities were conducted in an ordinary commercial manner the operation was not sufficiently like a commercial enterprise because there was no intent to make a profit the facts in the peoples case are distinguishable from the facts in the instant case the peoples court’s determination was based on publication services below cost conversely for example specifically considered its pricing to make a profit and priced its guest rooms competitively as shown on form 886-a page and exhibit the potential for a substantial profit driving operations and organization are good enough to show a nonexempt purpose see copyright clearance center inc v commissioner 79_tc_798 moreover in peoples the organization spent an insignificant amount on advertising even in comparison to its small budget and the organization did not engage in practices associated with commercial publishing spent significant amounts on conversely as shown in form 886-a page five the advertising advertising costs were dollar_figure in 20xx dollar_figure in 20xx and dollar_figure in 20xx further objected to its exclusion from the visitor's guide to the chamber asking to be included and advertised in the guide as intended to raise room rates after adding a spa and pool as shown in its meeting minutes adding comparability to the local hotels and inns that also had a pool and spa would also increase a pool and spa additionally the rates during peak area events such as during the has surcharges for cancellations and increased its room instead it wrote a complaint letter to additionally these charges are above cost see exhibit the terms and policies g percent of expenses states that the service should allocate wage expense by designating employee upkeep of the facilities that directly support educational programs the conference room three libraries and a quiet room and states that these facilities directly support not educational programs however all of these areas are open to anyone who stays at the just those who come for events or programs as previously stated in form 886-a page the had approximately hours of educational programs during 20xx the first examination year adjusting wages for this amount of hours in comparison to total wage hours of big_number hours rounded is insignificant and unwarranted lists the outdoor event venues states that its teachers are for the most part volunteers however the primary teachers were paid directly by class participants the yoga and massage teachers were the the at primary teachers during the examination years as they taught weekly classes for about hours a week the teachers usually paid the shown in form 886-a pages massage teachers -- -- ‘ of the fees collected from participants as had verbal payment agreements with its yoga and form 886-a catalog number 20810w - page_33 _publish no irs gov department of the treasury-internal revenue service schedule number or exhidit ree explanations of items name of taxpayer year period ended 20xx 20xx 20xx tax identification_number h advertising argues that it is listed as a member of the not dictate categories it is advertised in however during the examination year the the subsequently followed by a contract to advertise in the visitor’s guide see exhibit for a copy of the advertising submitted to the chamber by wrote a letter to visitors bureau website under places to stay see exhibit this letter was chamber of commerce that argued that it should be included in chamber of commerce as a and does i comparisons to other organizations the service concedes that the county stated that the service did not compare the has does specifically define to any other entity that fits the definition of a the however the service reiterates that its comparisons to for-profit lodging entities and in form 886-a was at the request of did not have the same or similar amenities that it specifically identified in its correspondence thus the service comparisons answer the areas it proposed in its correspondence __ inquiry and show that stated that other for-profit lodgings is not unique in the- the _ the similar to the has suggested the service review the websites of three organizations that it considers and which hold c recognition of exemption these websites are for institute and educational center the service reviewed these websites and a website emphasizes a certain philosophy and encourages lodging significant difference is that all three organization's websites emphasize workshops programs more than lodging the for inquiry into this philosophy the boasts workshops and programs per year lodging is offered primarily to those who first find a workshop they wish to attend the website shows that it has specific dates for personal however no personal educational center has several large group events during the year and a staff of educators it also customizes accommodations are for large groups individual lodging seems to be incidental if at all as the majority of its dates were available when the service accessed its website the website clearly emphasizes its workshops and the new information presented in the _ response on pages through page is primarily based on changes the amended its bylaws is revising its website to emphasize educational programs more than guest rooms and revised its calendar subsequent to the examination the service previously notified the agreements by following formal procedures formal procedures entail completing form_1023 has made or plans to make subsequent to the audit the _ representative that changes to structure should be evaluated by rulings and application_for recognition of exemption under sec_501 of the internal_revenue_code and submitting it to rulings and agreements for evaluation the proposed revocation of the the examination years of 20xx through 20xx the service’s position is based on ___ exempt status applies to its organization and operation in form 886-a catalog number 20810w page publish no irs gov department of the treasury- internal_revenue_service schedule number or exhibit 886-a form rev date explanations of items name of taxpayer activities during the exam years not subsequent changes made after the examination and future intentions year period ended 20xx 20xx 20xx tax identification_number j 76_tc_380 the states that it differs significantly from schoger foundation because it offers overnight accommodations incidental to offering a forum for group education libraries and quiet space for study the service disagrees and concludes that as it advertised the operations as a for profit inn or bed and breakfast are a get away from it all the substantial nonexempt purpose like schoger it is difficult to see how the experience at differed if it did from the same experience one can have at any quiet inn or lodge in beautiful surroundings boasts itself as a real during the examination the service received permission from agent took photographs of the libraries on shows one bookcase which is the local author's library the second photograph partially shows the quiet room that included three bookcases consisting of the spiritual and educational library see exhibit for photographs of the bookshelves the to take pictures the grounds on june 20xx one photograph exaggerates the library component - additionally participation in educational events was incidental at guests could participate in primarily promotion relies on 71_tc_1067 and concludes that yoga massage quiet room gardens and occasional events however emphasized its quiet and beautiful location and serene atmosphere as reasons to stay at the location it is nevertheless plain that the word exclusively places a definite limit on the purpose at issue and that limit has been clearly articulated by the supreme court in 326_us_279 as follows p the an organization may engage in trade_or_business as long as its operation furthers an exempt_purpose and its primary objective is not a production of profits and provided it serves a public rather than a private interest the service takes the position that reservation and maintenance of its guest rooms for overnight guests is a substantial disqualifying nonexempt purpose as stated in 79_tc_793 the presence of a single nonexempt exemption regardless of the number or importance of truly exempt emphasis supplied we are of course aware that in some cases the test has been restated in terms of whether an organization's primary purpose is exempt or nonexempt emphasis supplied purpose if substantial in nature will destroy the department of the treasury-internal revenue service --35 -_-opublish no irs gov catalog number 20810w form 886-a purposes page schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number see 71_tc_1067 affd 647_f2d_170 9th cir cf 70_tc_352 n however regardless of whether any real differences may be thought to exist between these two formulations we are obviously bound by the supreme court's authoritative exposition and will proceed to consider whether in the language of the supreme court there is present here a disqualifying nonexempt purpose that is substantial in nature year period ended 20xx 20xx 20xx conclusion the position the service maintains that under code sec_501 _ response to the service's preliminary report does not alter the government's should be revoked of its exempt status tax exemption should be revoked because sec_1_501_c_3_-1 the provides that in order to be exempt as an organization described in code sec_501 an organization must be both organized and operated exclusively for one or more of the purposes specified in such section if an organization fails to meet either the organizational_test or the operational_test it is not exempt was not organized for an exempt_purpose under its current bylaws the the operating exclusively for an exempt_purpose under irc section sec_501 the activity is offering short term lodging to the public for payment in a way that is similar to commercial enterprises this activity should not be treated as unrelated_business_income because the activity is substantial by operating in the manner described substantial nonexempt purpose is not primary is furthering a of the treasury-internal revenue service_department catalog number 20810w - page -36 -_-ssépubblish no irs gov form 886-a