internal_revenue_service number release date index number -------------------- --------------------------- ------------------------------------------------------------ ------------------------- ----------------------------------------------- ------------------------ --------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number ---------------------- refer reply to cc fip b02 plr-132226-16 date date legend fund a ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- ----------------------------------------------------- fund b ------------------------------------------------------------ ----------------------------------------------------------------------------------- ---------------------------------------------------------- --------------------------- dear ------------- this letter revokes a part of plr plr-101134-101 issued to funds a and b the funds on date in plr the internal_revenue_service the service issued rulings that i income and gain from certain commodity-linked notes constitute qualifying_income under sec_851 the cln ruling and ii subpart_f_income and qef plr-101134-10 is the controlling plr number for a multi-filer private_letter_ruling each of funds a and b were assigned a separate plr number this letter refers to the controlling plr number but applies equally to the rulings issued to both of the funds under their respective separately assigned plr numbers plr-132226-16 inclusions of the subsidiaries attributable to the funds is other income derived from the funds’ business of investing in stock securities or currencies and therefore constitutes qualifying_income under sec_851 the subsidiary ruling in a letter dated date the service notified the funds that it was considering revoking the cln ruling since issuing plr the service has determined that having provided a private_letter_ruling on the issue in the cln ruling is not in accord with the current views of the service see revproc_2016_50 2016_43_irb_522 superseded by revproc_2017_3 i r b sec_4 see also reg-123600-16 fed reg date section dollar_figure of revproc_2017_1 2017_1_irb_1 provides in part that unless it was part of a closing_agreement a letter_ruling found to be in error or not in accordance with the current views of the service may be revoked or modified accordingly the cln ruling in plr is revoked the subsidiary ruling is not revoked and that portion of plr remains in effect at this time section dollar_figure of revproc_2017_1 also provides that if a letter_ruling is revoked the revocation applies to all years open under the statute_of_limitations on assessment unless the service uses its discretionary authority under sec_7805 to limit the retroactive effect of the revocation to date the funds have not responded to the date letter from the service with a request for relief under sec_7805 therefore the revocation of the cln ruling in plr applies retroactively to all years open under the statute_of_limitations on assessment as of the date of this letter and to all future years we are sending a copy of this letter to the appropriate operating division sincerely andrea m hoffenson andrea m hoffenson branch chief branch office of associate chief_counsel financial institutions and products


department of the treasury o tax exempt and laa u i l internal_revenue_service washington d c nov t' ep la t3 xxx xxx attn xxx legend entity a church g church h state religion j pastor k plan plan plan plan plan plan plan plan xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx plan year dear xxx this letter is in response to your request dated date as supplemented by correspondence dated date date date date date date date date date and date submitted on your behalf by your authorized representative regarding the church_plan status of plan plan plan plan plan plan plan plan and plan plans within the meaning of sec_414 of the internal_revenue_code code the following facts and representations have been submitted under penalty of perjury on your behalf entity a is a state nonprofit corporation described in sec_501 c of the code and exempt from tax under sec_501 of the code entity a is organized and operated to provide long-term care and residential services for seniors and others who need assistance in day-to-day living entity a is managed by its board_of directors board entity a’s amended and restated by-laws by-laws state that the board is composed of a minimum of persons anda maximum of persons a majority of which must be members of church g all current members of the board are members of church g including pastor k the pastor of church g church g is a religious corporation incorporated under the laws of state which has been in existence since year church g has voluntarily elected to be a member of church h a worldwide religious_organization church g has adopted its own constitution based on a model constitution developed by church h in which it embraces certain teachings and writings that are central to religion j tradition and which have been formalized by church h church g has accepted these teachings and writings as its official doctrine but it is not bound by any central authority to accept a particular interpretation of this doctrine church g provides regularly scheduled worship services pastoral care and religious instruction to both children and adult members of the congregation members of church g are not members of any other church affiliated with church h church g is authorized to hold acquire and devise property the pastor of church g is selected by members of the congregation from a church h roster of clergy which selects candidates based in part on their completion of religious training at one of the institutions endorsed by church h the pastor is the president of church g other officers of church g are elected by the voting members of church g and form the governing body of church g the governing body of church g which includes the pastor officers and no more than members of church g is also responsible for the routine financial and property matters of church g the entire congregation must approve major organizational financial and property transactions while church g provides an annual financial contribution to church h in support of church h’s endeavors to educate members of the supporting churches and otherwise facilitate the activities of its member churches church g is otherwise financially independent from church h church g is authorized to terminate its relationship with church h in accordance with the procedures set forth in its constitution the articles of incorporation for entity a provide that in the event of the dissolution of entity a its assets are to be distributed to the church g endowment fund or to church g itself if the endowment fund is not in existence the church g endowment fund manages funds for entity a the nature of operations section of the fund's financial statements states that the fund was created to aid assist and contribute to the support of organizations closely related in purpose or function to church g the financial statements also show the portion of the assets held by the fund in trust for entity a entity a is listed in the church g directory and is mentioned in its literature and brochures as a church g-affiliated organization article of entity a’s amended and restated by-laws also includes a statement of entity a’s affiliation with church h entity a sponsors welfare_benefit plans plan plan and plan entity a also participates as an adopting employer in plan a retirement_plan and welfare_benefit plans plan plan plan plan and plan entity a adopted plan on date merging entity a’ sec_403 plan with the b plans of three related entities which three plans have been ruled to be church plans within the meaning of sec_414 of the code at all times before such merger in its capacity as an employer entity a has offered employee_benefits to its employees including the plans to the extent that entity a is either the plan_sponsor or an adopting employer of the plans only active employees of entity a are eligible to become participants in the plans no other persons are eligible to become participants in the plans none of the eligible participants are or can be considered employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 of the code none of the eligible participants are employees of for-profit entities no election under sec_410 of the code has ever been filed for plan entity a created the benefits committee committee on date to administer the plans and its principal purpose and function is the administration of the plans the committee is appointed by the board_of directors of entity a and is made up of the entity a administrator entity a assistant administrator and the entity a controller the committee establishes the funding policies for the plans construes and enforces the plans makes claims decisions and determines types and levels of benefits and programs available under the plans in accordance with revproc_2011_44 2011_39_irb_446 notice to plan participants and other interested persons with reference to plan was provided on date this notice explained the consequences of church_plan status based on the foregoing you request a ruling that the plans are church plans within the meaning of sec_414 of the code sec_414 of the code generally defines a church_plan as a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches which is exempt from taxation under sec_501 of the code sec_414 of the code provides in part that the term church_plan does not include a plan that is established and maintained primarily for the benefit of employees or their beneficiaries of such church_or_convention_or_association_of_churches who are employed in connection with one or more unrelated trades_or_businesses within the meaning of sec_513 of the code or if less than substantially_all of the individuals included in the plan are individuals described in sec_414 of the code or sec_414 of the code or their beneficiaries sec_414 of the code provides that a plan established and maintained for its employees or their beneficiaries by a church or a convention or association of churches includes a plan maintained by an organization whether a civil law corporation or otherwise the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits or both for the employees of a church or a convention or association churches if such organization is controlled by or associated with a church or a convention or association of churches sec_414 of the code generally defines employee of a church or a convention or association of churches to include a duly ordained commissioned or licensed minister of a church in the exercise of his or her ministry regardless of the source of his or her compensation and an employee of an organization whether a civil law corporation or otherwise which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches sec_414 of the code provides that a church or a convention or association of churches which is exempt from tax under sec_501 of the code shall be deemed the employer of any individual included as an employee under subparagraph b corporation or otherwise is associated with a church or a convention or association of sec_414 of the code provides that an organization whether a civil law churches if it shares common religious bonds and convictions with that church_or_convention_or_association_of_churches revproc_2011_44 2011_39_irb_446 supplements the procedures for requesting a letter_ruling under sec_414 of the code relating to church plans the revenue_procedure requires that plan participants and other interested persons receive a notice in connection with a letter_ruling request under sec_414 of the code for a qualified_plan requires that a copy of the notice be submitted to the internal_revenue_service irs as part of the ruling_request and provides procedures for the irs to receive and consider comments relating to the ruling_request from interested persons in order for an organization that is not itself a church_or_convention_or_association_of_churches to have a qualified church_plan it must establish that its employees are employees or deemed employees of a church_or_convention_or_association_of_churches under sec_414 of the code by virtue of the organization’s control by or association with the church_or_convention_or_association_of_churches employees of any organization maintaining a plan are considered to be church employees if the organization is exempt from tax under sec_501 of the code and is controlled by or associated with a church_or_convention_or_association_of_churches in addition in order to be a church_plan the administration or funding or both of the plan must be by an organization described in sec_414 of the code to be described in sec_414 of the code an organization must have as its principal purpose the administration or funding of the plan and must also be controlled by or associated with a church_or_convention_or_association_of_churches in this case entity a is an organization described in sec_501 of the code which is exempt from tax under sec_501 of the code entity a has close ties with church g throughout the history of entity a church g members have served as at least a majority and at times all of entity a’s board_of directors in addition the church g endowment fund manages funds for entity a further entity a is listed in the church g directory and is mentioned in its literature and brochures as a church g- affiliated organization upon the dissolution of entity a the assets of entity a would revert to church g based on these facts we conclude that entity a is associated with church g for purposes of sec_414 of the code we further conclude that the employees of entity a meet the definition of employee under sec_414 of the code and that they are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization which is exempt from tax under sec_501 of the code and which is controlled by or associated with a church or a convention or association of churches the administrative control of the plans is vested in the committee and the committee’s principal purpose and function is the administration of the plans the committee is appointed by the board_of directors of entity a the board_of directors of entity a consists of a majority of members of church g including pastor k the pastor of church g as a result of the control of the committee by entity a we find that the committee shares common religious bonds with church g thus the administration of the plans satisfies the requirements regarding church_plan administration under sec_414 of the code accordingly the plans are maintained by an organization that is associated with a church_or_convention_or_association_of_churches and the principal purpose or function of which is the administration of the plans for the provision of retirement and welfare benefits for the deemed employees of a church_or_convention_or_association_of_churches based on the foregoing facts and representations we conclude that the plans are church plans as defined in sec_414 of the code this letter expresses no opinion as to whether plan satisfies the requirements of sec_403 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited by others as precedent a copy of this letter is being sent to your authorized representative pursuant to a power_of_attorney on file in this office if you have any questions regarding this letter please contact xxx se t ep ra t3 at xxx sincerely yours 0a laura b warshawsky manager employee_plans technical group enclosures deleted copy of letter_ruling notice cc xxx


internal_revenue_service index no number release date department of the treasury p o box ben franklin station washington dc person to contact telephone number refer reply to cc dom p si plr-106999-99 date date re legend decedent gst exempt trust spouse date trustee this is in response to your submission dated date in which you requested a ruling under sec_2652 of the internal_revenue_code and sec_301_9100-1 of the procedure and administration regulations decedent died testate on date survived by spouse under article two of the will the residue of decedent’s estate is to be held in trust trustee is directed to divide the residue into a family_trust to be funded with the amount that will pass free of estate_tax by reason of decedent’s available unified_credit a gst exempt trust to be funded with an amount equal to decedent’s unused gst_exemption not otherwise allocated and a primary marital trust to be funded with the balance of the residue during his life spouse is to receive all of the net_income from the gst exempt trust and the primary marital trust payable quarterly or monthly upon spouse's death any part or all of the principal and any undistributed_income in the primary marital trust is to be distributed in accordance with spouse’s exercise of a general_power_of_appointment if spouse does not exercise the power_of_appointment then the income and principal will be distributed per stirpes to decedent’s descendants any accumulated income and all the principal in the gst exempt trust are to be divided into three equal trusts to be held for the benefit of decedent’s children on schedule m of form_706 that was timely filed by the estate the executor made an election under sec_2056 with respect to the entire value of the gst exempt trust a deduction under sec_2056 was claimed with respect to the gst exempt trust and the primary marital trust the executor however failed to make an election under sec_2652 with respect to the gst exempt trust on date the estate filed an amended schedule r signifying that a reverse_qtip_election was being made with respect to the gst exempt trust however the executor did allocate decedent’s dollar_figure gst_exemption to the gst exempt trust the decedent's personal representative requests an extension of time under sec_301_9100-1 to make an election under sec_2652 with respect to the gst exempt trust sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2056 provides that for purposes of the tax imposed by sec_2001 the value of the taxable_estate is to be determined by deducting from the value of the gross_estate an amount equal to the value of any interest in property that passes or has passed_from_the_decedent to the surviving_spouse sec_2056 provides the general_rule that no deduction shall be allowed for an interest passing to the surviving_spouse if on the lapse of time on the occurrence of an event or contingency or on the failure of an event or contingency to occur the interest will terminate or fail and after the termination of the spouse’s interest an interest in the property passes to someone other than the spouse sec_2056 provides that in the case of qualified_terminable_interest_property the entire property shall be treated as passing to the surviving_spouse for purposes of sec_2056 and no part of the property shall be treated as passing to any person other than the surviving_spouse sec_2056 defines qualified_terminable_interest_property qtip as property which passes from the decedent in which the surviving_spouse has a qualifying_income_interest_for_life and to which an election under sec_2056 applies sec_2601 imposes a tax on every generation-skipping_transfer made by a transferor to a skip_person a person assigned to a generation that i sec_2 or more generations below the generation assignment of the transferor under sec_2652 a transferor is defined generally as the last person with respect to whom the property was subject_to an estate or gift_tax with regard to the generation-skipping_transfer_tax gstt each individual is allowed an exemption of dollar_figure which may be allocated by such individual or by his or her executor to any property with respect to which such individual is the transferor under sec_2632 the allocation may be made at any time on or before the date prescribed for filing the individual's estate_tax_return including extensions under sec_2632 any portion of an individual’s gstt exemption not allocated within the time prescribed in sec_2632 is allocated in accordance with that section sec_2652 provides that in the case of any trust with respect to which a deduction is allowed to the decedent's_estate under sec_2056 the estate of the decedent may elect to treat all of the property in the trust for purposes of the gstt as if the election to be treated as qualified_terminable_interest_property had not been made this election is referred to as the reverse_qtip_election the consequence of a reverse_qtip_election is that the decedent remains for gstt purposes the transferor of the qtip_trust for which the election is made as a result the decedent's gstt exemption may be allocated to the qtip_trust under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i if the taxpayer demonstrates to the satisfaction of the commissioner that the taxpayer has acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides extensions of time for making elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish that the taxpayer acted reasonably and in good_faith and granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the standards of sec_301_9100-1 and sec_301_9100-3 have been satisfied consequently an extension of time is granted until date for making an election under sec_2652 with respect to the gst exempt trust except as specifically ruled herein we express no opinion on the federal tax consequences of the transaction under the cited provisions or under any other provisions of the code we note that an extension of time to make the reverse_qtip_election under sec_2652 does not extend the time to make an allocation of any remaining gstt exemption in the instant case the executor made an allocation of the gstt exemption to the gst exempt trust on the estate_tax_return consequently in view of the reverse_qtip_election the allocation of decedent's gstt exemption to the gst exempt trust will not change this ruling is directed only to the taxpayer who requested it sec_6110 provides that it may not be used or cited as precedent sincerely yours paul f kugler assistant chief_counsel passthroughs and special industries enclosure copy for sec_6110 purposes


ta x e x e m p t a n d g o v e r n m e n t e n t i t i e s d i v i s i o n department of the treasury internal rev enue se rvice washington d c contact person telephone number identification_number employer_identification_number release number release date date date uil c legend a b c dear this letter is in response to your request for rulings on whether the implementation and operation of three new programs will adversely affect your tax exempt status or result in the imposition of unrelated_business_income_tax facts you are exempt under sec_501 of the internal_revenue_code and classified as a public charity you operate a worldwide educational program consisting of various creativity and problem solving programs for children from kindergarten through college thousands of young people participate in your programs annually you indicate that your programs are designed to help participants learn the art skill and process associated with creativity and critical thought and to develop important life skills such as problem solving teamwork and divergent thinking you indicate that you have designed three new programs to complement and extend your current programs program a is an adult extension of your program you plan to involve adult teams in problem solving challenges and competitions in a manner similar to those you currently operate for youths program b will extend a tailored version of your creative problem solving program to very young children focusing primarily on children from four to seven years old program c will add tournament level competition to your existing programs available to full-time university level students you have indicated that your sources of income consist primarily of gifts and contributions corporate sponsorships and registration fees from program participants the registration fees from participants in your proposed new programs will not significantly change the proportion of support you receive from gifts grants and contributions and program service income rulings requested based on the facts submitted you requested the following rulings your implementation and operation of programs a b and c will not jeopardize your tax- exempt status under sec_501 of the code because each will further your exempt educational_purposes amounts you receive from the implementation and operation of programs a b and c will not result in imposition of the unrelated_business_income_tax because each of the programs is substantially related to your tax exempt educational_purposes within the meaning of sec_513 of the code law sec_501 of the internal_revenue_code recognizes as exempt from federal_income_tax entities that are organized and operated exclusively for religious charitable scientific literary or educational_purposes no part of the net_earnings of which inure to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 of the code an organization will not be so regarded if more than an insubstantial part of its activities are not in furtherance of an exempt_purpose sec_1_501_c_3_-1 of the regulations defines educational as the instruction or training of the individual for the purpose of improving or developing his capabilities sec_1_501_c_3_-1 of the regulations states that an organization exempt under sec_501 of the code may operate a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization’s exempt purposes exemption will be denied to an organization that is organized or operated for the primary purpose of carrying on an unrelated_trade_or_business sec_511 of the code imposes a tax on the unrelated_business_taxable_income defined in sec_512 of organizations described in sec_501 sec_512 of the code provides that the term unrelated_business_taxable_income means the gross_income derived from any unrelated_trade_or_business which it carries on regularly sec_513 of the code defines the term unrelated_trade_or_business as one that is not substantially related to the exercise or performance by an organization of its charitable purpose or function constituting the basis for its exemption sec_1_513-1 of the regulations defines the economic activity that is considered to be a trade_or_business for the purpose of the unrelated_business_income_tax in sec_511 of the code in general any activity carried on for the production_of_income and possessing the characteristics of a trade_or_business within the meaning of sec_162 of the code that is not substantially related to the performance of the exempt organization’s exempt functions will be treated as unrelated_business_income sec_1_513-1 of the regulations states that for the conduct_of_a_trade_or_business from which a particular amount of gross_income is derived to be substantially related to purposes for which exemption is granted the production or distribution of the goods or the performance of the services from which the gross_income is derived must contribute importantly to the accomplishment of those purposes rationale your proposed program for adults program a will be similar to the established program for children it will teach teamwork creativity and problem solving skills through challenges and competitions program a will meet the definition of education in sec_1_501_c_3_-1 of the regulations training the individual for the purpose of improving or developing his capabilities the new program a will advance your educational purpose and contribute importantly to its accomplishment your proposed program for younger children program b will be an age-appropriate extension of your program for school-aged children program b is designed to enhance critical thinking among very young learners it will also advance your core exempt_purpose of enhancing the problem-solving skills of the participants program b will meet the definition of education in sec_1_501_c_3_-1 of the regulations training the individual for the purpose of improving or developing his capabilities the new program b will advance your educational purpose and contribute importantly to its accomplishment your new program for college-aged students program c is adjusted for the limited amount of time that college students have available and their interest in heightened competition like the other programs it is designed to enhance team building skills and creative problem-solving it will also advance your core exempt_purpose of enhancing the problem-solving skills of the participants program c will meet the definition of education in sec_1_501_c_3_-1 of the regulations training the individual for the purpose of improving or developing his capabilities the new program c will advance your educational purpose and contribute importantly to its accomplishment your revenues will continue to be primarily from registration fees by participants gifts and contributions and from some corporate sponsorships because programs a b and c advance your exempt_purpose and contribute importantly to its accomplishment revenue from programs a b and c will be related to your exempt_purpose within the meaning of sec_1_513-1 of the regulations and will not result in unrelated_business_income ruling sec_1 your implementation and operation of programs a b and c will not jeopardize your tax- exempt status under sec_501 of the code because each will further your exempt educational_purposes amounts you receive from the implementation and operation of programs a b and c will not result in imposition of the unrelated_business_income_tax because each of the programs is substantially related to your tax exempt educational_purposes within the meaning of sec_513 of the code this ruling will be made available for public inspection under sec_6110 of the code after certain deletions of identifying information are made for details see enclosed notice notice of intention to disclose a copy of this ruling with deletions that we intend to make available for public inspection is attached to notice if you disagree with our proposed deletions you should follow the instructions in notice this ruling is directed only to the organization that requested it sec_6110 of the code provides that it may not be used or cited by others as precedent if you have any questions about this ruling please contact the person whose name and telephone number are shown in the heading of this letter enclosure notice steven grodnitzky manager exempt_organizations technical group sincerely


department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division release number release date date date uil contact person identification_number contact number employer_identification_number form required to be filed tax years all dear this is our final_determination that you do not qualify for exemption from federal_income_tax under internal_revenue_code sec_501 as an organization described in code sec_501 we made this determination for the following reason s you are not organized or operated exclusively for exempt purposes also you have failed to establish that you do not operate for a substantial nonexempt purpose because you do not qualify for exemption as an organization described in code sec_501 donors may not deduct contributions to you under code sec_170 you must file federal_income_tax returns on the form and for the years listed above within days of this letter unless you request an extension of time to file instructions and do not send them to this office failure_to_file the returns timely may result in a penalty file the returns in accordance with their if you decide to contest this determination under the declaratory_judgment provisions of code sec_7428 you must initiate a suit in the united_states tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia before the day after the date that we mailed this letter to you contact the clerk of the appropriate court for rules for initiating suits for declaratory_judgment filing a declaratory_judgment suit under code sec_7428 does not stay the requirement to file returns and pay taxes we will make this letter and our proposed adverse determination_letter available for public inspection under code sec_6110 after deleting certain identifying information please read the enclosed notice notice of intention to disclose and review the two attached letters that show our proposed deletions the instructions in notice if you agree with our deletions you do not need to take any further action if you disagree with our proposed deletions you should follow in accordance with code sec_6104 we will notify the appropriate state officials of our determination by sending them a copy of this final letter and the proposed adverse letter you should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements if you have any questions about this letter please contact the person whose name and telephone number are shown in the heading of this letter federal_income_tax status and responsibilities please contact irs customer service pincite-829-1040 or the irs customer service number for businesses the irs customer service number for people with hearing impairments is if you have any questions about your sincerely lois g lerner director exempt_organizations rulings agreements enclosure notice redacted proposed adverse determination_letter redacted final adverse determination_letter tax_exempt_and_government_entities_division date date legend x dear department of the treasury internal_revenue_service washington d c contact person identification_number contact number fax number employer_identification_number we have considered your application_for recognition of exemption from federal_income_tax under internal_revenue_code sec_501 based on the information provided we have concluded that you do not qualify for exemption under code sec_501 the basis for our conclusion is set forth below facts you were incorporated in date according to your articles of incorporation with a specific purpose to promote financial literacy to highly leveraged consumers who want to become debt free offer products and services to assist the consumers in reaching their financial goals your by-laws list as specific objectives and purposes establish x as a viable and beneficial entity in the credit counseling industry through expanded financial services and diversification of revenue provide a financial literacy model that focuses on increasing consumer financial awareness and preventing financial distress provide a structured debt repayment plan debt management program for the immediate and long-term relief of financially overburdened consumers establish x as a reliable corporate community support mechanism for those in need you are currently non-operational while obtaining our non-profit c status which will enable us to launch our dmp platform and begin to function as a functioning entity in the dmp marketplace when you begin operations you will perform all of the services necessary to sell and maintain dmps yourself rather than contracting out the backend many of the details of your operations are undetermined you have not secured start-up capital you do not have an office or a website you have not drafted customer agreements employee handbooks or educational materials your only employee is your president however you did provide a detailed script that you intend to give to your employees to follow while conducting telephone calls with prospective clients the script is entirely devoted to selling debt management plans after answering the telephone by identifying himself the employee immediately mentions dmps now before can determine your qualification for the dmp will need to ask you several questions after asking about employment and debts the employee tells the caller in order to qualify for our program you will need to have at least dollar_figure in unsecured debts and you will need to have accounts or more on the program the employee is not directed to ask about the caller's broader financial situation about anyone else in the household unless they are jointly responsible for the unsecured debt secured debt or about underlying non-financial problems the caller is not assisted in making a budget alternative approaches to debt management are not proposed or discussed if a caller has either too much or too little disposable income he is advised to call his creditors directly to make other arrangements and the call is ended you state that you are developing educational pamphlets that you will mail monthly to your customers which focus on financial literacy and provide tools and information which can further enhance the knowledge of financial soundness to your customers you also plan to offer your educational solutions platform to high school and college students free of charge by your employees however you did not submit even drafts of any of this material after your dmp operations become viable you may add some additional activities you may seek and receive referral fees for products and services that we market appropriately to our potential customers correspondence 2c does not meet the qualifications for a dmp but owns a home to a vendor for mortgage re- finance and receive a marketing fee for generating that particular lead correspondence 2c you may expand to offer credit repair in the future or refer to an outside vendor of those services correspondence a long-term goal is to have credit card companies extend additional credit to your dmp customers correspondence for example you may refer a caller who revenue will flow from fair share payments by creditors and from voluntary contributions by clients the client will not be asked for up-front payments but will be asked to contribute dollar_figure per account per month up to a total of dollar_figure per month you will use several methods to attract clients primarily you will use traditional advertising that has lead sic to maximum lead generation for the credit counseling industry internet ads and print media correspondence organizations that offer hud’s homebuyer certification programs you note that participants in these programs generally have credit issues that they are motivated to resolve you will also offer financial literacy seminars to adult education institutions which will give you an opportunity in addition you intend to build networks with to expose our dmp platform to prospective customers who may not have heard about credit you hope to counseling via your traditional marketing channels correspondence generate sufficient clients by these methods however you have researched companies that sell specific credit counseling leads and will purchase leads if necessary to maintain your revenue goals correspondence there are two directors on your board a husband and wife the husband also the president has worked in the credit counseling industry for some time law sec_501 of the internal_revenue_code exempts from federal_income_tax corporations organized and operated exclusively for charitable educational and other purposes provided that no part of the net_earnings inure to the benefit of any private_shareholder_or_individual sec_1_501_c_3_-1 of the income_tax regulations provides that in order to be exempt as an organization described in 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 of the regulations provides that an organization is organized exclusively for one or more exempt purposes only if its articles of organization ‘ a limit the purposes of such organization to one or more exempt purposes and b do not expressly empower the organization to engage otherwise than as an insubstantial part of its activities in activities that in themselves are not in furtherance of one or more exempt purposes sec_1_501_c_3_-1 of the regulations provides that 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 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 of the regulations provides that an organization is not operated exclusively for one or more exempt purposes if its net_earnings inure in whole or in part to the benefit of private shareholders or individuals sec_1_501_a_-1 defines the words private_shareholder_or_individual in sec_501 to refer to persons having a personal and private interest in the activities of the organization sec_1_501_c_3_-1 of the regulations assigns the burden_of_proof to an applicant organization to show that it serves a public rather than a private interest and specifically that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests sec_1_501_c_3_-1 of the regulations provides that the term charitable is used in sec_501 of the code in its generally accepted legal sense and includes the relief of the poor and distressed or of the under privileged as well as the advancement of education sec_1_501_c_3_-1 of the regulations provides that the term educational refers to a the instruction or training of the individual for the purpose of improving or developing his capabilities or b the instruction of the public on subjects useful to the individual and beneficial to the community sec_1_501_c_3_-1 of the regulations provides that an organization may meet the requirements of sec_501 although it operates a trade_or_business as a substantial part of its activities if the operation of such trade_or_business is in furtherance of the organization's exempt_purpose or purposes and if the organization is not organized or operated for the primary purposes of carrying on an unrelated_trade_or_business in 326_us_279 the supreme court held that the presence of a single non-exempt purpose if substantial in nature will destroy the exemption regardless of the number or importance of truly exempt purposes the court found that the trade_association had an underlying commercial motive that distinguished its educational program from that carried out by a university in 302_f2d_934 ct_cl the court considered an organization that provided analyses of securities and industries and of the economic climate in general it sold subscriptions to various periodicals and services providing advice for purchases of individual securities the court noted that education is a broad concept and assumed arguendo that the organization had an educational purpose however the totality of the organization's activities which included the sale of many publications as well as the sale of advice for a fee to individuals were indicative of a business - therefore the court 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 in consumer credit counseling service of alabama inc v united_states u s t c d d c the court held that an organization that provided free information on budgeting buying practices and the sound use of consumer credit qualified for exemption from income_tax because its activities were charitable and educational the consumer credit counseling service of alabama is an umbrella organization made up of numerous credit counseling service agencies these agencies provided information to the general_public through the use of speakers films and publications on the subjects of budgeting buying practices and the sound use of consumer credit they also provided counseling on budgeting and the appropriate use of consumer credit to debt-distressed individuals and families they did not limit these services to low-income individuals and families but they did provide such services free of charge as an adjunct to the counseling function they offered a dept management plan approximately percent of a professional counselor's time was applied to the dept management plan as opposed to education the agencies charged a nominal fee of up to dollar_figure per month for the dept management plan this fee was waived in instances when payment of the fee would work a financial hardship the agencies received the bulk of their support from government and private_foundation grants contributions and assistance from labor agencies and the united way an incidental amount of their revenue was from service fees the court found the organizations exempt under sec_501 because providing information to the public regarding the sound use of consumer credit is charitable in that it advances and promotes education and social welfare these programs were also educational because they instructed the public on subjects useful to the individual and beneficial to the community the counseling assistance programs were likewise charitable and educational in nature because the community education and counseling assistance programs were the agencies’ primary activities the agencies were organized and operated for charitable and educational_purposes the court also concluded that the limited debt management services were an integral part of the agencies’ counseling function and thus charitable but stated further that even if this were not the case these activities were incidental to the agencies’ principal functions finally the court found that the law did not require that an organization must perform its exempt functions solely for the benefit of low-income individuals to qualify under sec_501 or to provide its services solely without charge nonetheless these agencies did not charge a fee for the programs that constituted their principal activities they charged nominal fees for services that were incidental moreover even this nominal fee was waived when payment would work a financial hardship in easter house v u s ct_cl affd 846_f2d_78 fed cir the court found that adoption services were the primary activity of the organization in deciding that the organization conducted adoption services for a business_purpose rather for a charitable purpose the court considered the manner in which the organization operated the record established a number of factors that characterize a commercial activity and which were evident in the operations of easter house also the court determined that the organization competed with other commercial organizations providing similar services fees were the only source of revenue it accumulated very substantial profits because it set its fees in order to generate a profit the accumulated capital was substantially greater than the amounts spent on charitable and educational activity and the organization did not solicit and did not plan to solicit contributions the court also found a corporate-type structure in the classes of memberships including a single life member having inherent power that the holder could transfer like stock and dependence on paid employees in revrul_69_441 1969_2_cb_115 the service found that a nonprofit organization formed to help reduce personal bankruptcy by informing the public on personal money management and aiding low-income individuals and families with financial problems was exempt under sec_501 of the code its board_of directors was comprised of representatives from religious organizations civic groups labor unions business groups and educational institutions the organization provided information to the public on budgeting buying practices and the sound use of consumer credit through the use of films speakers and publications it aided low- income individuals and families who have financial problems by providing them with individual counseling and if necessary by establishing budget plans under the budget plan the debtor voluntarily made fixed payments to the organization holding the funds in a_trust account and disbursing the funds on a partial payment basis to the creditors the organization did not charge fees for counseling services or proration services the debtor received full credit against his debts for all amounts paid the organization did not make loans to debtors or negotiate loans on their behalf finally the organization relied upon contributions primarily from the creditors participating in the organization’s budget plans for its support the service found that by aiding low-income individuals and families who have financial problems and by providing without charge counseling and a means for the orderly discharge_of_indebtedness the organization was relieving the poor and distressed moreover by providing the public with information on budgeting buying practices and the sound use of consumer credit the organization was instructing the public on subjects useful to the individual and beneficial to the community thus the organization was exempt from federal_income_tax under sec_501 of the code outside the context of credit counseling individual counseling has in a number of instances been held to be a tax-exempt charitable activity revrul_78_99 1978_1_cb_152 free individual and group counseling of widows revrul_76_205 1976_1_cb_154 free counseling and english instruction for immigrants revrul_73_569 1973_2_cb_179 free counseling to pregnant women revrul_70_590 1970_2_cb_116 clinic to help users of mind-altering drugs revrul_70_640 1970_2_cb_117 free marriage counseling revrul_68_71 c b career planning education through free vocational counseling and publications sold at a nominal charge overwhelmingly the counseling activities described in these rulings were provided free and the organizations were supported by contributions from the public revproc_90_27 1990_1_cb_514 provides in part that exempt status will be recognized in advance of operations if proposed operations can be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section under which exemption is claimed a mere statement of purposes or a statement that proposed activities will be in furtherance of such purposes will not satisfy this requirement the organization must fully describe the activities in which it expects to engage including the standards criteria procedures or other means adopted or planned and the nature of the contemplated expenditures where the organization cannot demonstrate to the satisfaction of the service that its proposed activities will be exempt a record of actual operations may be required before a ruling or determination_letter will be issued in those cases where an organization is unable to describe fully its purposes and activities a refusal to issue a determination_letter will be considered an initial adverse determination from which administrative appeal or protest rights will be afforded rationale you are neither organized nor operated exclusively for exempt purposes furthermore you have not established that your operation will not result in private benefit or inurement to private individuals the internal_revenue_code requires every organization that receives exemption from federal_income_tax under sec_501 to be organized and operated exclusively for exempt purposes your defining document your articles of incorporation state that your purposes are to promote financial literacy to highly leveraged consumers and to offer products and services to assist the consumers this document expressly empowers you to engage in activities which do not in themselves further exempt purposes offering products and services is the definition of commerce thus violating sec_501 -1 b i although you are not yet operating your description of the way that you intend to operate reflects the language of your articles the offer of products and services to consumers will comprise most of your activity by your description sale and maintenance of debt management plans will be your primary activity your president has a background in organizations selling debt management plans your description of the people you will seek to employ emphasizes selling skills the detailed script that you submitted to show how your employees will interact with callers is entirely designed to sell debt management plans your employee mentions qualification for a dmp in the second sentence the questions he is supposed to ask elicit just enough financial information to determine whether the caller fits your criteria for a dmp if not no matter what financial problems that caller has your employee is instructed to end the call your employees do not assist callers in making a budget or teach them how to adhere to one the employee does not discuss any alternative solutions to financial difficulties nor analyze whether a dmp is appropriate for the caller the analysis focuses entirely on whether the caller meets your requirements once the sale of the dmp is complete the customer must talk to someone in the customer relations department if he has a question eventually you hope to add additional financial products to the dmp you stated that you may do credit repair and will refer clients to other commercial vendors for a referral fee you describe as a long-term goal providing credit cards to your dmp customers you have not submitted any information establishing that these other products would be in the best interests of your customers because you will earn fees for referring your customers to these vendors your interest conflicts with that of your debt-inflicted customers you have not established that your debt management plan or other activities will be incidental to or integrated into a substantial educational program your script shows that you do not intend to conduct education through a counseling process there is no discussion of the caller’s general financial condition nor of the fundamentals of credit and finance there is no attempt to discover what the caller knows and what would be helpful to him in improving his financial situation you have asserted that you intend to mail educational material to your customers but you have not submitted any drafts you asserted that you intend to provide financial education to high schools and colleges but again have not submitted any materials or detailed plans furthermore you do not describe any intent to hire people with a background in education or counseling or finance who could write or teach such courses therefore you differ from the organization in cccs of alabama supra the employees of that organization spent approximately of their time counseling individuals and only about on debt management plans the organization also provided a robust program of public education through speakers films and publications the applicant for exempt status has the burden of proving that it is organized and operated exclusively for exempt purposes if it applies before it commences activities revproc_90_27 requires that proposed operations be described in sufficient detail to permit a conclusion that the organization will clearly meet the particular requirements of the section you have failed to provide that level of detail among other topics you could not answer questions about the source of your start-up funding your office or website you have not submitted customer agreements help wanted ad employee handbooks advertising for the internet or print media or any educational materials therefore you have failed to establish that your activities are part of a substantial educational programs and further educational_purposes another possible basis for exempt status is providing needed services to a charitable_class unlike the organization in revrul_69_441 supra you do not restrict your services to low-income people nor do you provide it without charge in fact you reject callers whose monthly income is below the level necessary to pay fora dmp therefore you have not established that your activities will serve charitable purposes it also appears that you have the substantial non-exempt purpose of operating as a commercial business your primary activity will be sale of a financial product the dmp in the future you hope to have additional commercial activity of referring your customers to vendors of other financial services for a fee the training materials and script that you submitted concentrate entirely on sale of dmps your revenue will come not from contributions from disinterested parties or organizations but from fees paid_by your customers and the credit card companies who benefit from the dmps you intend to purchase the names of people to whom you will attempt to sella dmp you have failed to establish that your activities further an exempt_purpose and are not merely commercial in nature even if we assume that you will provide some educational materials to your customers and some public education the totality of your planned activities show a significant non-exempt commercial purpose not incidental to any educational purpose see american institute for economic research supra finally your small board consisting of two members who are married to each other presents a risk of private_inurement and private benefit the organization in revrul_69_441 was run by boards representing the community and included members of religious organizations civic groups labor unions business groups and educational institutions such independent boards provide oversight to prevent the assets of an exempt_organization from being taken or misused by insiders you have the right to file a protest if you believe this determination is incorrect to protest you must submit a statement of your views and fully explain your reasoning you must submit the statement signed by one of your officers within days from the date of this letter we will consider your statement and decide if the information affects our determination you also have a right to request a conference to discuss your protest this request should be made when you file your protest statement an attorney certified_public_accountant or an individual enrolled to practice before the internal_revenue_service may represent you if you want representation during the conference procedures you must file a proper power_of_attorney form_2848 power_of_attorney and declaration of representative if you have not already done so for more information about representation see publication practice_before_the_irs and power_of_attorney all forms and publications mentioned in this letter can be found at www irs gov forms and publications if you do not file a protest within days you will not be able to file a suit for declaratory_judgment in court because the internal_revenue_service irs will consider the failure to protest as a failure to exhaust available administrative remedies code sec_7428 provides in part that a declaratory_judgment or decree shall not be issued in any proceeding unless the tax_court the united_states court of federal claims or the district_court of the united_states for the district of columbia determines that the organization involved has exhausted all of the administrative remedies available to it within the irs if you do not intend to protest this determination you do not need to take any further action if we do not hear from you within days we will issue a final adverse determination_letter that letter will provide information about filing tax returns and other matters _ please send your protest statement form_2848 and any supporting documents to this address internal_revenue_service te_ge se t eo ra t constitution ave n w washington dc you may also fax your statement using the fax number shown in the heading of this letter you fax your statement please call the person identified in the heading of this letter to confirm that he or she received your fax if if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely lois g lerner director exempt_organizations rulings and agreements enclosures form_437 testimony of commissioner of internal revenue