Service Denies Tax Exemption: Too Much Partying and Campaign Intervention

Tricky Dick

Last Friday, the Service released PLR 202313009 (Jan 4, 2023).  Here are the operative facts:  

You were formed as corporation on W in the state of X. You indicate that you are a fraternity of men & women who believe in democracy, freedom and equal justice under law, the same values and principles espoused by the Y in Z. Since your organizational document did not sufficiently limit your purposes or dedicate your assets to those described in IRC Section 501(c)(3) , you attested that you would amend the document to include proper language. However, there is no evidence that any amendment was filed with X.  You indicate x% of your activities include the celebration of holidays, both American and those commemorating the modem history of Z, such as [redacted data], Independence Day and other important dates. The events are designed to spread awareness about the specific holiday and your purpose. These events take place at rented venues, where your members meet to share meals. The general public is welcome to attend.

You state that all your events are conducted for the sole purpose of gathering as a community and any donations collected are used to support charitable programs. When asked to clarify and to expound on your support of charitable programs, you state that donations gathered at your events are used toward organizing blood drives and to provide “food and warm clothes to homeless people, providing education grants, providing religious grants, etc.” However, you didn’t provide any evidence of funds being distributed for any charitable purposes when asked for documentation on how you financially support those activities.  During the determination process, we located an article on the internet that discussed your involvement in political campaigning in Z. You state in the article that “(You), a group from the [redacted data] are campaigning in Z to assure the victory of the Y party candidates in the ongoing elections.” You also stated your “campaign activities aim towards promoting the idea of democracy among the people of the society.” When asked, you confirmed the article was indeed referring to you.

All your revenue comes from donations and contributions collected for your events. All money collected is used to cover costs of the events and some administrative costs (office expense, accounting fees, etc.). Your budgets show no evidence of any distributions to any charitable cause or exempt purpose. You submitted no evidence of any ongoing charitable program or participation.

And here is the analysis and conclusions:

Your organizational document doesn’t state your purpose. You describe yourself as a fraternity of people who believe in democracy, freedom and equal justice. Your primary program is celebrating holidays. Such celebrations appear to be social in nature and have no exempt purpose. Thus, you are not organized or operated exclusively for any exempt purpose. [See Treas. Regs. Sections 1.501(c)(3)-1(a)(1) , 1.501(c)(3)- 1(b)(1)(i) and 1.501(c)(3)-1(c)(1) ].  

You are an “action” organization. You indicate that you will directly campaign to ensure members of a certain political party in Z are elected to office. You confirm this is an ongoing activity. “Action” organizations are not operated exclusively for one or more exempt purposes. Therefore, you do not meet the operational test for exemption under IRC Section 501(c)(3) . [See Treas. Regs. Sections 1.501(c)(3)-1(c)(3)(i) and 1.501(c)(3)- 1(c)(3)(iii) ]

Similar to Situation 21 in Rev. Rul. 2007-41 , you are intervening in a political campaign on behalf of a specific party. This is contrary to exemption under IRC Section 501(c)(3) .

You are similar to the organization described in Minnesota Kingsmen Chess Association v. Commissioner . Your main activities are social in nature, and you have not established how these social activities and celebrations serve a clear exempt purpose under IRC Section 501(c)(3) . Although you indicate that donations are collected at these events, you have not provided any evidence that your donations are distributed for charitable purposes within the definition of the Section. Thus, you do not meet the operational test for exemption under IRC Section 501(c)(3).

darryll jones