501(c)(3) Exempt Organization Rulings

This post lists exempt organization rulings relating to 501(c)(3) determinations or revocations. It is based on daily reports from CCH regarding ruling advance releases. The rulings illustrate various requirements for entities to be organized and operated as 501(c)(3) organizations.

• PLR 202221009 (Feb. 28, 2022): Purpose: Organization formed to develop, distribute, maintain open-source software and educational materials. Organized as a democratically controlled nonprofit worker cooperative, for the benefit of the public, and for the mutual benefit of members as patrons, with net earnings and savings to be equitably distributed to patrons, based on their patronage and surplus benefitting the public. Activities: Researching, designing, developing, documenting, promoting open-sourced software tools. IRS Determinations: Organization fails organizational test because organization formed as a cooperative nonprofit corporation. An organization legally formed as a cooperative is not organized exclusively for religious, charitable, educational purposes, or other exempt purposes because by law these are organized for members of the cooperative. Organization also fails the operational test because not operated exclusively for charitable, educational or scientific purposes because operated for substantial nonexempt purposes, and also operated for substantial nonexempt commercial purpose. “Developing open-source software does not further a charitable purpose.”

• PLR 202221011 (Feb. 28, 2022): Purpose: Organization formed as a recreational sports organization for seniors to assist with healthy lifestyle through sports. Activities: Social group that organizes exercises. Anyone in the local area who enjoys “z” as a form of exercise can participate. No fees are charged but there is a cost of using the field. The fee is divided among the members. IRS Determinations: Providing recreational sports to adults does not further any specific exempt purpose. Also, the organizational document does not limit the organization’s purposes to 501(c)(3) purposes. “You are like the organization denied exemption in Rev. Rul. 70-4 because your activities are directed towards promoting sport tournaments and exhibitions. Similarly, you are like the organization denied exemption in Media Sports League because you have a substantial nonexempt purpose of promoting the social and recreational interests of its members.”

• PLR 202221013 (Jan. 6, 2021): Purpose: To improve the quality of life for those in need by providing humanitarian assistance and educational programs. Activities: Provide online education to train individuals to become entrepreneurs and to develop business skills necessary to improve quality of life. Program integrates religious teachings from the bible with business law teachings to develop students into successful entrepreneurs. Organization unable to track who accesses educational programs, which are produced for, and made available by, Web site. Funds are raised through bargain sale transactions. Majority of revenue is generated through the purchase and sale of real estate by the organization. No public charitable contributes received to fund activities. IRS Determinations: Organization not operated exclusively for tax exempt purposes. Primary educational activity was not educational. Private inurement and private benefit to the president of the organization outweighs any and all public interest served.

• PLR 202221014 (Feb. 26, 2021): Purpose: To support families with disabled children offering them financial support to access therapies for child development. IRS Determinations: Organization failed to provide records supporting the amounts distributed to each individual. One supported individual appears to have been the organization president’s daughter – she is therefore a disqualified individual. Organization also failed to file tax returns. The articles of incorporation did not include the required dissolution clause.

• PLR 202221017 (Jan. 6, 2021): Purpose/activities: Organized perform building code inspection, enforcement and consulting services for various governmental agencies. Formed to lessen the burdens of federal, state and municipal governmental agencies by performing inspections and evaluation services. IRS Determination: Organization doesn’t lessen the burdens of government and is not operated for educational purposes or testing for public safety. Charging the same rates to for-profit entities as to governmental entities does not necessarily mean the organization cannot be lessening the burdens of government. However, it must be clear that the activities pursued by the organization are considered by the governmental unit to be its burdens, and those activities must actually lessen the governmental burden. The activities by organization are no different than the activities of other taxable individuals and corporations who conduct inspections. The nature of the arrangement is more in the nature of a commercial contract for services as opposed to lessening the burdens of government. Organization doesn’t receive revenue from government contracts, foundation grants, public contributions. It is merely charging for specific services provided. Relationship not close between governmental unit and organization. Organization wasn’t set up specifically to perform services to the benefitting governmental entity. IRS also concludes organization is not organized for testing for public safety. Inspecting buildings is not testing of consumer products.

• PLR 202221019 (Feb. 28, 2022): Purpose/activities: Organized to share knowledge and provide educational opportunities for public D professionals in B. Membership is open to any person within the chapter area who is a member of E or to any non-member of E that supports the objectives and programs of the chapter. Members pay dues. IRS Determination: Organization fails the organizational test because articles of incorporation do not limit purposes to section 501(c)(3) purposes. Not operated as a 501(c)(3) organization because not primarily engaged in activities that accomplish exempt purposes described in section 501(c)(3). Activities are not exclusively educational. Purpose appears to be directed towards professional advancement of members.