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Sunday July 3, 2022

Private Letter Ruling

Soccer Team Support Club Misses Goal as it is Denied Exemption

GiftLaw Note:
Organization applied for exempt status under Sec. 501(c)(3). Organization is a membership organization that is free of charge to everyone in the community. Organization's stated mission includes establishing and maintaining a healthy and independent working relationship with a particular soccer team, assisting both local and visiting supporters attending home matches, sponsoring roads trips to away matches, as well as arranging viewing parties for away or other televised matches. Members also tailgate before all home matches and hosts events throughout the season. Organization's goal is to provide a positive atmosphere for the soccer team, its fans and the game of soccer and use the sport of soccer as a mechanism to unite the community. Organization plans to, but has yet to, engage in fundraising and other charitable activities to grow the game of soccer by selling merchandise to reinvest in charitable efforts. Organization's Articles of Incorporation are silent as to the disposition of Organization's assets upon its dissolution.

To be exempt under Sec. 501(c)(3), an organization must be both organized and operated exclusively for charitable, religious or educational purposes and no part of the earnings may inure to the benefit of any private shareholder or individual. Regulation 1.501(c)(3)-1(b)(1)(i) states that an organization is organized exclusively for an exempt purpose only if its articles of organization limit its purposes to one or more exempt purposes and do not empower the organization to engage in activities not in furtherance of one or more exempt purposes. Under Reg. 1.501(c)(3)-1(b)(4), the organizational test is failed if the articles of organization are silent regarding the disposition of assets in the event of dissolution. Under Reg. 1.501(c)(3)-1(c)(1), an organization is operated exclusively for an exempt purpose only if it engages primarily in activities which accomplish an exempt purpose. Here, the Service determined that Organization does not pass the organizational test because its founding documents do not limit its activities to exempt purposes or address the disposition of assets upon dissolution. The Service also determined that Organization does not pass the operational test because its activities consist of sponsoring road trips to away matches, hosting tailgates before home matches, and arranging viewing parties for away or other televised matches, none of which are exclusively for educational or charitable purposes. As such, the Service denied Organization's application for exempt status.
PLR 202213013 Soccer Team Support Club Denied Exemption

Person to contact:
Name: * * *
ID number: * * *
Telephone: * * *
UIL: 501.03-00, 501.03-30
Release Date: 4/1/2022
Date: January 4, 2022
Employer ID number: * * *
Form you must file: * * *
Tax years: * * *

Dear * * *:

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent you a proposed adverse determination in response to your application. The proposed adverse determination explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we didn't receive a protest within the required 30 days, the proposed determination is now final.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this letter unless you request an extension of time to file. For further instructions, forms, and information, visit www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose — Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions about your federal income tax status and responsibilities, call our customer service number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,
Director, Exempt Organizations
Rulings and Agreements
Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038
________________________________________
Person to contact:
Name: * * *
ID number: * * *
Telephone: * * *
Fax: * * *
UIL: 501.03-00, 501.03-30
Date: October 19, 2021
Employer ID number: * * *

LEGEND:
B = Date
C = Team
D = State
E = Date
F = City

Dear * * *:

We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3). This letter explains the reasons for our conclusion. Please keep it for your records.

Issues


Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts


You submitted Form 1023-EZ, Streamline Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, on B

You attest on Form 1023-EZ that you are organized and operated exclusively to further charitable and educational purposes. You attest that you have the necessary organizing document, that your organizing document limits your purposes to one or more exempt purposes within the meaning of IRC Section 501(c)(3), that your organizing document does not expressly empower you to engage in activities, other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and that your organizing document contains the dissolution provision required under Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you attest you will:
  • Refrain from supporting or opposing candidates in political campaigns in any way
  • Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or individuals
  • Not further non-exempt purposes (such as purposes that benefit private interests) more than insubstantially
  • Not be organized or operated for the primary purpose of conducting a trade or business that is not related to your exempt purpose(s)
  • Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations outlined in Section 501(h)
  • Not provide commercial-type insurance as a substantial part of your activities
You indicated on the Form 1023 EZ that your mission is to act as an independent support group of C.

We subsequently requested additional information as well as provided you a copy of your Articles of Incorporation obtained from the D's Secretary of State's website. These were filed on E. Your corporate purposes are to serve as an independent supporters' group for C, support C to provide experiences and support for others, and engage in charitable endeavors in the F area. They were silent concerning the disposition of assets upon dissolution.

The information provided shows that you are a membership organization. Membership is open free of charge to everyone in the community including children. You further indicated that your mission includes establishing and maintaining a healthy, yet independent, working relationship with C, assisting both local and visiting supporters attending home matches of C, sponsoring road trips to away matches for C for members and supporters of C, as well as arranging viewing parties for members and supporters for other C away matches, or other televised matches. Your members tailgate before all home matches and host events throughout the season.

You also wish to provide a positive atmosphere for C, its fans and the game of soccer at matches and in the general community. In addition, you will assist C if requested and use the sport of soccer as a mechanism to unite your community. You may in the future engage in fundraising and other charitable activities to grow the game of soccer in F by selling your merchandise to reinvest in charitable efforts.

Furthermore, you attested that you amended your Articles of Incorporation. There is no evidence on D's SOS website that this was completed. Your board is elected from your membership and all are volunteers. Due to Covid 19, you have had no revenue since inception and have had minimal expenses.

Law


IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and operated exclusively for charitable, educational, or other enumerated purposes as specified in the statute. No part of the net earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that, in order to be exempt as an organization described in IRC Section 501(c)(3), 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.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization will be regarded as organized exclusively for one or more exempt purposes only if its articles of organization limit the purposes of such organization to one or more exempt purposes and do not expressly empower the organization to engage, otherwise that as an insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(b)(4) which requires the dedication of remaining assets exclusively for purposes in IRC Section 501(c)(3).

Treas. Reg. Section 1.501(c)(3)-1(c)(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 IRC Section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i) provides that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private purpose. To meet this requirement, it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term charitable as including the relief of the poor and distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The term "charitable" also includes lessening of the burdens of government.

In Better Business Bureau of Washington, D.C. Inc. v. United States, 326 U. S. 279 (1945), the Supreme Court of the United States interpreted the requirement in IRC Section 501(c)(3) that an organization be "operated exclusively" by indicating that an organization must be devoted to exempt purposes exclusively. This plainly means that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number and importance of truly exempt purposes

Application of law


IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests to qualify for exempt status. An organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). You have failed to meet both requirements, as explained below.

Although you attested to amending your Articles of Incorporation to add the needed provisions to meet the organizational test under IRC Section 501(c)(3), there is no evidence on D's SOS website that this has been done. Therefore, you fail the organizational test because the purposes stated in your Articles of Incorporation are not limited to those specified in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) and you do not have a proper dissolution clause as required by Treas. Reg. Section 1.501(c)(3)-1(b)(4).

You are also not described in IRC Section 501(c)(3) because you are not operated exclusively for exempt purposes as required by 1.501(c)(3)-1(c)(1). For instance, you sponsor road trips for members and supporters to away matches for C, host tailgates before home matches as well as arrange viewing parties for other C away matches, or other televised matches These facts show more than an insubstantial part of your activities are not in furtherance of a Section 501(c)(3) exempt purpose, but rather for social and recreational purposes.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) provides the term "charitable" is used in IRC Section 501(c)(3) in its generally accepted legal sense and includes relieving the poor and distressed or the underprivileged, combating community deterioration, lessening neighborhood tensions, and eliminating prejudice and discrimination. You did not provide evidence that your activities help lessen neighborhood tensions and eliminate prejudice or discrimination. You are an independent supporter of C, your activities serve the private interests of C in contravention to Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii), and are also social and recreational.

You are similar to the organization described in Better Business Bureau of Washington, D.C. Inc. v. United States, 326 U.S. 179 (1945). Even though in the future, you plan to fundraise and conduct other charitable activities, you are operated for substantial nonexempt purposes, which prevents you from qualifying under IRC Section 501(c)(3).

Conclusion


Based on the facts submitted, you are not organized and operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3) You do not meet the organizational test because your organizing document does not limit your purposes to those required by the regulations nor does your organizing document have a valid dissolution clause. You also do not meet the operational test for Section 501(c)(3) because you are operated for substantial nonexempt purposes. Accordingly, you do not qualify for exemption under Section 501(c)(3).

Published April 8, 2022

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