Private Letter Rulings - Exempt Status Revoked
GiftLaw Note:
A was a tax-exempt organization under Sec. 501(c)(3), formed to "protect and enhance the physical environment and flora and fauna" of Town by "engaging in the consideration and study of planning, zoning and land use" in the Town region. During the year under audit, A's primary activity consisted of being a party with other petitioners in an Article 78 proceeding against the Planning Board of Town. Other activities of A included operation and maintenance of a website which promoted involvement in local legislation. Minutes from one of A's executive meetings indicate website and print materials were to be reviewed by X, who warned "topics should not be political or so 'lobby' for legislature" to the extent that A would lose tax-exempt status. The minutes from the executive meeting coupled other internal documents led the Service to believe printed material regarding A's activities might be a reaction to exclude any activities that would keep A from continuing to qualify under Sec. 501(c)(3) or be an inaccurate reflection of A's activities.
The Service questioned whether A qualified for exemption. Sec. 501(c)(3) requires tax exempt organizations to be "organized and operated exclusively for [charitable] purposes... no part of the net earnings of which is carrying on propaganda, or otherwise attempting to influence legislation." The Service held that A's mission of preserving the traditions, architecture and appearance of Town for the sole benefit of residents of Town was not charitable, as it would be if it were for the general public good. Further, Organizations whose activities substantially attempt to influence legislation, whether by any local council or similar governing body or by the public in a referendum, are considered an "action" organization under Sec. 501(c)(3). Because 89% of A's total expenses for the year were spent on litigation against the Planning Board of Town and A advised readers to contact local legislative representatives in support of A's programs, the Service determined A was an "action" organization. A's primary activity of influencing local environmental legislation does not qualify for exemption under Sec. 501(c)(3). Therefore, the Service issued a final adverse determination letter as to A's exempt status because A's activities were not exclusively charitable.
The Service questioned whether A qualified for exemption. Sec. 501(c)(3) requires tax exempt organizations to be "organized and operated exclusively for [charitable] purposes... no part of the net earnings of which is carrying on propaganda, or otherwise attempting to influence legislation." The Service held that A's mission of preserving the traditions, architecture and appearance of Town for the sole benefit of residents of Town was not charitable, as it would be if it were for the general public good. Further, Organizations whose activities substantially attempt to influence legislation, whether by any local council or similar governing body or by the public in a referendum, are considered an "action" organization under Sec. 501(c)(3). Because 89% of A's total expenses for the year were spent on litigation against the Planning Board of Town and A advised readers to contact local legislative representatives in support of A's programs, the Service determined A was an "action" organization. A's primary activity of influencing local environmental legislation does not qualify for exemption under Sec. 501(c)(3). Therefore, the Service issued a final adverse determination letter as to A's exempt status because A's activities were not exclusively charitable.
This is a final adverse determination as to your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). It is determined that you do not qualify as exempt from Federal income tax under IRC Section 501(c)(3) effective * * *. You are in agreement to this final adverse determination.
Our adverse determination was made for the following reason(s):
It was determined that your activities are not exclusively charitable. Your primary activity of influencing local environmental legislation does not qualify it for exemption under section 501(c)(3).
Contributions to your organization are not deductible under Code section 170 as of * * *.
We will notify the appropriate State officials of this action, as required by Code section 6104(c). You should contact your state officials if you have any questions about how this determination may affect your state responsibilities and requirements.
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, 1-877-777-4778, and ask for Taxpayer Advocate Assistance.
See the enclosed Notice 1214, Helpful Contacts for Your "Notice of Deficiency" for additional Taxpayer Advocate telephone numbers and addresses.
If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.
Sincerely,
Team Manager
Dear * * *
We have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code (Code) is necessary.
If you accept our findings, take no further action. We will issue a final revocation letter.
If you do not agree with our proposed revocation, you must submit to us a written request for Appeals Office consideration within 30 days from the date of this letter to protest our decision. Your protest should include a statement of the facts, the applicable law, and arguments in support of your position.
An Appeals officer will review your case. The Appeals office is independent of the Director EO Examinations. The Appeals Office resolves most disputes informally and promptly The enclosed Publication 3498, The Examination Process, and Publication 892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain how to appeal an Internal Revenue Service (IRS) decision. Publication 3498 also includes information on your rights as a taxpayer and the IRS collection process.
You may also request that we refer this matter for technical advice as explained in Publication 892. If we issue a determination letter to you based on technical advice, no further administrative appeal is available to you within the IRS regarding the issue that was the subject of the technical advice.
If we do not hear from you within 30 days from the date of this letter, we will process your case based on the recommendations shown in the report of examination. If you do not protest the proposed determination within 30 days from the date of this letter, the IRS will consider it to be a failure to exhaust your available administrative remedies. Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree under this section shall not be issued in any proceeding unless the Tax Court, the Claims Court, or the District Court of the United States for the District of Columbia determines that the organization involved has exhausted its administrative remedies within the Internal Revenue Service." We will then issue a final revocation letter. We will also notify the appropriate state officials of the revocation in accordance with section 6104(c) of the Code.
You 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 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:
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.
Thank you for your cooperation.
Sincerely,
R.C. Johnson, Director, EO Examinations
Schedule number or exhibit:
Addendum to Lr 3618
| Name of Taxpayer | Tax Identification Number | Year/Period Ended |
| * * * | * * * | |
| * * * 31, 200* * * |
ISSUES
Whether the tax exempt status of this organization described under section 501(c)(3) should be revoked since their activities are not exclusively for one or more of the purposes specified in such section.
FACTS
* * * was incorporated in the State of * * * on * * * 6, 19* * *.
The purposes of the organization as stated in the Certificate of Incorporation are as follows:
"The corporation is to be formed to preserve, protect and enhance the physical environment and flora and fauna thereon of the Town of * * *, State of * * * by engaging in the consideration and study of planning, zoning and land use in * * * and the region of which * * * is a part"
Your primary activity during the year under audit consisted of being a party with other petitioners in an Article 78 proceeding brought against the Planning Board of the Town of * * * and * * *. The litigation attacked the approval given to * * * by the Planning Board for the subdivision of about 310 acres of undeveloped land in the Town of * * * into 104 building lots for single family homes.
In fact, the legal fees regarding this lawsuit represented 89% of total expenses for that year.
In a newspaper article published in The * * * dated 7/25/02 an article written by * * * (a co-founder and director of your organization) states that this suit attacks the impact of this project on the school system, local taxes, and traffic issues affecting the current residents.
Other activities included operation and maintaining a website which encourages readers to "pour out to board meetings and to write numerous letters to the official boards". Your website has links to Government and agency sites and encourage contacting these agencies regarding how they feel about upcoming projects.
In your minutes for the Executive meeting on 8/14/02 it indicates that "Mr. * * * once again warned not to mix * * * membership with lobbying efforts on paper." Those minutes also contained the following statement: "Mr. * * * warned that these short topics should not be political or so "lobby" for legislature or we may lose our not-for-profit status. He will review the drafts with that in mind. He also suggested future drafts be submitted as e-mail or given to him on floppy discs.".
In your mission statement submitted under cover letter dated 9/27/04 you state your goals are to preserve, protect and enhance the environment and quality of life of the residents of The Town of * * * and Village of * * *. * * * You believe that your town and village combine priceless environmental features, historically significant areas, important architectural structures and a diverse mixture of people who wish to preserve and improve your way of life.
These statements lead a reader to believe that any printed material regarding your activities might be a redacted version to exclude any activity that might preclude your organization from continuing to qualify under section 501(c)(3) and may not be an accurate reflection of all your activities.
LAW
Regs. 1.501(c)(3)-1(a)(1) provides, in part, that an organization will pass the operational test if it operates exclusively for charitable purposes only if it engages primarily in activities that accomplishes those exempt purposes for which the organization was formed.
Section 501(c)(3) of the Internal Revenue Code provides for the exemption from Federal Income Tax of organizations which are organized and operated exclusively for charitable purposes, 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 and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.
Section 501(c)(3)-1(d)(2) of the regulations defines the term "charitable" to include the advancement of education and the promotion of social welfare by organizations designed to combat community deterioration. Section 501(c)(3)-1(c)(3) of the regulations defines an organization as an "action" organization if a substantial part of its activities is attempting to influence legislation. The term legislation is defined as including actions by any local council or similar governing body, or by the public in a referendum.
Revenue Ruling 67-6, 1967 CB 135 states, in part, that an organization was formed to preserve the traditions, architectural style, and scenic appearance of an historic community. The primary activity of the organization consists of reviewing zoning matters affecting the community, opposing applications for changes or variances considered detrimental to the traditions of the community. The organization opposes such changes through appearances before local council, administrative boards and commissions. They implement these activities by encouraging members of the community to contact local legislative representatives in support of the organization's programs. This constitutes a substantial part of the organization's activities.
Combatting community deterioration through remedial action leading to the elimination of the physical, economic, and social causes of such deterioration is "charitable". Preserving and maintaining a historic or scenic area for the benefit and education of the general public also is "charitable."
However, preserving the traditions, architecture, and appearance of a community for the benefit solely of residents of the community (as distinguished from the general public both within and without the community involved) is not charitable. While such activities promote the common good and general welfare of the people of the community under section 501(c)(4) of the Code, they are not the promotion of social welfare within the scope of "charitable" under section 501(c)(3) as defined in the applicable regulations.
Furthermore, since the organization as a substantial part of its activities is engaged in attempts to influence local legislative representatives with respect to the organization's programs, it is an "action" organization within the contemplation of section 501(c)(3)-1(c)(3)(ii) of the regulations.
In view of the above, the organization described in this revenue ruling is not operating exclusively for charitable or the promotion of social welfare within the purview of section 501(c)(3).
TAXPAYER'S POSITION
Under cover letter dated 9/27/20* * * the taxpayer believes that they continue to qualify under section 501(c)(3) because they are a "Public interest organization that promotes conservation of the natural environment, preservation of historic landmarks, neighborhoods and maintenance of this enviable quality of life for the residents of * * * and its neighboring communities"
Taxpayer further states that they fall within the definition charitable since they provide printed material on new project developments and how these developments affect the Watershed property of * * * and other environmental systems including the towns of * * * and the Village of * * *
Taxpayer further contends that they combat community deterioration by attending and summarizing all town board, planning board and conservation commission meetings.
Taxpayer further states that they are educational since they sponsor environmental forums and information booths at community events.
GOVERNMENT'S POSITION
During the course of this audit for the period ended * * * 31, 200* * * the following was determined:
1) Pursuant to a statement signed by an elected officer of your organization, it was determined that you were not required to file Form 990 Return for Organization Exempt from Income Tax since your organization did not exceed $* * * in income since * * *
2) Your primary activity consisted of litigation against the Planning Board of the Town of * * * which attacked the approval of the subdivision of * * * acres of undeveloped land into * * * building lots for single family homes. In fact 89% of your local expenses were for this activity. Accordingly, a substantial part of your activities was engaged in influencing local legislation. Also advising your readers in your printed materials to contact legislative administrators, your organization is an "action" organization within the contemplation of section 501(c)(3)-1(c)(3)(ii).
3) Preserving the traditions, architectural appearance for the residents of the community is not a charitable activity noted in Revenue Ruling 67-6, 1967-1 CB 135.
CONCLUSION
Based upon the facts and circumstances as presented during this audit, and the Law and Regs cited above, your organization does not qualify under section 501(c)(3) since you failed the operational test noted in Regs. 1.501(c)(3)-1(a)(1).
Accordingly we propose to revoke your status under section 501(c)(3). Our letter granting exemption under section 501(c)(3) of the Internal Revenue Code is revoked effective for years beginning January 1, 2002.