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p. 41. Add after partial paragraph at top of page:

Keep in mind, to achieve recognition of tax exemption, the organization must be created to achieve one of the charitable purposes set out in IRC § 501(c)(3), listed in § 2.1(d). A single nonexempt purpose, if substantial, will preclude tax exemption under IRC § 501(c)(3). Then study the facts in the next example of an entity that failed to get positive recognition.⁶

      The purpose in your Articles of Incorporation states “to promote friendship, cooperation and mutual assistance among your members. Because your Articles of Incorporation do not limit your purposes to those described in Treas. Reg. § 1.501(c)(3)-1(b)(1)(i), you fail the organizational test in IRC § 501(c)(3).

      You do not meet the provisions of Treas. Reg. § 1.501(c)(3)-1(c)(1). You are operated to provide direct economic benefits to members. For example, you provide financial assistance to members for such things as buying a home, funeral expenses, and birth of a member's child. This serves a substantial nonexempt private purpose, which precludes exemption under IRC § 501(c)(3).

      You are not described in Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii) because you are operating for the private interests of your members. This is evidenced by the fact you are operated to provide financial assistance to members.

      You are similar to the organization described in Revenue Ruling 67-367. Like that organization, your activities serve to benefit your members and their families rather than benefit the public. For instance, when a member or one of their family members dies, you help cover the costs of the funeral. When a member wishes to buy a home, you provide financial aid. There is no charitable intent to the payments or qualification or review to determine need because the payments are automatic. The payment of these types of benefits to pre-selected, specifically named individuals serves a private interest rather than a public interest which preludes exemption under IRC Section 501(c)(3).

The group of parents in Revenue Ruling 69-175 provided a cooperative service for themselves and thus served their own private interests. Like that organization, you were formed to provide benefits to your members. In your case, you are primarily providing financial assistance for the funeral expenses of members and their families as well as providing benefits for other occasions such as buying a home or the birth of a child. The payments serve a private rather than a public interest which precludes exemption under IRC § 501(c)(3).⁷

(b) Amount of Charitable Expenditures

       p. 43. Add to third paragraph at top of page:

      The “No activity test” cited in footnote 87 on this page quotes from the regulations saying, “An organization will be regarded as “operated exclusively” for one or more exempt purposes specified in section 501(c)(3) purposes ‘only if it engages primarily in such purpose’ and will not if more than an insubstantial part of its activities is not in furtherance. Importantly, it doesn't mean 100 percent.

The Tax Court in Tikar, Inc., v. Commissioner⁸ upheld the IRS's revocation of recognition of (c)(3) tax-exempt status of a nonprofit organization that reportedly held works of art of the Tikar people in Africa but did not display the works. Because the artworks were not placed on display for viewing by the public, the IRS considered the entity was not holding them to “operate or for exempt purposes.” The facts of the case indicated there was an ownership question as well that the IRS deemed to be an act of self-dealing with the person holding them.

       p. 43. Add after last paragraph in subsection:

(b-1) Meaning of Exclusively and Insubstantial

      Whether an art collection must be displayed to the public to be deemed “primarily held for charitable purposes” is an interesting and important question. In the Tikar case discussed earlier, ask why it isn't a charitable activity to simply protect from harm, conserve or repair, and/or simply safely store such assets for some future use if the items are historic, fragile, or highly valuable and require special care. Many museums possess and hold artworks that they are not necessarily able to display for a number of reasons. The facts of the Tikar case didn't make it clear why the art was not displayed adequately, so it doesn't stand for there being a reason art may be temporarily stored or stored safely from ongoing public display.

In another example, the lack of details and dates makes one wonder why the ruling was issued. It reports that ORG was granted tax-exempt status in 19XX under IRC § 501(c)(3) and § 509(a)(2). ORG was established for the purpose of engaging in activities that would provide affordable housing to low-income individuals. Some unspecified years later, in November 20XX, ORG's Form 990 was selected for examination and it was discovered that ORG had not conducted any activities related to its charitable purposes since its inception. ORG's president stated that they had not begun and had no plans to begin any operations to provide affordable housing. Based on the president's testimony, the Service proposed revocation of ORG's tax-exempt status effective January 1, 20XX. ORG's president consented to the proposed revocation and signed Form 6018, Consent to Proposed Action. The Service (reasonably) held that ORG was not operating exclusively for exempt purposes as required by Sec. 501(c)(3), since ORG had not been engaged in activities to further its exempt purpose. Rather, the Service found that ORG's activities furthered a substantial nonexempt commercial purpose and served private rather than public interests. Because ORG did not protest the proposed modification of their non–private foundation status and signed Form 6018, the Service issued a final adverse determination that ORG's exempt status was revoked.⁹

Notes

      1 1 IRS Priv. Ltr. Rul. 202021025; also see § 21.8 for unrelated business activity aspects of this issue.

      2 2 Gen. Coun. Memo. 39876; Reg. § 1.501(c)(3)-1(d)(1)(ii).

      3 3 See § 2.1.

      4 4 See § 3.2.

      5 5 Priv. Ltr. Rul. 202138010.

      6 6 Priv. Ltr. Rul. 202021025.

      7 7 Priv. Ltr. Rul. 202021021.

      8 8 T.C. Memo., May 6, 2021.

      9 9 Priv. Ltr. Rul. 201203032.

CHAPTER 3 Religious Organizations

        3.2 Churches (b) Definition of Church

§ 3.2 Churches

      (b) Definition of Church

       p. 69. Add new paragraphs at end of subsection:

Upon

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