Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 2Qualifying Under IRC § 501(c)(3)

• § 2.2 Operational Test
  • (a) Charitable Class
  • (b) Amount of Charitable Expenditures
  • (b-1) Meaning of Exclusively and Insubstantial

§ 2.2 Operational Test

(a) Charitable Class

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I highly recommend that readers first study the following IRS private letter ruling to get a full dose of the concepts, citations, and issues that must be considered in working with tax-exempt organizations. I hope you agree with this approach and will return to reading this private letter ruling in the future to refresh your memory for how the IRS reached its conclusion that the entity did not qualify for tax-exemption. Throughout the discussion of new developments, one can consider how the result could have changed to achieve successful IRS recognition of exemption. Note that the organization and its advisors did not contest the negative conclusion.¹

IRS Private Letter Ruling Number: 202021025

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) for the reasons stated below?

Facts

You submitted Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) ...