p b y f r b , c.
Department of the Treasury &CG/ VF
Internal Revenue Service
4 )/P Y
P O Box 2508
..
'District Cincinnati, OW 45201
Director
D
Person to Contact:
,Telephone Number:
Refer Reply to:
-
EP/EO
Date:
SEP 7
Dear S i r o r Madam:
e
W have connidered your applicatiorr f o r reoognitton of exemption from
Federal income t a x a s an o r g a n i z a t i o n described i n s e d t i o n 501(a) ( 3 ) of t h e
I n t e r n a l Revenue Code of 1954.
The information submitted disclosed t h a t you were incorporated on
ucder the laws of the S t a t e of .
Your purposes a s - . f f o r t h i n t h e t h i r d a r t i o l e bf your Articles of
Incorporation a r e a s f . a s :
To e s t a b l i s h , maintain and conduot an i n s t i t u t i o n ur
i n s t i t u t i l ~ n sof c a r i n g f o r c h i l d r e n of t h e a g e s 4 months
through k. ndergarten on a non-seatarian b a l j s f o r t h e
purposes c f o f f e r i n g a s a f e and olean plaab f o r our
c h i l d r e n t o play. ,%
Your a p p l i c a t i o n s t a t e s t h a t t h e s o l e p u r p o k of' ' t h e o r g a n i z a t i o n i a t o
provide s i t t e r s e r v i c e s 'or t h e c h i l d r e n of members of?
, while they volunteer t h e i r s e r v i c e s t o 1t h e Community. Your
only source of f i n a n c i a l support c o n s i s t s of monthly qembership f e e s .
. S e c t i o n 501 ( c ) ( 3 ) of t h e Code provides f o r exempCion from Federal income
t a x of o r g a n i z a t i o n s t h a t alee organized and operated e x c l u s i v e l y f o r
r e l i g i o u s , c h a r i t a b l e , s c i e n t i f i c , l i t e r a r y o r educational purposes.
S e c t i o n 1 . 5 3 1 ( ~ ) ( 3 $ - l ( b ) ( l l ( i ) of t h e Regulations provides t h a t a n
o r g a n i z a t i o n i s organized e x c l u s i v e l y f o r one o r Fore exempt purposes only i f
i t s a r t i c l e s of organization:
a ) L i m i t t h e purposes of such o r g a n i z a t i o n t o one o r
mare exempt purposes; and
, '
o
b) D not expressly emparor t h e o r g a n i z a t i b n t o
engage, otherwise than a n i n s u b s t a n t i a l park of its
a c t i v i t i e s which i n themselves a r e n o t i n f g r t b e r a n c e
of one o r more exempt purposes.
- .
S e c t i o n 1.501 ( c ) (31-1 ( d l ( 1 ) of t h e Inoome T a x Regulationd z r w i d e s t h a t
i n o r d e r t o be exempt a s an o r g a n l z a t i 6 n desoribed i n aeotion 501( 0 ) (31 , an'
o r g a n i z a t i o n must be both organized .and o p e r a t e d exclusively f o r one or more
of t h e purposes s p e c i f i e d i n such s e o t i o n . I f an o r g a n i z a t i o n f a i l a t o meet
e i t h e r the o r g a n i z a t i o n a l t e s t or t h e o p e r a t i o n a l test, i t i a not exempt.
S e c t i o n 1 . 5 0 1 ( 0 ) ( 3 ) - l ( d ) ( l ) ( i i ) of t h e Inoome Tax Regulations provide8
t h a t an o19ganization l a not organized o r operated e x d l u a i v e l y f o r one o r more
exempt purposes u n l e s s i t aarvea a p u b l i o r a t h e r t h a n a p r i v a t e i n t e r e a t .
I n Revenue Ruling 70-533,1970-2 C B . . 112, an o p g a n i z a t i o n formed t o
o p e r a t e a work-related c h i l d c a r e and development o e n t e r , i n c o n j u n c t i o n w i t h
an i n d u s t r i a l company t o provide pre-achool age c h i l d r e n of f a c t o r y workers
w i t h an e d u c a t i o n a l program and a a r e d u r i n g t h e work day, w h i l e enrollment baa
based upon t h e f i n a n c i c l need of t h e family drid t h e need o i a o h i l d t was h e l d
exempt under s e c t i o n 5 0 1 ( c ) ( 3 ) of t h e Code. The o r g a n i z a t i o n waa performing a
c h a r i t a b l e a c t i v i t y and advancine education.
S i a c e t h e o r g a n i z a t i o n Is primarily funded by F e d e r a l g r a n t s , is open t o
members of t h e comsunity r a t h e r than r e s t r i c t e d t o employees of t h e ompany,
and c h i l d r e n a r a s e l e c t e d on t h o baaia of o b j e o t i v e criteriat any p r i v a t e
b e n e f i t s derivod by t h e oompany or t h e p a r e n t s of e n r o l l e d c h i l d r e n is
i n c i d e n t a l t o t h e puSlic b e n e f i t s r e s u l t i n g from t h e o r g a n i z a t C o n t s
operations.
Your major a c t i v i t y is t o provide s i t t e r s e r v i c e s f o r t h e memberst
c h i l d r e n while they a r e v o l u n t e e r i n g t h e i r s e r v i c e s ' t o t h e c a m u n i t y . This ?.a
not e x c l u s i v e l y i n f u r t h e r a n c e of one o r more exempt purfcsea set f o r t h i n
s e c t i o n 5 0 1 ( c ) ( 3 ) of t h e code. Accordingly, your o r g a n i z a t i o n f a i l s t o meet
t h e o p e r a t i o n a i t e a t , s i n c e your a c t i v i t i e s only r e r v e t h e p r i v a t e i n t e r e s t s
1:f your members.
Therefore, we propose t o deny yo& a p p l i c a t i o n f o r r e c o g n i t i o n of
exemption under s e c t i o n 501 ( c ) ( 3 1 of t h e Code. It I$ also o u r o p i n i o n t h a t
you cannot q u a l i e f o r exemption under any of t h e o t h e r s e c t i o n s of t h e
I n t e r n a l Revenue Code.STherefore, you are r e q u i r e d t o f i l e Federal income t a x
r e t u r n s annually on Form 1120. Because you a r e n o t an o r g a n i z a t i o n d e s c r i b e d
i n s e c t i o n 1 7 0 ( c ) of t h e Code, donors may not d13d:ct c o n t r i b u t i o n s made t o
you,
-
I f you a r e i n agreement, p l e a a e s i g n and r e t u r n one copy of t h e e n o l ~ s e d
Form 6018.
You have t h e r i g h t t o p r o t i s t t h i s proposed d e t e r m i n a t i o n i f you b e l i e v e
t h a t i t i s i n c o r r e c t . To p r o t e s t , you should s u h , i t a w r i t t e n a p p e a l g i v i n g
t h e f a c t s , l 3 w and any o t h e r i n f o r m b t i o n t o s u p p o r t your p o s i t i o n as e x p l a i n e d
i n t h e enclosed P u b l i c a t i o n 892 (Rev.7-83). "Exempt O r g a n i z a t i o n s Appeal
Procedures f o r U n a g r e e d , I s s u e ~ . ~The a p p e a l must be submitted w i t h i n 30 d a y s
from t h e d a t e of t h i s l e t t e r and must be s i g n e d by one of y o u r p r i n o i p a l
o f f i c e r s . You aay r e q u e s t a h e a r i n g w i t h a member of t h e o f f i c e of t h e
Regional Direc:or of Appeals when you f i l e your appeal. I f a h e a r i n g i s
r e q u e s t e d , you w i l l be c 9 n t a c t e d t o a r r a n g e a d a t e f o r it. The h e a r i n g ,lay be
h e l d a t t h e Regional O f f i c e , o r , i f you r e q u e s t , a t any m u t u a l l y 00nveni;nt
D i s t r i c t O f f i c e . I f you a r e t o be r e p r e s e n t e d by someone who is n o t 0r.e o f
ycur p r i n c i p a l o f f i c e r s * he must f i l e a proper power of a t t o r n e y an+ o t h e r w i s a
q u a l i f y under our Conference and P r a c t i c e R e q u i r e a e n t s as set f o r t t : ; I S e c t i o n
601.502 of t h e Statement of Procedural Rules. See Treasury Department
C i r c u l a r No. 230.
I f you do n o t p r o t e s t t h i s proposed d e t e r m i n a t i o n i n a t i m e l y manner, i t
irill be considered by t h e I n t e r n a l Revenue S e r v i o e as a f a f l u r e t o e x h a u s t
a v a i l a b l e adm.f.nistrative remedies. S e a t i o n 7428(b)t2) o f t h e I n t e r n a l Revenue
Code provides i n p a r t t h a t , " A d e c l a r a t o r y judgment o r d e c r e e under t h i s
s ? c t i o n s h a l l n o t be i s a u e d i n any proceeding u n l e s s t h e Tax Court, t h e Claims
Court, o r t h e d i s t r i c t c o u r t of t h e United S t a t e s f o r t h e D i s t r i c t of Columbia
determines t h a t t h e o r g a n i z a t i o n involved has exhausted a d m i n i s t r a t i v e
remedies a v a i l a b l e t o i t w i t h i n t h e I n t e r n a l Revenue S e m r i ~ e . ~
I f we do not h e a r from you w i t h i n t h e time s p e c i f i e d , t h i s w i l l become
our f i n a l d e t e r m i n a t i o n . I n t h a t s v e n t , a p p r o p r i a t e S t a t e o f f i c i a l s w i l l be
n o t i f i e d of t h i s a c t i o n i n accordance w i t h t h e p r w i s i c n s of s e c t i o n 6 1 0 4 ( c )
3f t h e Code.
This is a . proposed d e n i a l l e t t e r .
Sincerely yours,
D i s t r i c t Dir3ctor
Enclosure -2