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Thursday July 25, 2024

Private Letter Ruling

Tax-Exempt Status Denied for Matchmaking Group

GiftLaw Note:

Organization applied for exempt status under Sec. 501(c)(3). Organization states that it is organized to operate an online matchmaking service for members of a particular religious faith. Organization intends to host in-person events globally to give participants the opportunity to socialize and find potential friends or partners in accordance with the core teachings and principles of the religion. In-person events are open to the public and held weekly for participants. Attendees are required to purchase tickets to attend the weekly events. Prices for admission tickets are dependent upon Organization’s goals for the event, what the event is offering, where the event is being held and at what time. Organization attempts to sell tickets at prices that can be affordable to participants. Organization advertises the events through social media in order to increase connectivity among attendees. Organization does not charge membership fees to be a part of Organization.

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(a)(1) states that an organization that fails to meet either the organizational or operational test is not exempt. 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. An organization will not be tax exempt if more than an insubstantial part of its activities are not in furtherance of an exempt purpose. Regulation 1.501(c)(3)-1(d)(1)(ii) further states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. Here, the Service determined that Organization failed the organizational and operational test under Reg. 1.501(c)(3)-(1)(a)(1) and Reg. 1.501(c)(3)-(1)(c)(1) because although Organization’s activities are intended to further religious purposes, Organization engages in non-exempt activities through its matchmaking and social events. In addition, Organization failed to meet the provisions set out in Reg. 1.501(c)(3)-1(d)(1)(ii) because Organization’s activities serve to provide a direct private interest of its members rather than the interest of the general public. Therefore, tax-exempt status was denied.

PLR 202420031          Tax-Exempt Status Denied for Matchmaking Group

5/17/2024 (12/19/2023)

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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

You attest that you were incorporated on B, in the state of C. 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 the 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 will create the next generation of D while facilitating connection and community.

During review of your Form 1023-EZ, detailed information was requested supplemental to your application.

You are an online matchmaking service and you hold in-person events all over the world, so D can meet and connect. The in-person events are every weeks and take place at * * *, * * *, * * *, * * *, * * *, E, * * *, and * * *. Participants must purchase tickets to attend your events. The price of tickets are determined by your goals for the event, what the event is offering, where and what time the event is, and making the ticket affordable for the attendees. Additionally, you create social media content for the purposes of increasing F connectivity, and you conduct giveaways in collaboration with F organizations. * * *% of your time and resources are spent on these activities.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and operated exclusively for religious, charitable, or other 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) states 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(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)(ii) provides that an organization is not organized or operated exclusively for an exempt purpose unless it serves a public rather than a private interest. The organization must demonstrate that it is not organized or operated for the benefit or private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled directly or indirectly by such private interests.

Revenue Ruling 77-366, 1977-2 C.B. 192, stated that a nonprofit organization that arranged and conducted wintertime ocean cruises during which activities to further religious and educational purposes were provided in addition to extensive social and recreational activities was not operated exclusively for exempt purposes and did not qualify for exemption under 1RC Section 501(c)(3).

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for exemption regardless of the number or importance of truly exempt purposes.

In Syrang Aero Club, Inc. v Commissioner, 73 T.C. 717 (1980), the court held that while an organization may serve educational and charitable purposes, it does not exclusively operate for educational, charitable, or other exempt purposes because it also serves a substantial recreations purpose.

In Schoger Foundation v. Commissioner, 76 T.C. 380 (1981), it was held that if an activity serves a substantial non-exempt purpose, the organization does not qualify for exemption even if the activity also furthers an exempt purpose.

Application of law

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that 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(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). You engage in substantial non-exempt activities through your matchmaking and social events. Although portions of these activities are intended to further religious purposes, overall, these activities serve substantial non-exempt purposes. You therefore do not operate exclusively for exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively for an exempt purpose unless it serves a public rather than a private interest. Your matchmaking and social event services further the private interests of your members rather that the interests of the general public. These matchmaking and event services provide a direct social and recreational benefit to participants, furthering their private interests and lack the benefit to the general public typical of organizations described in IRC Section 501(c)(3).

You are like the organization denied exemption in Revenue Ruling 77-366. Although your activities and purposes do promote religion, the social and recreational activities are substantial not-exempt activities. You therefore do not operate exclusively for exempt purposes.

Similar to the organization described in Schoger Foundation and Syrang Aero v IRS, you serve substantial recreational and social purposes for paid participants. Those that participate in these matchmaking events and social media activity benefit personally from the opportunity to socialize and find potential friends or partners. There are no apparent religious activities other than the fact that the majority of participants are of a certain faith. While participants in your matchmaking service could derive a religious or educational benefit, overall, you serve substantial recreational and social purposes that preclude exemption under IRC Section 501(c)(3). If an activity serves a substantial non-exempt purpose, as in those cases, despite the existence of other exempt purposes, similar to the organization described in Better Business Bureau of Washington, D.C. Inc v IRS, you will not qualify for exemption under IRC Section 501(c)(3).

Your position

You do not and will not charge membership fees to be a part of your organization. Your events are open to the public for anyone interested in connecting, dating, or meeting F people in accordance with the core teachings and principles of the F religion. You strive to educate the F community and public on the importance of G in one's personal life and relationships, whether it be romantic, platonic, professional, or familial.

The in-person events include celebration and observance of all F holidays, in accordance with F religious law. Also, you have many in-person events where you host a H to educate the public on the religious tenets of G in relation to dating, relationships, marriage, community, and the importance of certain F traditions.

Our response to your position

The additional information you provided does not change our position that you are not operated exclusively for exempt purposes. The facts show you have substantial recreational and social functions.

Conclusion

Based on the facts you provided, you do not meet the operational test because a substantial portion of your activities have social and/or recreational purposes. Thus, you do not meet the standards of exemption under IRC Section 501(c)(3). Donations to you are not deductible to the donor.

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements.

If you don't agree

You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number

• A statement of the facts, law, and arguments supporting your position

• A statement indicating whether you are requesting an Appeals Office conference

• The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your case considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest

Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:

Internal Revenue Service

EO Determinations Quality Assurance

Mail Stop 6403

PO Box 2508

Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service

EO Determinations Quality Assurance

550 Main Street, Mail Stop 6403

Cincinnati, OH 45202

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin

Director, Exempt Organizations

Rulings and Agreements


Published May 31, 2024

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