are in a deteriorated or blighted area. While you do plan to offer some charitable services, such as giving space to local nonprofit organizations conducting programs related to public health, this is incidental to your operation of a market for the sale of goods.
Treas. Reg. Section 1.501(c)(3)‐1(d)(3)(i) provides, in part, that the term “educational” as used in IRC Section 501(c)(3) relates to the instruction of the public on subjects useful to the individual and beneficial to the community. While you will provide some educational services, such as offering information on government nutritional programs, this is incidental to your operation of a market for the sale of goods.
You are like the organization described in Rev. Rul. 69‐175 because you were formed by a group of vendors joining together to sell their products. Vendors pay a fee to participate in the market. By associating together and providing a cooperative service among themselves, your vendors are serving a private rather than a public interest.
Similar to the cooperative art gallery described in Rev. Rul. 71‐395, you provide a venue for selling items that advance private interests. As explained in the ruling, an organization that operates for the purpose of exhibiting and promoting the sales of products for the benefit of private individuals does not qualify for exemption under IRC Section 501(c)(3). Similar to the organization described in the ruling, you are not operated exclusively for charitable or educational purposes. Even though providing space to nonprofit organizations and offering educational information may be charitable and educational in some respects, it is not your primary purpose.
You are similar to the organization described in Rev. Rul. 73‐127 because the operation of the farmers' market, the granting of free space to nonprofit organizations, and the operation of an educational booth are three distinct purposes. Because the operation of your market is not an exclusively charitable or educational purpose, you are not operated exclusively for exempt purposes.
Your activities are similar to the management and marketing activities conducted by the organization described in Rev. Rul. 77‐111. Like that organization, by conducting advertising and marketing as well as managing the market facility, you are engaged in activities that promote business in the market place generally rather than accomplish exclusively charitable purposes described in IRC Section 501(c)(3).
As held in Better Business Bureau of Washington. D.C., Inc., a single nonexempt purpose, if substantial, will preclude tax exemption under IRC Section 501(c)(3). The operation of your farmers' market, a substantial part of your activities, is a nonexempt purpose.
You are similar to the organization described in Ginsberg. The primary beneficiaries of the activities of your market are your members who are selling their products. Any public benefit is secondary to the sale of goods.
Conclusion
You do not qualify for recognition of exemption under IRC Section 501(c)(3) because you fail the operational test. You operate for the private benefit of your vendors by providing them with a forum to sell their products to the public. This is a substantial nonexempt purpose, which precludes you from exemption under Section 501(c)(3).
p. 37. Add new numbered entry:
7. Trust created by a college graduating class to provide aid to disabled or destitute members and scholarships was found to benefit private individuals rather than exclusively public interests. The IRS quoted regulations that say an “exempt organization must serve a public interest and the organization must establish that it is not operated for the benefit of designated individuals. The rule that a charitable organization must not serve private interests other than incidentally is a long‐established one.”2
p. 37. Add to footnote 51.
Priv. Ltr. Rul. 202021025 in which members of Z ethnicity group met monthly to promote friendship, cooperation, and mutual assistance to members on occasions of grief, approved of the celebrations as well as the program to provide financial assistance from members' deposits.
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.3
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).4
Notes
1 1 IRS Priv. Ltr. Rul. 202021025; also see Chapter 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 Priv. Ltr. Rul. 202021025.
4 4 Priv. Ltr. Rul. 202021021.
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