Sunday June 7, 2026
Employee Activity Group's Exempt Status Denied
GiftLaw Note:
Organization applied for exempt status under Sec. 501(c)(3). Organization states that it is organized and operated to bring together employees of D. Membership is automatically assigned to employees and ceases upon termination of assignment or employment. Organizing document specifies that Organization’s goal is to coordinate and facilitate activities that foster social interaction among employees and to promote a general atmosphere of fun and camaraderie. Activities occur year-round at the employer’s facility and other venues. Organization’s primary fundraising method is to purchase items from local stores to stock in the breakroom and then sell them slightly above cost. Organization’s activities include holiday celebrations, a Pi Day pie contest, a plant sale, breakfast burrito sales, barbecues and an annual potluck. Organization also holds a yearly decorating contest. Organization keeps its fees for events minimal to encourage participation. All profits are deposited into Organization’s bank account and are used to support activities throughout the year.
To be exempt under Sec. 501(c)(3), an organization must be both organized and operated exclusively for charitable, religious or other 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 is not in furtherance of an exempt purpose. Here, the Service determined that Organization fails the operational test under Reg. 1.501(c)(3)-(1)(a)(1) and Reg. 1.501(c)(3)-(1)(c)(1) because Organization’s activities are for a recreational and social purpose that privately benefit only employees of D. Therefore, Organization serves private rather than public interests and tax-exempt status was denied.
Published August 30, 2024
Previous Articles
Early Termination of CLAT is Not an Act of Self-Dealing
IRS Grants Extension to Elect Out of GSTT Allocation
Scholarship and Grant Procedures Approved
Software Company Denied Exemption
Extension for Portability Election Granted
