IRS Published Taxpayer Determination Letter 202628011

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document. Native kind: determination letter; this is not a private letter ruling.

# Department of the Treasury Internal Revenue Service Tax Exempt and Government Entities

IRS

Date:
04/14/2026
Employer ID number:

Form you must file:

Tax years:

Person to contact:

Release Number: 202628011

Release Date: 7/10/26

UIL Code: 501.03-00, 501.03-30, 501.35-00

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days. the proposed determination is now final.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't
deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c). by
sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions. forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information. as required by IRC Section 6110. Read the
enclosed Letter 437. Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions. follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Letter 4038

1Vì

Department of the Treasury
Internal Revenue Service

IRS

Date:
02/26/2026
Employer ID number:

Person to contact:

Name:

ID number:

Telephone

Fax:

Legend:

C = Location
D = Date
v percent = Percentage
w percent = Percentage
x percent = Percentage
y percent = Percentage
z dollars = Amount

UIL:
501.03-00

501.03-30

501.35-00

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 are an unincorporated association formed by the government of C as a "semi-autonomous agency" on D.
Your Bylaws state that you are formed for "development, charitable, religious, educational, and scientific
purposes" under IRC Section 501(c)(3). Your board members are appointed by the governor of C.

You represent that all your time is dedicated to providing banking services other than deposits and you refer to
yourself as a "lender of last resort." You seek to provide affordable lending opportunities to the people of C,
however, you do not provide charitable loans. You stated that the loans you provide further your exempt
purpose as the loans allow more homeowners to build or repair their homes. You state that the borrower's
income determines the interest rate but you did not provide details. You didn't describe how the rate is
calculated or the range of interest rates you offer.

You said that one hundred percent of your time and revenue is from traditional banking services such as
providing mortgage and commercial loans to the underserved communities of C. You said all loan programs
you offer have "a program income that is considered revenue to the bank to ensure that operations are sustained
throughout the years."

We asked how much of your time you spend on charitable loan programs you said that you do "not offer
charitable loans, however, we do have grant programs that were 100% grant, provided for those underserved
homeowners in the most isolated areas in C." You said that the "grant funding afforded rehabilitations for 12
households" in one year. You were also awarded another grant to "further rehabilitate homes for the special
needs community mainly elderly and disability [sic]."

When asked whether or not borrowers have been denied by commercial lenders before applying to you, you
said that it was "not applicable." We also asked for an itemized list of investment income, but you said that is
"not applicable."

You provided a sample installment note with an x percent interest rate. The note states that upon default the
entire balance becomes due (acceleration clause), and an extra two percent is added to the interest rate. You said
you offer new construction and repair home loans for the low and moderate low-income people of C. The terms
of the loans are dependent on the loan amount and loan program for which the borrower is approved and vary
from 15 years to 30 years. Other loans you offer are commercial loans for business capital startups varying from
4 to 30-year loan terms. You said the interest rates for your loans are based on the borrower's household income
bracket.

You said there is one other bank in your area. You said your interest rates are lower than the other bank, which
has rates from w percent. However, you did not disclose your range of rates. The sample note you provided also
provides for the rate going from x percent to y percent upon default, bringing the rate close to the other lender in
the area when the borrower experiences financial difficulty.

In addition, you represent that you facilitate loan guarantee programs, but you did not specify to what extent.
You stated that you "had the opportunity to rehabilitate homes for elderly and low-income individual [sic]
hundred percent grant funding." It is unclear whether you directly paid for these renovations or whether the
individuals obtained loans to complete the renovations. You provided no further details about these activities.

You said you applied for exemption for the opportunity to expand your funding search to be able to apply for
more grants. Your financial data shows most of your revenue coming from investment income, with only z
dollars in gifts, grants, and contributions. Most of your expenses are for compensation, salaries and wages, fees,
depreciation, and occupancy costs.

## Law

IRC Section 501(c)(3) requires an organization to be organized and operated exclusively for exempt purposes,
no part of the net earnings of which inures to a private shareholder or individual, no substantial part of the
activities is lobbying, and no political campaign intervention.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that 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(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization limit the purposes of such organization to one or more
exempt purposes; and do not expressly empower the organization engage, otherwise than as an insubstantial
part of its activities, in activities that in themselves are not in furtherance of one or more exempt purposes.

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)(i) sets forth the core requirement for an organization to qualify for
exemption under IRC Section 501(c)(3). Specifically, it provides that an organization may be exempt as
described in Section 501(c)(3) if it is organized and operated exclusively for one or more of the following
purposes: religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty
to children or animals.

Revenue Ruling 61-87, 1961-1 C.B. 191, holds that an organization whose primary purpose and activity is to
extend unsecured loans to needy students, at a comparatively low rate of interest to enable them to finance their
education, is exempt from federal income tax under IRC Section 501(a) as a charitable and educational
organization described in Section 501(c)(3).

Rev. Rul. 63-220, 1963-2 C.B. 208, amplifies Rev. Rul. 61-87 and describes a corporation organized primarily
for the purpose of extending loans to needy students of a college to enable them to complete their educational
programs. Certain loans are granted on an unsecured basis, while others require a type of security. Both types of
loans are made at the same nominal rate of interest which is substantially lower than commercial interest rates,
thereby representing a substantial saving to the students. Held, the organization qualifies for exemption from
Federal income tax as an organization described in IRC Section 501(c)(3) as one which is organized and
operated exclusively for charitable and educational purposes.

Rev. Rul. 71-259, 1971-2 C.B. 234, held that an organization managing university endowment and investment
funds at a below cost rate was exempt under IRC Section 501(c)(3).

Rev. Rul. 74-587, 1974-2 C.B. 162, held that an organization exclusively providing below cost loans to
businesses in an economically depressed area and giving preference to businesses that will provide employment
opportunities for residents is operated exclusively for charitable purposes.

Rev. Rul. 76-408, 1976-2 C.B. 145, held that providing interest free home repair loans to low income
homeowners in deteriorated areas, who do not qualify for traditional loans, is a charitable purpose under IRC
Section 501(c)(3).

Rev. Rul. 81-284, 1981-2 C.B. 130, held that an organization that issues loans below commercial rates to
businesses that cannot obtain regular loans and employ unemployed residents was exempt under IRC Section
501(c)(3).

In Better Business Bureau of Washington. D.C. Inc. v. United States, 326 U.S. 179 (1945), the Supreme Court
found that a single, substantial, non-exempt purpose will bar a claim for exemption, regardless of whether there
are other exempt purposes.

In B.S.W. Group Inc. v. Commissioner, 70 T.C. 352 (1978), the court found that a corporation formed to
provide consulting services was not exempt under Section 501(c)(3) because its activities constituted the
conduct of a trade or business that is ordinarily carried on by commercial ventures organized for profit. Its
primary purpose was not charitable, educational, nor scientific, but rather commercial. In addition, the court
found that the organization's financing did not resemble that of the typical Section 501(c)(3) organizations. It
had not solicited, nor had it received, voluntary contributions from the public. Its only source of income was
from fees from services, and those fees were set high enough to recoup all projected costs and to produce a
profit. Moreover, it did not appear that the corporation ever planned to charge a fee less than "cost." And
finally, the corporation did not limit its clientele to organizations that were Section 501(c)(3) exempt
organizations.

In Share Network Foundation v. Commissioner, 78 T.C.M. (CCH) 6 (1999), the court held that the organization
has the burden of providing sufficient documentation or other substantive information regarding its activities
and operations, which would establish entitlement to tax exempt status. Information that is vague or nonspecific
is not sufficient to meet the requirements under IRC Section 501(c)(3).

## Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. Per Treas. Reg. Section
1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in
Section 501(c)(3).

### Organizational Test

Your bylaws include as one of your purposes "development." Your purposes aren't limited to those which are
exempt, as required by Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i). Additionally, "development" isn't listed as
one of the exempt purposes in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i). For these reasons, you fail the
organizational test.

### Operational Test

You also do not meet the operational test. You are operating a bank in a manner similar to a for-profit bank.
You are not operating "exclusively" for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1).

There is no evidence that you charge substantially lower rates than commercial banks or provide loans to those
who cannot obtain traditional loans, which were key factors for granting exemption for loan activities discussed
in Rev. Rul. 63-220, Rev. Rul. 76-408, and Rev. Rul. 81-284. When asked for details regarding these factors,
you responded that the questions do not apply to you.

You also penalize defaulted borrowers by increasing interest rates and accelerating the entire loan balance. This
is sharply contrasted with the organization granted exemption in Rev. Rul. 61-87, which guaranteed loans for
students when they default on commercial loans.

Your situation is also distinct from Rev. Rul. 71-259 because you do not provide your banking services below
cost. Your sample loan agreement contains an x percent interest rate and a clause that increases the rate to y

percent upon default. The y percent interest rate is only half a percentage lower than loans offered by your
competitor. You state that the interest rate depends on the borrower's income but you did not describe how the
rate is calculated or the range of rates.

You state that some of your customers are low income, but not all, and you didn't provide a demographic
breakdown. You also state that your loans are low interest, and the rate depends upon the borrower's income but
you failed to provide more details. Unlike the organization described in Rev. Rul. 74-587, in which the court
found that providing below-cost loans to businesses operating in deteriorated areas and training residents is an
exempt purpose, you provide loans to any resident and you have failed to demonstrate that the loans are below
cost. Providing loans to low-income individuals, without more, is insufficient to qualify for exemption.

You represent that you spend all of your time providing banking services, other than deposits. Like the
organization denied exemption in B.S.W. Group. Inc., you are operating a regular business in a non-exempt
manner. Like the organization described in Better Business Bureau of Washington D.C., Inc., any charitable
purpose you may have is incidental to your substantial non-exempt purpose of operating a bank. As stated in
this ruling, the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption
regardless of the number or importance of truly exempt purposes.

In addition, when asked specific questions about any exempt activities you may conduct, such as your range of
interest rates, or proportion of loans going towards helping the poor, you said these questions didn't apply. You
have the burden of establishing that your activities qualify for exemption, as described in Share Network
Foundation. You failed to demonstrate that your sole activity of providing loans to residents of C fulfills an
exempt purpose.

# Conclusion

Based on the information submitted, you have not established that you are operating exclusively for one or more
exempt purposes described in IRC Section 501(c)(3). Your Bylaws included purposes that are outside of IRC
Section 501(c)(3) purposes. You fail the operational test because you are operating for the substantial non-
exempt purpose of operating a banking institution in a manner similar to a commercial lender. Also, you failed
to provide the detail needed to determine to what extent, if any, your activities serve a charitable purpose.
Accordingly, you do not qualify for exemption under Section 501(c)(3).

# 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:

Street address for delivery service:

Internal Revenue Service

EO Determinations Quality Assurance

Mail Stop 6403

550 Main Street, Mail Stop 6403

PO Box 2508

Cincinnati, OH 45202

Cincinnati, OH 45201

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

IRS Published Taxpayer Determination Letter 202628011

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