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Section 1.501(c)(3)-1(d)(3), Income Tax Regs., expressly
includes museums within the scope of section 501(c)(3). Museums,
of course, must also satisfy all other requirements of section
501(c)(3) to qualify for exemption. In her final adverse ruling,
respondent provided the following explanation for denying
petitioner’s application for exempt status:
This ruling is made for the following reasons. You are
not operated exclusively for exempt purposes. Your
operation results in substantial private benefit to Bob
Jones University, which is not exempt from income tax
under � 501(c)(3) of the Code because of its racially
discriminatory policies. Your earnings inure to
private shareholders or individuals. Furthermore, you
are operated for a substantial non-exempt purpose.
This explanation appears to set forth four separate
justifications for denying petitioner’s application for
exemption. In substance, however, it sets forth a single
justification. Respondent contends that the University derives
an impermissible benefit from petitioner’s operation and that
petitioner, by providing such benefit, furthers a substantial
nonexempt purpose. Respondent argues that the University
receives an impermissible benefit based on: (1) Petitioner’s
payment of rent to the University; (2) petitioner’s payment of
salaries to employees formerly employed by the University;
(3) petitioner’s exhibition of artwork on loan from the
University; (4) the University’s influence on petitioner’s board;
(5) petitioner's location on the campus of the University; and
(6) the reputational benefit that the University will derive from
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Last modified: May 25, 2011