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as designated individuals, the creator or his family,
shareholders of the organization, or persons controlled, directly
or indirectly, by such private interests. See sec. 1.501(c)(3)-
1(d)(1)(ii), Income Tax Regs. The private benefit proscription
inheres in the requirement that an organization operate
exclusively for exempt purposes.
As stated in American Campaign Academy v. Commissioner, 92
T.C. 1053, 1065-1066 (1989):
When an organization operates for the benefit of
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, the organization
by definition does not operate exclusively for exempt
purposes. Prohibited private benefits may include an
“advantage; profit, fruit; privilege; gain; [or]
interest.” Occasional economic benefits flowing to
persons as an incidental consequence of an organization
pursuing exempt charitable purposes will not generally
constitute prohibited private benefits. Thus, should
* * * [the organization] be shown to benefit private
interests, it will be deemed to further a nonexempt
purpose under section 1.501(c)(3)-1(d)(1)(ii), Income
Tax Regs. This nonexempt purpose will prevent [the
organization] from operating primarily for exempt
purposes absent a showing that no more than an
insubstantial part of its activities further the
private interests or any other nonexempt purposes.
[Citations and fn. ref. omitted.]
The proscription against private benefit shares common
elements with, but is distinct from, the proscription against the
inurement of organizational earnings to private shareholders and
individuals, as contained in section 501(c)(3) and sections
1.501(a)-1(c) and 1.501(c)(3)-1(c)(2), Income Tax Regs. See
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