Tamaki Foundation - Page 10




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          Tax Regs.  We also understand that an organization that fails               
          this test does not qualify for exempt status under section                  
          501(c)(3).  See also id.                                                    
               Respondent focuses entirely on petitioner's failure to                 
          satisfy its burden as to the operational test.  So do we.                   
          Section 1.501(c)(3)-1(c), Income Tax Regs., provides as follows             
          as to the operational test:                                                 
                    (c) Operational test.--(1) Primary activities.  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 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.                                      
                    (2) Distribution of earnings.  An organization is                 
               not operated exclusively for one or more exempt                        
               purposes if its net earnings inure in whole or in part                 
               to the benefit of private shareholders or individuals.                 
               * * *                                                                  
               From the text of these regulations, we understand that an              
          organization is not operated exclusively for one or more exempt             
          purposes if its net earnings inure in whole or in part to the               
          benefit of private shareholders or individuals.  See sec.                   
          1.501(c)(3)-1(c)(2), Income Tax Regs.  The concept of private               
          inurement as expressed therein ensures that the organization                
          serves public rather than private interests.  See Church of                 
          Scientology v. Commissioner, supra at 491.  Tax exemption is a              
          matter of legislative grace; it is not a matter of right.  See              






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