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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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