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In order to be exempt under section 501(c)(3), an
organization must be both organized exclusively for one or more
of the exempt purposes specified in the section, known as the
organizational test, and operated exclusively for such purposes,
known as the operational test. See sec. 1.501(c)(3)-1(a)(1),
Income Tax Regs. Failure to satisfy either test forecloses a
section 501(c)(3) exemption. See id.
In application of the organizational and operational tests,
“exclusively” does not mean “‘solely’” or “‘absolutely without
exception’”. Nationalist Movement v. Commissioner, 102 T.C. 558,
576 (1994) (quoting Church in Boston v. Commissioner, 71 T.C.
102, 107 (1978)), affd. 37 F.3d 216 (5th Cir. 1994); see also
Copyright Clearance Ctr., Inc. v. Commissioner, 79 T.C. 793, 803-
804 (1982). Nonetheless, the presence of a single nonexempt
purpose, if substantial in nature, precludes exempt status,
regardless of the number or importance of truly exempt purposes.
See Better Bus. Bureau v. United States, 326 U.S. 279, 283
(1945); Redlands Surgical Servs. v. Commissioner, 113 T.C. 47,
71-72 (1999); Nationalist Movement v. Commissioner, supra at 576;
American Campaign Academy v. Commissioner, 92 T.C. 1053, 1065
(1989).
To satisfy the exclusivity requirement as it pertains to the
organizational test, the entity’s articles of organization must
limit its purposes to those which are exempt and must not
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Last modified: May 25, 2011