Respondent determined petitioner is not exempt from taxation under section 501(c)(3). Pursuant to section 7428,
This case was submitted under Tax Court Rule 122. The stipulated administrative record is incorporated herein by this reference. At the time its petition was filed, petitioner had its principal office in Nebraska.
Petitioner was organized under the laws of Nebraska on October 21, 1981, to raise funds for the furtherance of charitable groups, religious groups, and nonprofit ambulance service groups. Petitioner submitted an application for recognition of exemption to respondent on November 4, 1981, claiming to be an organization described in section 501(c)(3). On September 1, 1982, respondent determined petitioner is not exempt under that section because it is not operated exclusively for exempt purposes.
Petitioner's sole activity is the operation of bingo games, the profits from which are to be contributed to organizations recognized by the Internal Revenue Service to be exempt from tax under section 501(c)(3). The bingo games are conducted in a rented building in Council Bluffs, Iowa. Petitioner's "rental payments" pursuant to a lease dated February 18, 1982, cover not only the use of the building, but also pay for "all labor for the supervision and handling of each bingo occasion upon the premises."
To qualify for exemption as an organization described in section 501(c)(3), petitioner must be operated exclusively for exempt purposes.
Subject to the exceptions provided by section 502(b), section 502(a) prevents an organization which is operated for the primary purpose of carrying on a trade or business for profit from qualifying for exemption on the ground that its profits are payable to exempt organizations. Petitioner is operated for the primary purpose of carrying on a trade or business for profit within the meaning of section 502(a). See Smith-Dodd Businessman's Association, Inc. v. Commissioner, 65 T.C. 620, 623 (1975). Section 502(a) therefore precludes petitioner from qualifying for exemption by merely supporting exempt organizations unless one of the exceptions in section 502(b) is applicable.
Section 502(b) limits section 502(a) by excepting three categories of activities from the definition of trade or business. Unfortunately for petitioner, its operation of bingo games does not come within any of the exceptions. Petitioner does not derive rents, so section 502(b)(1) is inapplicable; the workers who conduct its bingo games are compensated through the "rental payments," so section 502(b)(2) is inapplicable; and it does not sell donated merchandise, so section 502(b)(3) is inapplicable.
Decision will be entered for the respondent.
(a) GENERAL RULE.—An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt from taxation under section 501 on the ground that all of its profits are payable to one or more organizations exempt from taxation under section 501.
(b) SPECIAL RULE.—For purposes of this section, the term "trade or business" shall not include—