Internal Revenue Service
Revenue Ruling
Rev. Rul. 70-186
1970-1 C.B. 128
Sec. 501
IRS Headnote
A nonprofit organization formed to preserve and improve a lake used
extensively as a public recreational facility qualifies for exemption under
section 501(c)(3) of the Code.
Full Text
Rev. Rul. 70-186
Advice has been requested whether the nonprofit organization described
below qualifies for exemption from Federal income tax under section
501(c)(3) of the Internal Revenue Code of 1954.
The organization was formed to preserve a lake as a public recreational
facility and to improve the condition of the water in the lake to enhance
its recreational features. It is financed by contributions from lake front
property owners, from members of the community adjacent to the lake, and
from municipalities bordering the lake.
The lake is a large body of water bordering on several municipalities. It
is used extensively by the public for recreational purposes. Along its
shores are community-owned public beaches, launching ramps, and other
recreational facilities of a public nature.
The organization's principal activity is to treat the water, to remove
algae, and to otherwise improve the condition of the water for recreational
purposes.
Section 501(c)(3) of the Code provides for the exemption from Federal
income tax of organizations organized and operated exclusively for
charitable purposes.
Section 1.501(c)(3)-1(d)(1)(ii) of the Income Tax Regulations provides that
an organization is not organized or operated exclusively for one or more
exempt purposes unless it serves a public rather than a private interest.
Section 1.501(c)(3)-1(d)(2) of the regulations provides that the term
"charitable" is used in section 501(c)(3) in its generally accepted legal
sense and includes, among other things, the erection or maintenance of
public buildings, monuments, or works, and the lessening of the burdens of
Government.
By treating the water, removing algae, and otherwise improving the
condition of the water, thereby insuring the continued use of the lake for
public recreational purposes, the organization is performing a charitable
activity. See Revenue Ruling 67-325, C.B. 1967-2, 113, which relates to an
organization exempt under section 501(c)(3) of the Code providing
recreational facilities to the residents of a township.
The benefits to be derived from the organization's activities flow
principally to the general public through the maintenance and improvement
of public recreational facilities. Any private benefits derived by the lake
front property owners do not lessen the public benefits flowing from the
organization's operations. In fact, it would be impossible for the
organization to accomplish its purposes without providing benefits to the
lake front property owners. See Revenue Ruling 66-358, C.B. 1966-2, 218,
which relates to an organization exempt under section 501(c)(3) of the Code
operating and maintaining a public park with incidental private benefits.
Accordingly, based on the facts presented it is held that this organization
is exempt from Federal income tax under section 501(c)(3) of the Code.
This case is distinguishable from a situation where an organization uses
its funds primarily to foster private interests and the benefit, if any, to
the general public is only incidental. See Benedict Ginsberg and Adele W.
Ginsberg v. Commissioner, 46 T.C. 47 (1966).
Even though an organization considers itself within the scope of this
Revenue Ruling, it must file an application on Form 1023, Exemption
Application, in order to be recognized by the Service as exempt under
section 501(c)(3) of the Code. The application should be filed with the
District Director of Internal Revenue for the district in which is located
the principal place of business or principal office of the organization.
See section 1.501(a)-1 of the regulations.
