PLR 202621009                       Artist Promotional Group Exempt Status Denied

5/22/26 (1/9/2026)

Dear * * *:

We considered your application for recognition of exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3). This letter explains the reasons for our conclusion. Please keep it for your records.

Issues

Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts

You incorporated in the State of B on C as a charitable nonprofit corporation. You submitted Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

Your mission is to support, develop, and promote musicians, bands, and recording artists through equitable and transparent recording contracts, and development opportunities. Your purpose is to ensure that the artists you work with retain ownership of their intellectual property. You also seek to ensure that the public has access to a greater variety of music.

You offer programs including artist development, marketing and promotion, and live concerts and tours to artists across the United States at a x percent royalty rate. You state that your artists are not private beneficiaries but rather contributors to your mission, and any benefit conferred to individuals is incidental and necessary to achieving your broader goal of increasing community access to artistic expression.

The range of services available to artists under these programs is determined based on which of the tiers of engagement the musician falls under. Tier one is for unaffiliated artists. There are no restrictions on eligibility for this tier. Tier two is for development artists. To be eligible for this tier, artists must already have a full album produced and ready for distribution. Tier three is for partner artists. This tier requires artists to sell D albums or album equivalents.

You dedicate twenty percent of your time to the artist development program. This generally includes networking events, workshops, monthly jam sessions, and online educational resources. For the workshops, unaffiliated artists must pay full price, development bands pay a discounted price, and partner artists may attend as an in-kind contribution.

Thirty percent of your time is dedicated to the label services program. This program includes distribution, merchandising, physical media, visual media, recording, and legal services. The distribution services include distributing music on streaming and social media platforms. Development tier artists must pay y percent of the profits on any monetized use of the music, in addition to any distribution costs incurred. Partner tier artists, that have sold D albums or album equivalents, do not pay you any percentage of its profits but must cover any distribution costs. You only provide free legal services to artists that have already sold D albums. You assisted two artists with copyright issues.

Twenty-five percent of your time is dedicated to marketing and promotion services. This consists of raising awareness through every medium possible and does not exclude documentaries and photos of activities and the activities of artists, projects, programs, and live shows. You have done marketing campaigns supporting your artists, such as announcing album or song releases; however, you do not provide a custom promotion plan to artists until they have sold D albums or album equivalents. Before that point, unaffiliated tier artists without a produced album do not receive promotional services and may only be pictured at events. Development tier artists must have a produced album ready for distribution to be eligible for you to post about the band; however, artists in this tier are not eligible for a custom promotional plan unless they pay a fee. You did not specify the amount of the fee.

Twenty percent of your time is dedicated to live concerts and tours. You are working with a nonprofit organization to hold a free concert, and you helped book artists to assist another organization's free summer concert series. You may also offer free live concert opportunities for your unaffiliated artists and will develop a network of venues in need of artists to provide gig opportunities for your development and partner artists.

Law

IRC Section 501(c)(3) requires an organization to be organized and operated exclusively for exempt purposes, no part of the net earnings of which inures to a private shareholder or individual, no substantial part of the activities is lobbying, and no political campaign intervention.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that, to be exempt as an organization described in IRC Section 501(c)(3), an organization must be both organized and operated exclusively for one or more exempt purposes. If an organization fails to meet either the organizational test or the operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operating exclusively for exempt purposes if it engages primarily in activities that accomplish exempt purposes specified in IRC 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.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i) provides that exempt purposes include religious, charitable, scientific, testing for public safety, literary, educational, or prevention of cruelty to children or animals.

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized or operated exclusively for exempt purposes unless it serves a public rather than a private interest. It must not be operated for the benefit of designated individuals or the persons who created it.

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term “charitable” as including the relief of the poor and distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The term “charitable” also includes lessening of the burdens of government.

Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i)(a-b) provides that educational purposes include the “instruction or training of the individual for the purpose of improving or developing his capabilities” or “the instruction of the public on subjects useful to the individual and beneficial to the community.”

Rev. Rul. 67-392, 1967-2 C.B. 191, holds that an organization was operated exclusively for tax exempt purposes that secured paid engagements for young musical artists who had not yet achieved enough success to book engagements independently, for no cost, allowed artists to keep all renumeration for performing, and stopped assistance once the artist became self-sustaining professionally.

Rev. Rul. 75-471, 1975-2 C.B. 207, holds that an organization was operated exclusively for charitable and educational purposes that held an annual film festival for independent filmmakers, who had not yet achieved commercial success, did not commercially market the films, and only charged the filmmakers a fee to cover the cost of returning the film after screening.

Rev. Rul. 79-369, 1972-2 C.B. 226, holds that an organization was operated exclusively for charitable and educational purposes where it recorded contemporary symphonic and chamber music and distributed the records in a noncommercial manner, without advertising, through specialty shops and mail orders, primarily to educational institutions.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 US. 279 (1945), the Supreme Court held that the presence of a single nonexempt purpose, if substantial in nature, will destroy a claim for exemption, regardless of the number or importance of truly exempt purposes.

In Plumstead Theatre Society, Inc. v. Commissioner, 74 T.C. 1324 (1980), 78 T.C. 280, 289 (1982), the Tax Court found that the organization was operated exclusively for exempt purposes since its main focus was organizing a regional theater. The Court presented a general discussion of the differences between commercial and nonprofit theaters. Characteristics such as being operated for profit, choosing plays with the greatest mass audience appeal, and setting ticket prices to return a profit were deemed commercial in nature. Conversely, characteristics attributed to tax-exempt organizations included not being operated for profit, fulfilling artistic and community obligations by focusing on standards of performance, providing educational programs, and situations where box office receipts may not cover the cost of production.

In Goldsboro Art League v. Commissioner, 75 T.C. 337, 339-340, 344-345 (1980), an organization that sold pieces reflecting modern art trends, rather than for salability, held art classes, lectures, demonstrations, and film series was operated exclusively for charitable and educational purposes. The Tax Court ruled the organization had, as a predominant purpose, the maintenance of visual art forms, so it could promote, encourage, and educate the public on modern art and, thus, qualified for exemption under IRC Section 501(c)(3).

In Cleveland Creative Arts Guild v. Commissioner, T.C. Memo 1985-316 (1985), the Court found that an organization which held two art festivals per year and a seasonal Christmas shop was operated exclusively for educational purposes. Participation in events was not restricted to the organization's members, much of the advertising was public service announcements, and there were only two other museums, art galleries, or similar art shows within a fifty-mile radius. The organization charged nominal admissions fees, and a ten percent commission on artist sales, to defray expenses. The Court found that the sales activities were incidental to educating the public because the organization also issued a newsletter, held writing contests, sponsored plays, held demonstrations, sponsored art contests, and awarded scholarships.

In Retired Teachers Legal Defense Fund, Inc. v. Commissioner, 78 T.C. 280, 289 (1982), the Tax Court found that providing legal services to people who are not low income is not an exempt purpose. Over two-thirds of the organization's members were not poor, distressed, or disabled.

In Aid to Artisans v. Commissioner, 71 T.C. 202, 215-216 (1978), the Court found that the organization did not serve private interests by selling the handicrafts of disadvantaged artisans because it established the group was charitable, and it was not selective of individual artisans. The organization supported economically disadvantaged craftsmen who worked in craft villages and settlements, not the individual studio craftsman, to (i) alleviate economic deficiencies in disadvantaged areas, (ii) educate the public in the artistry, history, and cultural significance of handicrafts, and (iii) promote the arts by preserving authentic handicraft production.

Application of law

An organization can be recognized as exempt under IRC Section 501(c)(3) only if it proves that it is both organized and operated exclusively for exempt purposes listed in Treas. Reg. Section 1.501(c)(3)-1(d)(1)(i). If an organization fails to meet either the organizational test or the operational test, it is not exempt per Treas. Reg. Section 1.501(c)(3)-1(a)(1).

Based on the information you submitted, you do not operate exclusively for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1). A substantial portion of your activities, fifty-five percent, serve the private interests of your artists by providing them, in exchange for royalty fees, a variety of services to achieve greater commercial success in the music industry. Thus, a substantial portion of your activities serve commercial and private interests, which are nonexempt purposes per Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

By providing artists with competitively priced record label services, you are unlike organizations that assist artists and promote the arts in a noncommercial manner under IRC Section 501(c)(3). Your advertising activities, for example, distinguish you from the noncommercial distribution of music in Rev. Rul. 79-369. You support far-reaching advertising campaigns for artists with a degree of commercial success to provide the public with a greater variety of music. This is unlike the exempt organization in Rev. Rul 79-369 that did not advertise and sold lesser-known music through specialty shops and mail orders primarily to educational institutions.

You are also unlike the organization described in Rev. Rul. 67-392 because you do not donate services to artists until they achieve certain success metrics, whereas the organization in Rev. Rul. 67-392 helped artists at no cost until they became self-sustaining. In contrast, you charge artists for workshops, label services, and marketing until they sell D albums. Thus, your activities are the opposite of those held exempt in Rev. Rul. 67-392.

You also engage in commercial marketing and condition the provision of several services on prior achievement of commercial success, unlike the organization that operated exclusively for exempt purposes in Rev. Rul. 75-471. In that ease, the organization assisted groups that had not yet achieved commercial success and did not assist groups with commercial marketing. In contrast, you do not donate your services until a band has sold D albums, and you market artists through every medium possible. As a result, you are unlike organizations involved in assisting artists that operate exclusively for exempt purposes.

Your activities contrast those described in Plumstead Theatre Society, Inc. You provide services based on a tiered system, which incentivizes album sales so as to lower the cost to the artist, without regard to the furtherance of an artistic craft as an exempt purpose. Your artist development and educational resources are provided at different price points, depending on the success level of the band requesting these services. You do not donate services to artists until they sell D albums. Thus, you choose whom to support based on who will have the greatest mass audience appeal, which benefits you by providing more revenue through royalty fees. This is an indicator of operating a for-profit enterprise per Plumstead Theatre Society, Inc.

You are unlike the organization described in Goldsboro Art League, where works of art were chosen for reflecting modern art trends rather than for salability. The organization also held art classes, lectures, film series, and demonstrations, furthering educational purposes under Treas. Reg. Section 1.501(c)(3)-1(d)(3)(i)(a-b). In contrast, the artists you choose to represent are not eligible for increased support in selling their music until they sell D albums, demonstrating that salability is one of your primary motivating factors, not educating artists or exclusively promoting the arts within the meaning of IRC Section 501(c)(3).

In addition, your activities are distinct from the exempt, arts-promotion activities in Cleveland Creative Arts Guild, which were held incidental to its overarching educational purpose. In contrast, your promotional activities are not incidental to educating the general public. Your label services and marketing and promotion programs, which focus on distributing and advertising music, comprise a majority of your time and occur year-round to ensure that music is distributed as widely as possible. Further, your advertising is not limited to public service announcements, as you use any medium available, and you do not provide greater access to arts programming in a specific geographic area, since you serve artists nationwide. This is unlike the Cleveland Arts Guild holding a few art festivals with sales per year in the greater context of hosting public educational events.

You also provide legal services within your label services program. You did not specify the amount of time you dedicate to legal services within the label services program, which comprises thirty percent of your time. As stated in Retired Teachers Legal Defense Fund, Inc., providing legal services to individuals who are not poor does not serve an exempt purpose. You only provide free legal services to artists that have already sold D albums and assisted two artists with copyright issues. This does not establish that you provide legal services to low-income individuals. As a result, your legal services activities do not serve an exempt purpose.

In addition to your substantial, nonexempt commercial purpose, you also serve private, rather than public, interests, contrary to Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). You serve the private interests of artists, and your activities give rise to substantial economic benefit from merchandise and music sales. Further, you do not exclusively direct your activities to individuals who form a charitable class as described in Treas. Reg. Section 1.501(c)(3)-1(d)(2), such as the poor. You are, therefore, serving private, rather than public, interests.

You are unlike the organization described in Aid to Artisans, because you have not demonstrated that the artists whom you represent form a clear and definite charitable class within the meaning of IRC Section 501(c)(3). Unlike this organization, your programming is available to anyone; you do not serve a fixed group of individuals. Therefore, you do not limit your activities to poor or distressed individuals or economically depressed communities to relieve poverty and distress. In Aid to Artisans, the organization directly supported communities of disadvantaged craftsmen who worked in craft villages and settlements, as opposed to an individual studio craftsman. In contrast, you directly support individual artists nationwide, who you failed to establish as a charitable class within the meaning of Section 501(c)(3).

Conclusion

Based on the facts presented, you do not qualify for exemption from federal income tax as an organization described in IRC Section 501(c)(3). You operate in a commercial manner, distinct from organizations that engage in sales and promotional activities in a noncommercial manner, to further charitable and educational purposes within the meaning of Section 501(c)(3), thus serving private interests to a significant degree by focusing on increasing musician merchandise and music sales. You have not demonstrated that supporting these sales does not serve private interests because you have not demonstrated that you serve a charitable class. Therefore, you fail to qualify for exemption.

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on your income tax filing requirements.

If you don't agree

You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number
• A statement of the facts, law, and arguments supporting your position
• A statement indicating whether you are requesting an Appeals Office conference
• The signature of an officer, director, trustee, or other official who is authorized to sign for the organization or your authorized representative
• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization: Under penalties of perjury, I declare that I have examined this request, or this modification to the request, including accompanying documents, and to the best of my knowledge and belief, the request or the modification contains all relevant facts relating to the request, and such facts are true, correct, and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't already done so. You can find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so, we'll continue to process your ease considering the information you provided. If you haven't given us a basis for reconsideration, we'll send your ease to the Appeals Office and notify you. You can find more information in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest

Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:

Internal Revenue Service
EO Determinations Quality Assurance
Mail Stop 6403
PO Box 2508
Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service
EO Determinations Quality Assurance
550 Main Street, Mail Stop 6403
Cincinnati, OH 45202

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements