Rev. Rul. 70-584

Advice has been requested whether a nonprofit organization formed to recruit college students for an internship program designed to employ young people in various phases of local and municipal government is exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code of 1954.

The organization was formed for the purpose of providing students with work experience related to their major course of study while enabling them to constructively contribute to the community. Students majoring in such areas as sociology and political science are recruited for summer positions with local and municipal government agencies concerned with the improvement of urban life. Through an arrangement made with the agencies, the students' salaries are paid by the organization rather than by the agencies for which they work. The organization's activity is part of an officially sponsored government program.

Funding for the organization's activities comes from industry, foundations, businesses, and government grants.

Section 501(c)(3) of the Code provides for the exemption from Federal income tax of organizations organized and operated exclusively for charitable or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Section 1.501(c)(3)-1(d)(2) of the Income Tax Regulations defines the term "charitable" as including the advancement of education and the lessening of the burdens of Government.

Section 1.501(c)(3)-1(d)(3) of the regulations defines the term "educational" as including the instruction or training of the individual for the purpose of improving or developing his capabilities.

The operation of an internship program is advancing education since it trains the individual for the purpose of improving or developing his capabilities in his chosen field of study. The program is also charitable in that it lessens the burdens of government by providing personnel to perform essential government functions. See Rev. Rul. 70-79, C.B. 1970-1, 127.

Accordingly, it is held that the organization qualifies for exemption from Federal income tax under section 501(c)(3) of the Code.

The foregoing situation is distinguishable from that discussed in Revenue Ruling 69-177, C.B. 1969-1, 150, in which an organization created by an exempt college was held not to be exempt where it provided students with jobs primarily for the purpose of providing them with an income to enable them to continue their education. In that case, the students are not employed for the purpose of receiving instruction or training, or for the purpose of improving or developing their capabilities.

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.