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Saturday June 6, 2026
Private Letter Ruling
Organization Fails to Qualify for Tax-Exempt Status
GiftLaw Note:
Organization applied for tax-exempt status under Sec. 501(c)(25). Organization was formed as a corporation, an unincorporated association and as a trust. Organization’s Articles of Incorporation state that “This state government is invested with the powers and authority to create and enforce laws and impose taxes including protection of lives and property by maintenance of a police force.” Organization adopted a constitution and formed a sovereign nation. Organization intends to operate among other things a Bureau of Motor Vehicles, Department of Justice, schools, courts, fire and police departments. Organization’s primary source of financial support comes from its taxpayers who are citizens of the sovereign nation.
Sec. 501(c)(25)(A) provides exemption to any corporation or trust which has no more than 35 shareholders or beneficiaries; has only one class of stock or beneficial interest; and is organized for the exclusive purpose of: acquiring real property and holding title to, and collecting income from, such property, and remitting the entire amount of income from such property (less expenses) to one or more organizations, which are shareholders of such corporation or beneficiaries of such trust. Here, the Service found that Organization’s organizing documents do not meet the requirements of an IRC 501(c)(25) applicant as it is not organized or operated to hold title to real property. The Service concluded that Organization was instead created to operate as a sovereign nation state and as such denied Organization’s application for tax-exempt status under Sec. 501(c)(25).
Organization applied for tax-exempt status under Sec. 501(c)(25). Organization was formed as a corporation, an unincorporated association and as a trust. Organization’s Articles of Incorporation state that “This state government is invested with the powers and authority to create and enforce laws and impose taxes including protection of lives and property by maintenance of a police force.” Organization adopted a constitution and formed a sovereign nation. Organization intends to operate among other things a Bureau of Motor Vehicles, Department of Justice, schools, courts, fire and police departments. Organization’s primary source of financial support comes from its taxpayers who are citizens of the sovereign nation.
Sec. 501(c)(25)(A) provides exemption to any corporation or trust which has no more than 35 shareholders or beneficiaries; has only one class of stock or beneficial interest; and is organized for the exclusive purpose of: acquiring real property and holding title to, and collecting income from, such property, and remitting the entire amount of income from such property (less expenses) to one or more organizations, which are shareholders of such corporation or beneficiaries of such trust. Here, the Service found that Organization’s organizing documents do not meet the requirements of an IRC 501(c)(25) applicant as it is not organized or operated to hold title to real property. The Service concluded that Organization was instead created to operate as a sovereign nation state and as such denied Organization’s application for tax-exempt status under Sec. 501(c)(25).
PLR 202226017 Organization Fails to Qualify for Tax-Exempt Status
7/1/2022 (1/1/2022)
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)(25). This letter explains the reasons for our conclusion. Please keep it for your records.
Do you qualify for exemption under IRC Section 501(c)(25)? No, for the reasons stated below.
You were formed as a corporation, an unincorporated association and as a trust all in the state of C. Your date of incorporation is B. The purpose clause of your Articles of Incorporation states: “This state government is invested with the powers and authority to create and enforce laws and impose taxes including protection of lives and property by maintenance of a police force.”
You have adopted a constitution and have formed a “sovereign nation state of D.”
You intend to operate the following agencies:
• Bureau of Motor Vehicles
• Secretary of State
• Department of Justice
• Marshall Services
• Electric Power Distribution
• Libraries and Archives
• Credit Card Issues
• Research and Development in the Social Sciences and Humanities
• Elementary and Secondary Schools
• Business and Secretarial Schools
• Courts
• Police Protection
• Legal Counsel and Prosecution
• Correctional Institutions
• Fire Protection
Your main source of financial support will come from your “taxpayers” who are citizens of D.
Internal Revenue Code (IRC) Section 501(c)(25) of the Code provides for exemption from federal income tax for organizations that moot the following substantive requirements:
IRC Section 501(c)(25)(A) provides exemption to any corporation or trust which
(i) has no more than 35 shareholders or beneficiaries,
(ii) has only 1 class of stock or beneficial interest, and
(iii) is organized for the exclusive purposes of —
(I) acquiring real property and holding title to, and collecting income from, such property, and
(II) remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust.
Section 501(c)(25)(C) provides an organization is described in this subparagraph if such organization is —
(i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401(a),
(ii) a governmental plan (within the meaning of section 414(d)),
(iii) the United States, any State oi political subdivision thereof, oi any agency oi instrumentality of any of the foregoing, or
(iv) any organization described in paragraph (3).
Section 501(c)(25)(D) provides a corporation or trust shall in no event be treated as described in subparagraph (A) unless such corporation or trust permits its shareholders or beneficiaries —
(i) to dismiss the corporation's or trust's investment adviser, following reasonable notice, upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and
(ii) to terminate their interest in the corporation or trust by either, or both of the following alternatives, as determined by the corporation or trust:
(I) by selling or exchanging then-stock in the corporation or interest in the trust (subject to any Federal or State securities law) to and organization described in subparagraph (C) so long as the sale or exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above 35, or
(II) by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary has provided 90 days' notice to such corporation or trust.
Notice 87-18, 1987-1 C.B. 455, states an IRC Section 501(c)(25) applicant's articles of incorporation or trust instrument must include the above requirements.
To be exempt as an organization described in IRC Section 501(c)(25) of the Code, you must be both organized and operated for the purposes of acquiring real property and holding title to, and collecting income from such property, and remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust. Your organizing documents are silent with regards to the requirements of an IRC 501(c)(25) applicant. (See Notice 87-18). You are neither organized nor operated to hold title to real property. You state you were created to operate as a sovereign nation state, which is not a Section 501(c)(25) purpose.
You do not qualify for exemption as an organization described in Section 501(c)(25). You are not organized or operated for the purpose of holding title to real property. As stated above, you were created to operate as a sovereign nation state.
7/1/2022 (1/1/2022)
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)(25). 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)(25)? No, for the reasons stated below.
Facts
You were formed as a corporation, an unincorporated association and as a trust all in the state of C. Your date of incorporation is B. The purpose clause of your Articles of Incorporation states: “This state government is invested with the powers and authority to create and enforce laws and impose taxes including protection of lives and property by maintenance of a police force.”
You have adopted a constitution and have formed a “sovereign nation state of D.”
You intend to operate the following agencies:
• Bureau of Motor Vehicles
• Secretary of State
• Department of Justice
• Marshall Services
• Electric Power Distribution
• Libraries and Archives
• Credit Card Issues
• Research and Development in the Social Sciences and Humanities
• Elementary and Secondary Schools
• Business and Secretarial Schools
• Courts
• Police Protection
• Legal Counsel and Prosecution
• Correctional Institutions
• Fire Protection
Your main source of financial support will come from your “taxpayers” who are citizens of D.
Law
Internal Revenue Code (IRC) Section 501(c)(25) of the Code provides for exemption from federal income tax for organizations that moot the following substantive requirements:
IRC Section 501(c)(25)(A) provides exemption to any corporation or trust which
(i) has no more than 35 shareholders or beneficiaries,
(ii) has only 1 class of stock or beneficial interest, and
(iii) is organized for the exclusive purposes of —
(I) acquiring real property and holding title to, and collecting income from, such property, and
(II) remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust.
Section 501(c)(25)(C) provides an organization is described in this subparagraph if such organization is —
(i) a qualified pension, profit sharing, or stock bonus plan that meets the requirements of section 401(a),
(ii) a governmental plan (within the meaning of section 414(d)),
(iii) the United States, any State oi political subdivision thereof, oi any agency oi instrumentality of any of the foregoing, or
(iv) any organization described in paragraph (3).
Section 501(c)(25)(D) provides a corporation or trust shall in no event be treated as described in subparagraph (A) unless such corporation or trust permits its shareholders or beneficiaries —
(i) to dismiss the corporation's or trust's investment adviser, following reasonable notice, upon a vote of the shareholders or beneficiaries holding a majority of interest in the corporation or trust, and
(ii) to terminate their interest in the corporation or trust by either, or both of the following alternatives, as determined by the corporation or trust:
(I) by selling or exchanging then-stock in the corporation or interest in the trust (subject to any Federal or State securities law) to and organization described in subparagraph (C) so long as the sale or exchange does not increase the number of shareholders or beneficiaries in such corporation or trust above 35, or
(II) by having their stock or interest redeemed by the corporation or trust after the shareholder or beneficiary has provided 90 days' notice to such corporation or trust.
Notice 87-18, 1987-1 C.B. 455, states an IRC Section 501(c)(25) applicant's articles of incorporation or trust instrument must include the above requirements.
Application of law
To be exempt as an organization described in IRC Section 501(c)(25) of the Code, you must be both organized and operated for the purposes of acquiring real property and holding title to, and collecting income from such property, and remitting the entire amount of income from such property (less expenses) to 1 or more organizations described in subparagraph (C) which are shareholders of such corporation or beneficiaries of such trust. Your organizing documents are silent with regards to the requirements of an IRC 501(c)(25) applicant. (See Notice 87-18). You are neither organized nor operated to hold title to real property. You state you were created to operate as a sovereign nation state, which is not a Section 501(c)(25) purpose.
Conclusion
You do not qualify for exemption as an organization described in Section 501(c)(25). You are not organized or operated for the purpose of holding title to real property. As stated above, you were created to operate as a sovereign nation state.
Published July 8, 2022
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