IRS determination 200511017: IRS revokes exemption over private benefit and inflated attendance records

Plain-English summary

The IRS issued a final letter revoking an organization's exemption under IRC § 501(c)(3), retroactive to a redacted date. The letter says the organization had not operated exclusively for exempt purposes, its earnings benefited private individuals, and it engaged in impermissible private benefit. It also says the organization submitted inflated attendance records to the Texas Education Agency, contrary to public policy. The letter states that the organization failed to file a written administrative appeal and must file corporate income tax returns. An earlier proposed revocation letter is included, but the examination report it says was enclosed is absent from the public copy.

Ruling snapshot

• Question: Did private benefits and inflated attendance records disqualify the organization from § 501(c)(3) exemption?
• Outcome: Final revocation, retroactive date redacted.
• Key authorities: IRC §§ 501(c)(3), 6104(c), 7428.

Full text (IRS public release)

UIL
501.33-00
200511017

Internal Revenue Service | Department of the Treasury

Date: April 27, 2004

Person to Contact:
Badge Number:

Contact Telephone Number:

Contact Address:

Employer Identification Number:

Deadline to Petition Tax Court:
CERTIFIED MAIL

Dear

This is a final notice of adverse determination that your exempt status under section

501(c) (3) of the Internal Revenue Code is revoked. Recognition of your exemption under Internal Revenue Code section 501(c) (3) is retroactively revoked to [redacted] for the following reason(s):

You have not been operated exclusively for exempt purposes within the meaning of Internal Revenue Code section 501(c)(3). Your earnings have inured to the benefit of private individuals and you have engaged in impermissible private benefit. Further, you have submitted inflated attendance records to the Texas Education Agency, which contravenes public policy.

Contributions to your organization are no longer deductible effective [redacted]. Since your exempt status has been revoked, you are required to file Form 1120, U.S. Corporation Income Tax Return, for all years beginning on or after [redacted].

The Forms 1120 for the years ended [redacted]
must be filed with this office within 30 days of the date of this letter unless a request for an extension of time is granted. Send these returns to the following address:

Internal Revenue Service

200511017

-2-

Income tax returns for subsequent years are to be filed with the appropriate Service Center identified in the instructions for those returns.

It is further determined that your failure to file a written appeal constitutes a failure to exhaust your available administrative remedies. However, if you decide to contest this determination in court, you must initiate a suit for declaratory judgment in the United States Tax Court, the

United States Claims Court, or the district court of the United States for the District of Columbia before the (ninety-first) 91st day after the date that this determination was mailed to you. Contact the clerk of the appropriate court for rules for initiating suits for declaratory judgment. To secure a petition form, write to the United States Tax Court,

The last day for filing a petition for declaratory judgment is [redacted].

You also have the right to contact the Office of the Taxpayer Advocate. However, you should first contact the person whose name and telephone number are shown above since this person can access you tax information and can help you get answers, You can call 1-877-777- 4778, and ask for the Taxpayer Advocate assistance or you can contact the Advocate from the site where this issue was determined by writing to:

Taxpayer Advocate assistance cannot be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling.

We will notify the appropriate State officials of this action, as required by section 6104(c) of the Internal Revenue Code.

This letter should be kept within your permanent records.

If you have any questions, please contact the person whose name and telephone number are shown above.

Sincerely,

R. C. Johnson

Director, EO Examinations
Enclosures:
Publication 892

File Copy

Internal Revenue Service

DEPARTMENT OF THE TREASURY
TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION

Taxpayer Identification Number:

Form:
990
Tax Year(s) Ended:

Person to Contact/ID Number:

Contact Numbers:
Telephone
Fax:

Certified Mail - Return Receipt Requested

Dear Sir or Madam:

We have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under section 501(c)(3) of the Internal Revenue Code (Code) is necessary.

If you accept our findings, take no further action. We will issue a final revocation letter.

If you do not agree with our proposed revocation, you must submit to us a written request for Appeals Office consideration within 30 days from the date of this letter to protest our decision. Your protest should include a statement of the facts, the applicable law, and arguments in support of your position.

An Appeals officer will review your case. The Appeals office is independent of the Director, EO Examinations. The Appeals Office resolves most disputes informally and promptly. The enclosed Publication 3498, The Examination Process, and Publication 892, Exempt Organizations Appeal Procedures for Unagreed Issues, explain how to appeal an Internal Revenue Service (IRS) decision. Publication 3498 also includes information on your rights as a taxpayer and the IRS collection process.

You may also request that we refer this matter for technical advice as explained in Publication 892. If we issue a determination letter to you based on technical advice, no further administrative appeal is available to you within the IRS regarding the issue that was the subject of the technical advice.

Letter 3618 (04-2002)
Catalog Number 34809F

If we do not hear from you within 30 days from the date of this letter, we will process your case based on the recommendations shown in the report of examination. If you do not protest this proposed determination within 30 days from the date of this letter, the IRS will consider it to be a failure to exhaust your available administrative remedies. Section 7428(b)(2) of the Code provides, in part: "A declaratory judgment or decree under this section shall not be issued in any proceeding unless the Tax Court, the Claims Court, or the District Court of the United States for the District of Columbia determines that the organization involved has exhausted its administrative remedies within the Internal Revenue Service." We will then issue a final revocation letter. We will also notify the appropriate state officials of the revocation in accordance with section 6104(c) of the Code.

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, such as the formal appeals process. The Taxpayer Advocate cannot reverse a legally correct tax determination, or extend the time fixed by law that you have to file a petition in a United States court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You may call toll-free 1-877-777-4778 and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:

If you have any questions, please call the contact person at the telephone number shown in the heading of this letter. If you write, please provide a telephone number and the most convenient time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

R. C. Johnson
Director of EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F