OTHER 200531028: Organization loses insurance company tax exemption

Plain-English summary

The IRS revoked an organization's exemption under section 501(c)(15) because its examination found that the organization was not operated as an insurance company. The letter says the organization declined to extend the limitations period, leaving insufficient time for the usual appeal or technical advice procedures. It directs the organization to file federal income tax returns for open and later years. The letter says the organization cannot challenge this exemption ruling through a section 7428 declaratory judgment action, but may contest the revocation in a related deficiency case after meeting the applicable procedural requirements.

Ruling snapshot

• Question: Should the organization's section 501(c)(15) exemption continue when it was not operated as an insurance company?
• Outcome: Revocation of exempt status effective on the redacted date.
• Key authorities: IRC §§ 501(c)(15), 7428.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street
Dallas, TX. 75242
TAX EXEMPT AND
GOVERNMENT ENTITIES
:
DIVISION
Number: 200531028
Release Date: 8/05/2005
TE:GE:EO

Taxpayer Identification Number:
A = Name of Organization
Date1 = Effective Date
Form:
B = Local Taxpayer Advocate’s Office
Tax Year(s) Ended:

Person to Contact/ID Number:

Contact Numbers:
Telephone:
Fax:
UIL: 501.15-00

CERTIFIED MAIL – RETURN RECEIPT REQUESTED

Dear ----:

This is our final adverse determination letter as to your exempt status under I.R.C.
§ 501(c)(15) of the Internal Revenue Code. Our adverse determination was made because, for the year(s) of the examination, you were not operated as an “insurance company” within the meaning of I.R.C. § 501(c)(15) of the Internal Revenue Code. Your exempt status is revoked effective Date 1.

We have enclosed a copy of our report of examination further explaining why we believe an adjustment of your organization’s exempt status is necessary.

We have also enclosed Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues, and Publication 3498, The Examination Process. These publications include information on your rights as a taxpayer. They explain appeal rights and the procedure for obtaining technical advice.

Both technical advice and appeals procedures require a minimum of 180 days remaining on the statute of limitations. In order to take advantage of appeal rights or technical advice procedures, a taxpayer might be asked to execute consent to extend the statute of limitations to permit Appeals consideration or submission of a request for technical advice. That was the situation in this case. Internal Revenue agents requested you to extend the statute of limitations, which would allow time to protest your case or provide additional information in support of your continuation of exempt status. You elected not to extend the applicable statutes. As you are aware, the time remaining on the statutes does not allow for usual appeal procedures or submission of the case for technical advice.

Because this case involves exemption under I.R.C. § 501(c)(15), you cannot contest the adverse determination in a declaratory judgment action under I.R.C. § 7428. You can, however, contest the revocation of exempt status in the context of any related deficiency case involving adjustments that flow from the loss of exemption. Thus, you may file suit in United States Tax Court, the United States Court of Federal Claims, or United States District Court, from any deficiency notice issued in this case or a related case after satisfying procedural and jurisdictional requirements as described in Publications 3498 and 892.

You are required to file federal income tax returns for the tax period(s) shown above, for all years still open under the statute of limitations, and for all later years. File the federal tax return for the tax period(s) shown above with the Ogden Service Center within 60 days from the date of this letter, unless a request for an extension of time is granted. File returns for later tax years with the appropriate service center indicated in the instructions for those returns.

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:

B

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, EO Examinations
Enclosures:
Publication 892
Publication 3498
Report of Examination