Determination 200545052: Organization's tax exemption revoked

Plain-English summary

The IRS revoked a foreign organization's exemption under section 501(c)(15), effective from the redacted date in the letter, because it was not operated as an insurance company during the examined years. The addendum says the revocation also ended its election under section 953(d) to be treated as a U.S. corporation. It states that the organization became a controlled foreign corporation and describes possible excise tax, shareholder income inclusions, and limited Form 1120-F filing obligations. The letter says the organization could contest the revocation in a related tax deficiency case, subject to procedural requirements.

Ruling snapshot

• Question: Did the organization retain its section 501(c)(15) insurance company exemption?
• Outcome: Revocation, with loss of its section 953(d) election.
• Key authorities: IRC §§ 501(c)(15), 953(d), 951–964, 4371, 7428.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
1100 Commerce Street
Dallas, TX. 75242

TAX EXEMPT ANDDate:
GOVERNMENT ENTITIES
August 18, 2005
DIVISION

Number: 200545052
Release Date: 11/10/2005

UIL: 501.15-01
Taxpayer Identification Number:
M=Name of organization
Num
M1= Address of Organization
Form:
Num =EIN Number
990
Date1 = Effective Date
Tax Year(s) Ended:
Country= Location of Org.
Date2 = Election of IRC 953(d)
Person to Contact/ID Number:

M
Contact Numbers:
M1
Telephone:
Fax:

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, Date1.

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. An Internal Revenue agent discussed with you the possible referral of this matter for technical

advice or appeals. An Internal Revenue agent also requested statute extensions to allow adequate time to refer this matter. 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:
Internal Revenue Service
Office of Taxpayer Advocate

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

Addendum

M is incorporated in Country and filed an election under I. R. C. § 953(d) to be treated as a United States corporation for purposes of imposing United States tax. The revocation of exempt status under section 501(c)(15) of the Code results in the loss of the IRC 953(d) election that was previously accepted by the Internal Revenue Service in Date2. The organization is now a controlled foreign corporation and is subject to I. R. C. §§ 951 through 964 for the tax related to controlled foreign corporations. The company will be treated as a foreign person and may be subject to section 4371 Excise Tax. United States shareholders of the foreign corporation are liable for Subpart F inclusions for taxable years in which the IRC 953(d) election is not in effect. As a result, M is only required to file income tax returns on Form 1120-F, as indicated in the body of this letter, to the extent that M received taxable income effectively connected with the conduct of a trade or business in the United States or received other taxable income from sources within the United States.