200634047: IRS revokes charity exemption after organization fails to keep and produce records

Plain-English summary

The IRS examined an organization recognized under § 501(c)(3) but could not obtain complete books and records. Without them, the organization could not establish that it operated exclusively for exempt purposes or that its earnings did not benefit private individuals. The examination report says the organization had ceased operations and agreed with the proposed revocation. The IRS revoked its exemption retroactively to a redacted date, said contributions were no longer deductible, and required corporate income tax returns for all open years.

Ruling snapshot

• Question: Could the organization keep its charity exemption without the records needed to verify its activities?
• Outcome: Exemption revoked retroactively to the redacted Date1.
• Key authorities: IRC §§ 501(c)(3), 6001, 7602; Treas. Reg. § 1.6033-2(i)(2).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE

Number: 200634047
Release Date: 8/25/2006
UIL: 501.03-01

Legend:
A
Num =
Date1 =
Local Office =
A Person to Contact:
Identification Number:
Contact Telephone Number:
Form: 990-PF
In Reply Refer to: TE/GE Review Staff
EIN: Num
LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: __
Dear

This is a Final Adverse Determination as to your exempt status under section 501(c)(3) of the Internal Revenue Code. Because you have not established that you are observing the conditions required to continue exempt status, recognition of your exemption from Federal income tax as an organization described in Internal Revenue Code section 501(c)(3) as well as your status as a private foundation under IRC section 501(a) is retroactively revoked to Date1.

Our determination was made for the reason that you have failed to produce documents to establish that you are operated exclusively for exempt purposes within the meaning of Internal Revenue Code section 501(c)(3), and that no part of your net earnings inure to

the benefit of private shareholders or individuals. Also, you have failed to keep adequate books and records as required by IRC section 6001 and the regulations thereunder.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue Code. Furthermore, you are required to file Federal income tax returns on Form 1120 for all open years.

Processing of income tax returns and assessment of any taxes due will not be delayed should a petition for declaratory judgment be filed under section 7428 of the Internal Revenue Code.

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 Claim Court or the District Court of the United States for the District of Columbia before the 91" day after the date this determination was mailed to you. Contact the clerk of the appropriate court for the rules for initiating suits for declaratory judgment.

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 your tax information and can help you get answers. You can call 1-877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact the Taxpayer Advocate from the site where the tax deficiency was determined by calling (804) 916-3501, or writing to: Internal Revenue Service, Taxpayer Advocates Office, Local Office

Taxpayer Advocate assistance cannot be used as a substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determinations, nor extend the time fixed by law that you have to file a petition in the United States Tax 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.

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely yours,

R.C. Johnson
Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Taxpayer Identification Number:

Form:
UIL: 501.03-01
Tax Year(s) Ended:

Person to Contact/ID Number:
Name of ORG
Contact Numbers:
Telephone:
Fax:

Certified Mail - Return Receipt Requested

Dear

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,

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended
ORG Date2
LEGEND:

ORG= Name of Organization
Date1= Effective Date
Date2= Year end of effective date

Issues - The proposed revocation is based on the organization not providing the required records that were needed for examination. The organization did not keep the documents required of a tax exempt organization.

Facts — There are no complete books and records for examination. The organization has ceased operations as of Date2.

Law - Internal Revenue Code Section 6001, Notice or regulations requiring records, statements, and special returns, states in part: Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, render such Statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person, by notice served upon such person or by regulations, to make such returns, render such statements, or keep such records, as the Secretary deems sufficient to show whether or not such person is liable for tax under this title.

Code section 7602, Examination of Books and Witnesses, states in part the following: For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary is authorized- (1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry.

Section 1.6033-2(i)(2) of the Income Tax Regulations provides, in part, that every organization exempt from tax shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt Status. Failure to comply with our request for information could result in the loss of your tax-exempt status.

Government's Position - Since the organization can not provide us with the documents needed to conduct our examination, we are proposing revocation.

Department of the Treasury - Internal Revenue Service Form 886-A Page 1 of 2

Form 886-A Schedule No. or Exhibit
Explanation of Items

Name of Taxpayer Year/Period Ended
ORG Date2

Taxpayer’s Position — The Taxpayer's intention was to raise money for charitable organizations, but did not maintain the records required to justify their existence. They agree with the proposed revocation.

Conclusion - Based on the organization’s failure to maintain complete records and provide them to us for examination, we are proposing revocation of the organization’s exempt status under section 501(c)(3) of the Internal Revenue Code.

The proposed effective date of the revocation is Date1.

The organization will not continue to qualify for tax exemption under section 501(c)(3).

Department of the Treasury - Internal Revenue Service Form 886-A Page 2 of 2