OTHER 200650027: Social welfare exemption revoked for failure to provide examination information

Plain-English summary

A social-welfare organization failed to respond to IRS requests for information needed to examine its Form 990 and establish continued exemption. The IRS concluded that it had not met the recordkeeping and reporting requirements of sections 6001 and 6033. The final letter retroactively revoked section 501(c)(4) exemption for tax periods beginning on or after the redacted effective date. It required corporate income tax returns on Form 1120 for the identified year and subsequent years. The public release includes the earlier proposed revocation letter and an examination explanation supporting the recordkeeping ground.

Ruling snapshot

• Question: Can the organization retain exemption without supplying requested examination information?
• Outcome: Revocation: section 501(c)(4) exemption is retroactively withdrawn and Form 1120 returns are required.
• Key authorities: IRC §§ 501(c)(4), 6001, and 6033; Treas. Reg. §§ 1.6001-1(e) and 1.6033-1(h)(2); Rev. Rul. 59-95.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Number: 200650027
Release Date: 12/15/2006
Date: September 18, 2006

UIL: 501.04-01
Legend Employer Identification Number:
E = EIN E
D = Date Person to Contact/ID Number:
ORG= Organization Name
n - Number Contact Numbers:
In Reply Refer to:
Dear :

This is a Final Adverse Determination Letter as to ORG’s exempt status under IRC § 501(c)(4).

Our adverse determination was made because ORG did not meet the reporting requirements under IRC §§6001 and 6033. It failed to submit the information necessary to establish it is observing the conditions required for the continuation of its exempt status when requested by the Internal Revenue Service.

Based upon this reason, we are retroactively revoking your IRC § 501(c)(4) tax exempt status for all tax periods beginning on or after D.

You are required to file Federal income tax returns on Form 1120. These returns should be filed with the appropriate Service Center for the year ending D, and for all years thereafter.

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 (nnn) nnn-nnnn, or writing to:

-2-

Internal Revenue Service
Taxpayer Advocates 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.

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

Sincerely yours,

Marsha A. Ramirez
Director, EO Examinations

-3-

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
M/S 1112, P.O. BOX 12307
OGDEN, UT 84412
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

EIN = Tax Identification Letter
D = Date

ORG = Organization=Name

n - number

D Taxpayer Identification number:
EIN
Form(s):
990
Tax Year(s) Ended:
D
ORG Person to Contact/ ID Number:
/
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)(4) 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

-4-
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.

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 nnn-nnn-nnnn and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:

Taxpayer Advocate

If you have any questions, please call the contact person at the telephone number shown in the heading of this letter.

-5-

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,

Marsha Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Form 4621-A, Report of Examination
Form 886-A, Explanation of Items

Form 886-A Schedule number or exhibit

(Rev. January 1994) EXPLANATION OF ITEMS 0001

Tax Identification Number Year/Period ended

ORG EIN D

Legend
EIN = Tax Identification Number
D = Date

ORG = Organization=Name

n = number

Issue Name: Tax Exempt Status

Per Return: 990
Per Exam: D and D

Issue:

Whether ORG qualifies for exemption under Section 501(c)(4) of the Internal Revenue Code

Facts:

ORG failed to respond to the Internal Revenue Service attempts to obtain information to perform an

examination of form 990 for the above mentioned tax period.

Law:

Section 1.61-1 of the regulations provides that gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as cash.

Section 511 of the Internal Revenue Code imposes a tax at corporate rates under section 11 on the unrelated business taxable income of certain tax-exempt organizations, including those described in section 501(c)(4).

Section 6001 of the Code provides that every person liable for any tax imposed by the Code, or for the collection thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to time prescribe.

Section 1.6001-1(e) of the regulations states that the books or records required by this section shall be kept at all time available for inspection by authorized internal revenue officers or employees, and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law.

Section 6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every organization exempt from tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Form 886-A (1-1994) Catalog Number 20810W Page publish.no.irs.gov | Department of the Treasury-Internal Revenue Service

Form 886-A Schedule number or exhibit

(Rev. January 1994) EXPLANATION OF ITEMS 0001
Tax Identification Number Year/Period ended

ORG EIN D

Section 1.6033-1(h)(2) of the regulations provides that every organization which has established its right to exemption from tax, whether or not it is required to file an annual return of information, shall submit such additional information as may be required by the district director for the purpose of enabling him to inquire further into its exempt status and to administer the provisions of subchapter F (section 501 and the following), chapter 1 of the Code and section 6033.

Section 501(c)(4) of the Code provides that a civic organization not organized for profit but operated exclusively for the promotion of social welfare is exempt from Federal income tax.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial statement and statement of its operations for a certain year. However, its records were so incomplete that the organization was unable to furnish such statements. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt status of an organization previously held exempt, on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status.

In accordance with the above-cited provisions of the Code and regulations under sections 6001 and 6033, organizations recognized as exempt from federal income tax must meet certain reporting requirements. These requirements relate to the filing of a complete and accurate annual information (and other required federal tax forms) and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated business income tax.

Conclusion:

It is the IRS's position that the organization failed to meet the reporting requirements under sections 6001 and 6033 to be recognized as exempt from federal income tax under 501(c)(4) of the Internal Revenue Code. Accordingly, the organization's exempt status is revoked effective D.

Form 1120 returns should be filed for the tax periods ending after D.

Form 886-A (1-1994) Catalog Number 20810W Page publish.no.irs.gov | Department of the Treasury-Internal Revenue Service