Determination 200803027: Foundation loses exemption after failing to answer audit requests

Plain-English summary

The IRS tried to audit a private foundation and requested information and access to its records. The organization did not respond to the requests, and a certified letter was returned unclaimed. The IRS also said it had no record of required Form 990-PF returns since a redacted year. Because the organization did not provide records to establish that it continued to meet the conditions for exemption, the IRS revoked its § 501(c)(3) status retroactively to January 1 of a redacted year. The final letter said contributions were no longer deductible and required corporate income tax returns for the affected periods.

Ruling snapshot

• Question: Could the foundation keep its exemption without responding to the IRS audit or providing required returns and records?
• Outcome: Revocation, retroactive to January 1 of the redacted year.
• Key authorities: IRC §§ 501(c)(3), 6033; Treas. Reg. § 1.6033-2(h)(2).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE
& 1100 Commerce Street
MS:4920:DAL
Dallas, TX 75242
TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

Number: 200803027
Release Date: 1/18/2008

October 5, 2007

UIL: 501.03-01
ORG = Name of Organization

ORG

CERTIFIED MAIL —- RETURN RECEIPT REQUESTED

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 we have not been able to contact you to schedule an audit to determine if 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 January 1, 200 .

Our determination was made for the reason that you have not responded to numerous requests for an audit. We have not been able to contact you to conduct an audit. Furthermore, we have no record that you are operating 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.

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

2
for tax year ending December 31, 200 , and for all years thereafter. In addition to filing Form 1120, you are also required to file Form 990-PF for tax year December 31, 200 and for all years thereafter.

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 91st 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(__) , Or writing to:

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,

Marsha A. Ramirez
Director, EO Examinations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Taxpayer Identification Number:

ORG = Name of Organization
Form:

ORG Tax Year(s) Ended:

December 31, 200X
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)(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:

Taxpayer Advocate Service

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,

Marsha A. Ramirez
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Attached to Letter Explanation of Items 3618

Name of Taxpayer Year/Period Ended
ORG

December 31, 200X

REVISED REVENUE AGENT’S REPORT
ORG = Name of Organization
ISSUES:

This organization is exempt under section 501(c)(3) of the Internal Revenue Code as a Private Non-Operating Foundation and is required to file annual returns Form 990-PF Return of Private Foundation. The Internal Revenue Service has attempted to contact the organization to conduct an audit and to inform the organization that we have no record of a return being filed since 200X.

The IRS is proposing to revoke the organization’s exempt status due to failure to make their books and records available to the Internal Revenue Service.

FACTS:

On April 26, 200Y the Internal Revenue Service issued Letter 3611 with Form 4564 (Information Document Request) and Publication 1, Your Rights as a Taxpayer to the organization requesting certain information to allow us to conduct an audit. In that letter you were asked to contact us within 10 days of receipt in order to set a convenient time, date and place to conduct the audit. Since you did not respond, we reissued that letter on August 17, 200Y via Certified Mail and with a Return Receipt Requested card. On September 27, 200Y the United States Post Office returned the unopened letter, with their stamp indicating that the letter was “Unclaimed”, back to our office. The Postal Service indicated on the envelope that they issued the 1st notice to you on August 24 and the 2nd notice to you on Sept. 22, 200Y.

To date, we have not been able to make contact with you to conduct an audit. LAW:

Section 6033 of the Internal Revenue Code provides that every organization exempt from taxation under section 501(a) of the Code shall file an annual return, if the organization does not meet any of the exceptions, stating specifically the items of gross income, receipts and disbursements and shall keep such records, render under oath such statements, make such other returns and comply with such rules and regulations as the Secretary of the Treasury or his delegate may from time to time prescribe.

Revenue Ruling 59-95, 1959-1 C.B. 627, states, in part, that the failure or inability of an organization to file the required returns, or otherwise to comply with the provision of section 6033 of the Code, and the regulations which implement it, may result in the termination of the

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service Page: -1-

Form 886A Department of the Treasury - Internal Revenue Service Attached to Letter Explanation of Items 3618

Name of Taxpayer Year/Period Ended
ORG

December 31, 200X

exempt status of the organization on the grounds that the organization has not established that it is observing the conditions required for the continuation of its exempt status.

Section 1.6033-2(h)(2) of the Income Tax Regulations provides, in part, that every organization which is 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.

CONCLUSION:

To date, we have no record of receiving Forms 990-PF, and you have not made contact with our office to allow us to conduct an audit.

Based upon the facts/circumstances and the Law and Regs. cited above, we are hereby proposing to revoke the organization’s exempt status under section 501(c)(3) due to their failure to comply with the requirements of that section.

The effective date of revocation will be January 1, 200X. As a taxable entity, you will be required to file Form 1120, U.S. Corporation Income Tax Return, for the tax periods after the effective date of the revocation.

Form 886-A(Rev.4-68) Department of the Treasury - Internal Revenue Service Page: -2-