Determination 200811026: Exemption revoked after charity stops operating and misses Form 990

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption retroactively to a redacted January 1 date. Its examination report said that the organization's only officer had died, that it had conducted no activities since then, and that it had never filed Form 990. The IRS found that the organization had not established continued operation for exempt purposes or compliance with the conditions for exemption. The final letter says donations are no longer deductible and directs the organization to file federal income tax returns for the affected years.

Ruling snapshot

• Question: Did the organization continue to qualify for section 501(c)(3) exemption?
• Outcome: Revocation, effective from the redacted January 1 date.
• Key authorities: IRC §§ 501(c)(3), 6001, 6033, 170; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examination
625 Fulton Street, Room 503

Brooklyn, NY 11201
TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

Number: 200811026
Release Date: 3/14/2008

Legend
UIL: 501.03-01
ORG = Organization name XX = Date

Date: December 3, 2007

ORG Taxpayer Identification Number:
Address Person to Contact:
Identification Number
Contact Telephone Number:
LAST DATE FOR FILING A PLEADING
WITH THE TAX COURT, THE CLAIMS
COURT OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT
OF COLUMBIA: March 3, 20XX

Dear

This is a final determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). Recognition of your exemption from Federal income tax as an organization described in Internal Revenue Code section 501(c)(3) is retroactively revoked to January 1, 20XX, because you have not established that you are operated exclusively for exempt purposes.

IRC section 501(c)(3) exempts from taxation organizations which are organized and operated exclusively for religious, charitable or educational purposes, no part of the net earnings of which inure to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation and which do not participate in, or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public office.

Section 1.6001-1 of the regulations requires that each person required to file a return maintain books and records to allow the Service to establish whether the taxpayer is liable for any tax liability. In addition to the general recordkeeping rules, organizations exempt from taxation under section 501(a) must also maintain the records required by section 6033 of the Code.

You failed to meet the requirements of Treasury Regulation section 1.501(c)(3)-1(d) in

that you have failed to establish that you were operated exclusively for an exempt purpose, you have failed to file the required tax form (Form 990) for the year ended December 31, 20XX, and you failed to demonstrate that you are observing the conditions necessary for continuation of your exempt status.

We are revoking your exemption from Federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code effective January 1, 20XX.

Contributions to your organization are no longer deductible under section 170 of the Internal Revenue Code.

You are required to file Federal income tax returns on Form 1120. These returns should be filed with the appropriate Service Center for all years beginning January 1, 20 .

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 file a pleading seeking a declaratory judgment in the United States Tax Court, the United States Court of Federal Claims, or the United States District Court for the District of Columbia before the 91st day after the date this final determination was mailed to you. Please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed Publication 892. You may write to these courts at the following addresses:

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 too-free and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer advocate at: Internal Revenue Service.

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
Enclosure:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service
1100 Commerce Street
M/C 4000

TAX EXEMPT AND
GOVERNMENT ENTITIES Dallas, Texas 75242

DIVISION

Taxpayer Identification Number:

Form:
ORG 990
Address Tax Year(s) Ended:

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 an adjustment of your organization's exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed Publication 3498, The Examination Process, explains 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.

If you request a conference, we will forward your written statement of protest to the Appeals Office and they will contact you. For your convenience, an envelope is enclosed.

If you and Appeals do not agree on some or all of the issues after your Appeals conference, or if you do not request an Appeals conference, you may file suit in United States Tax Court, the United States Court of Federal Claims, or United States District Court, after satisfying procedural and jurisdictional requirements as described in Publication 3498.

Letter 3610 (04-2002)
Catalog Number 34801V

You may also request that we refer this matter for technical advice as explained in Publication 892, Exempt Organization Appeal Procedures for Unagreed Issues. If a determination letter is issued to you based on technical advice, no further administrative appeal is available to you within the IRS on the issue that was the subject of the technical advice.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to Proposed Adverse Action. We will then send you a final letter modifying or revoking exempt status. If we do not hear from you within 30 days from the date of this letter, we will process your case on the basis of the recommendations shown in the report of examination and this letter will become final. In that event, you will be required to file Federal income tax returns for the tax period(s) shown above. File these returns 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:

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.

Letter 3610 (04-2002)
Catalog Number 34801V

Thank you for your cooperation.

Sincerely,

Marsha A. Ramirez
Director, E O Examinations

Enclosures:
Publication 892
Publication 3498
Form 6018

Report of Examination
Envelope

Letter 3610 (04-2002)
Catalog Number 34801V

Form 886-A EXPLANATION OF ITEMS
Schedule or
Exhibit No.
Name of Taxpayer Year Ended
ORG 12/31/20XX
Legend
ORG = Organization name XX = Date President = President ISSUE:

Should the tax exempt status under Internal Revenue Service section 501(c)(3) of ORG be revoked?

FACTS:

ORG was recognized by the Internal Revenue Service as a tax exempt organization under 501(c)(3) of the Internal Revenue Code in February, 19XX.

The organization’s owner President, the only officer of the organization, has been deceased since July 30, 20XX and, therefore, no activities have been conducted since thin. The Agent also, received a faxed copy of President’s death certificate from a third party

An examination was also conducted by the State of XYZ Department of Justice but they were not able to find President due to his death. A contact letter was sent to the organization at the last known address located on Accurint.

The organization has never filed the form 990.

LAW

Internal Revenue Code Section 501(c)(3) provides for tax exemption to organizations organized and operated exclusively for charitable purposes and no part of the net earning which inures to the benefit of any individual.

Regulation section 1.501(c)(3)-1(a)(1), Organizational and operational tests, provides that in order to be exempt as an organization described in section 501(c)(3), an organization must be both organized and operated exclusively for one or more of the purposes specified in such section. If an organization fails to meet either the organizational test or the operational test, it is not exempt.

Regulation section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Regulation section 1.501(c)(3)-1(d)(1)(ii) provides an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest. Thus, to meet the requirement of this subdivision, it is necessary for an

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

Form 886-A EXPLANATION OF ITEMS
Schedule or
Exhibit No.
Name of Taxpayer Year Ended
ORG 12/31/20XX
Legend
ORG = Organization name XX = Date President = President

organization to establish that it is not organized or operated for the benefit of private interests such as the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests.

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 purposes of inquiring into its exempt status.

Revenue Ruling 59-95 provides that a failure to file required information return or comply with the provision 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 an exempt status.

GOVERNMENT’S POSITION:

President, President, the sole officer passed away in July 20XX. No activities have been conducted since then. Therefore, since the only principal is deceased, there are no current activities, and based on third party information revocation of the organization is proposed effective January 1, 20XX.

TAXPAYER’S POSITION:
Not available.

CONCLUSION:
The organization should be revoked effective January 1, 20XX.

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