IRS determination 200822035: Nonprofit loses exemption after missing return and unanswered requests

Plain-English summary

A nonprofit corporation did not file a requested Form 990-PF. An IRS examiner sent several requests for information needed to examine the organization, but received no response. The IRS concluded that the organization had not met the return and recordkeeping requirements of §§ 6001 and 6033 or established that it still operated for an exempt purpose under § 501(c)(3). It revoked the exemption effective October 1 of a redacted year and directed the organization to file income tax returns for later years. The final letter said donors could no longer deduct contributions to it.

Ruling snapshot

• Question: Could the organization retain § 501(c)(3) status without filing its requested return or responding to the examination?
• Outcome: Exemption revoked effective October 1 of a redacted year.
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.6001-1(e) and 1.6033-2(i)(2); Rev. Rul. 59-95.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE -EO Mandatory Review
1100 Commerce Street, MC 4920-DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Release Number: 200822035
Release Date: 5/30/08
Date: February 29, 2008
Legend
Org = Organization Name
XX = Date
Address = Address

ORG
ADDRESS
UIL: 501.03-01

Employer Identification Number:
Person to Contact:
Identification Number:
Contact Telephone Number:
In Reply Refer To:
TE/GE Review Staff
LAST DAY FOR FILING A
PETITION WITH TAX COURT:
May 29, 20XX

CERTIFIED MAIL

Dear

This is a final adverse determination that you do not qualify for exemption from income tax under section 501(a) of the Internal Revenue Code (I.R.C.) as an organization described in I.R.C. section 501(c)(3). Internal Revenue Service recognition of your status as an organization described in I.R.C. section 501(c)(3) is revoked, effective October 1, 20XX. Our adverse

determination is made for the following reason(s):

You have not established you are operated exclusively for charitable, educational, scientific, or religious purposes. You have failed to file an annual return as required by § 6033. You have failed to reply to the IRS’s requests for information to determine if your still qualify for tax exempt status under § 501(c)(3) as required by § 6001. Accordingly, you no longer qualify for income tax-exemption under § 501(a) as an organization described in §

501(c)(3).

Contributions made to you are no longer deductible as charitable contributions by donors for purposes of computing taxable income for Federal income tax purposes. See Rev. Proc. 82-39 1982-2 C.B. 759, for the rules concerning the deduction of contributions made to you between October 1, 20XX and the date a public announcement, such as publication in the Internal Revenue Bulletin, is made Stating that contributions to you are no longer deductible.

You are required to file income tax returns on Form 1041 and 1120 for all years beginning after September 30, 20XX. Returns for the years ending September 31, 20XX and September 30, 20XX must be filed with this office within 60 days from the date of this letter, unless a request for an extension of time is granted. Send such returns to the following address:

Tax returns for subsequent years are to be filed with the appropriate Campus identified in the instructions for those returns.

If you decide to contest this determination in court, you must initiate a suit for declaratory judgment in 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 rules for initiating suits for declaratory judgment. . You may write to the Tax Court at the following address:

The processing of income tax returns and assessment of any taxes due will not be delayed because a petition for declaratory judgment has been filed under I.R.C. section 7428.

If you have questions about this letter, please write to the person whose name and address are shown on this letter. If you write, please attach a copy of this letter to help identify your account. Keep a copy for your records. Also, please include your telephone number and the most convenient time for us to call, so we can contact you if we need additional information.

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. Your local Taxpayer Advocate.

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 I.R.C. section 6104(c).

This is a final revocation letter.

Sincerely,

Marsha A Ramirez
Director, EO Examinations

Form 886-A REPORT OF EXAMINATION Schedule number or exhibit
(Rev. January 1994)
0001
Name of taxpayer Tax Identification Number Year/Period ended
ORG
September 30, 20XX
LEGEND
ORG = Organization name XX = Date

Issue Name: Tax Exempt Status

Per Return: 990PF
Per Exam: September 30, 20XX

Issue:
Whether ORG a City Nonprofit Corporation qualifies for exemption under Section 501(c)(3) of the

Internal Revenue Code

Facts:
ORG a City Nonprofit Corporation failed to respond to the Internal Revenue Service attempts to obtain

information to perform an examination of Form 990PF for the above mentioned tax period.

This case started out as a compliance check worked by the Exempt Organization Compliance Unit Tax Examiners. The tax examiner contacted the organization several times with the intent of securing the delinquent Form 990PF. After the tax examiner received no response the case was turned over for examination. The organization was contacted for examination on January 4, 20XX. Information was requested using letter 3606 with IDR. TCO received no response to the initial letter so the 10 day letter was sent certified on March 21, 20XX. TCO did not receive the green certification card back, however none of the letters were returned undeliverable either. Based on this information TCO believes that the organization has been receiving the letters.

Because the organization has not cooperated with TCO attempts to secure information for the exam, revocation is being proposed. No mail has been returned undeliverable.

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.

Section 1.6033-2(i)(2) of the regulations provides that every organization which is exempt from tax, whether or not it is required to file an annual information return, shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status and administering the provisions of subchapter F (section 501 and following), chapter 1 of subtitle A of the Code, section 6033, and chapter 42 of subtitle D of the Code. See section 6001 and
§1.6001-1 with respect to the authority of the district directors or directors of service centers to require such additional information and with respect to the books of accounts or records to be kept by such

organizations.

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

Form 886-A REPORT OF EXAMINATION Schedule number or exhibit
(Rev. January 1994)
0001
Name of taxpayer Tax Identification Number Year/Period ended
ORG
September 30, 20XX
LEGEND
ORG = Organization name XX = Date

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.

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 requirements under sections 6001 and 6033 to be recognized as exempt from federal income tax under 501(c)(3) of the Internal Revenue Code. Accordingly, the organization's exempt status is revoked effective October 1, 20XX.

Form 1120 returns should be filed for the tax periods after October 1, 20XX.

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

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Mail Stop 1112 PO Box 12307
Ogden, Utah 84412

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Taxpayer Identification Number:
ORG
ADDRESS
Form:
Tax Year(s) Ended:
Se

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:

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