Determination 200829047: Residential treatment charity loses exemption for missing returns and records

Plain-English summary

An organization provided residential treatment for women with substance addictions. The examination report says it had stopped filing annual Forms 990 and did not submit the delinquent returns after the IRS requested them. The final letter also says the organization failed to provide records requested for an examination and notes that public records showed revocation of its authority to operate in at least one state. The IRS concluded that the organization had not met the reporting and record requirements of sections 6001 and 6033. It revoked the organization's section 501(c)(3) exemption effective on a redacted January 1 date.

Ruling snapshot

• Question: Could the organization retain exemption after failing to file returns and provide requested records?
• Outcome: Revocation. The IRS found that reporting and record requirements were unmet.
• Key authorities: IRC §§ 501(c)(3), 6001, 6033; Treas. Reg. § 1.6033-2(h)(2).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street, MS:4920:DAL
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

April 7, 2008

Number: 200829047
Release Date: 7/18/2008

LEGEND
ORG = Organization name XX = Date Address = address
UIL: 501.03-01

ORG Taxpayer Identification Number:
ADDRESS Person to Contact/ID Number:
Contact Numbers:
Internal Revenue Code:
IRC § 501(c) (3)

CERTIFIED MAIL RETURN RECEIPT REQUIRED

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.

Our adverse determination was made for the following reasons: Failure to provide records of the organization and failure to meet the reporting requirements under section 6001 and 6033 of the Internal Revenue Code.

Exemption from income tax is a matter of legislative grace and taxpayers have the burden of establishing their entitlement to exemptions. Section 6033 requires organizations exempt from tax to keep such records and render such statements as are required by such rules and regulations as the Secretary may prescribe. Treasury Regulations section 1.6033-2 (h)(2) requires organizations exempt from tax to submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into the organization’s exempt status.

Despite numerous requests to you to provide information to conduct an examination of your Form 990 for the year ended 12/31/20XX, no requested information has been provided to us. In addition, public records show that one or more states have revoked your authority to transact business and conduct affairs in their jurisdiction.

Based on the above, we are revoking your organization's exemption from Federal income tax under section 501(c) (3) of the Internal Revenue Code, effective January 1, 20XX.

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You are required to file Form 1120, U.S. Corporation Income Tax Return. These returns should be filed with the appropriate Service Center for the year ending December 31, 20XX and 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 if you prefer, you may contact the local Taxpayer Advocate at:

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

DEPARTMENT OF THE TREASURY
Internal Revenue Service
985 Michigan Ave., 10th Fl.
Detroit, MI 48226
TAX EXEMPT AND ATTN: Adam Standen, EO: 7937

GOVERNMENT ENTITIES
DIVISION

June 18, 2007

Taxpayer Identification Number:

ORG

ADDRESS Form:
990

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 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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or Explanation of Items Exhibit Name of Taxpayer Year/Period Ended ORG December 31, 20XX

LEGEND
ORG = Organization name XX = Date
FACTS:

The above-named organization was granted exemption under IRC Section 501(c)(3) in July 19XX. Its activities include providing residential treatment to women who are addicted to various substances.

The organization has not filed Form 990 since year ended December 31, 20XX. Based on our audit of its books and records for year ended December 31, 20XX, the organization’s gross receipts exceed $ annually.

LAW:

IRC Section 6033 states that every organization exempt from taxation 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 purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall 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.

Revenue Ruling 59-95, Cumulative Bulletin 1959-1, page 627, prescribes that failure to comply with the provisions of Section 6033 of the Code may result in the termination of the exempt status of an organization on the grounds that the organization has not established that it is observing the conditions required for the continuation of its tax-exempt status.

GOVERNMENT’S POSITION:

As indicated above, the organization has not filed Forms 990 since year ended December 31, 20XX. Forms 990 for years ended December 31, 20XX through December 31, 20XX were requested in a written Information Document Request on March 29, 20XX.

The 30-day letter proposing revocation was issued on June 18, 20XX. As of this date, we have not yet received the returns.

Since the 30-day period allowed by the proposed revocation report has expired, we are now closing the case as an unagreed revocation without protest.

As indicated in IRC Section 6033, “every organization exempt from taxation under section 501(a) shall file an annual return.” Further, as indicated in Revenue Ruling 59-95, “failure to comply with the provisions of Section 6033 of the Code may result in the termination of the exempt status of an organization.”

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or Explanation of Items Exhibit Name of Taxpayer Year/Period Ended ORG December 31, 20XX LEGEND ORG = Organization name XX = Date

Since the organization has not complied with IRC Section 6033 by filing Forms 990, we are proposing revocation of its tax exemption under IRC Section 501(c)(3).

TAXPAYER’S POSITION:
The taxpayer has not responded in writing to the 30-day letter proposing revocation.

CONCLUSION:

We are proposing revocation of the organization’s tax exemption for failure to file Forms 990.

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

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