Other 200844018: Organization lost exemption after withholding records and returns

Plain-English summary

The IRS revoked an organization’s § 501(c)(3) exemption because it filed no annual returns for years and did not provide enough information to verify its exempt operations. The organization had been recognized as exempt and publicly supported, but it did not respond to repeated requests for financial information, activity information, books, and records. Sections 6001 and 6033 require adequate records, annual reporting, and access to information needed to determine whether an organization continues to qualify. The organization provided only very limited information and did not establish that it operated for exempt purposes. The IRS therefore revoked exemption retroactively.

Ruling snapshot

• Question: Did the organization remain exempt under § 501(c)(3) after failing to file returns or provide requested books and activity information?
• Outcome: Revocation. The organization did not establish exempt operations or compliance with recordkeeping and reporting requirements.
• Key authorities: IRC §§ 501(a), 501(c)(3), 509(a)(2), 6001, 6033; Treas. Reg. §§ 1.6001-1(a), (c), (e), 1.6033-1(h)(2); Rev. Rul. 59-95

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
Release Number: 200844018 UIL: 501.03-01
Release Date: 10/31/08 XX = Date Address = address
Legend
ORG = Organization name
Date: February 27, 2007
ORG
ADDRESS

Person to Contact:
Identification Number:
Contact Telephone Number:
In Reply Refer to: TE/GE Review Staff
EIN:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT:

Certified Mail-Return Receipt Requested

Dear

This is a Final Adverse Determination revoking your exemption from federal 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).

Our adverse determination was made for the following reason(s):

Organizations described in I.R.C. §501 (c)(3) and exempt under section 501 (a) must be both organized and operated exclusively for exempt purposes. You have provided very limited information regarding your receipts, expenditures, and activities. You have failed to establish that you are operated in accordance with IRC section 501 (c)(3).

Based upon the above, we are revoking your organization’s exemption from federal income tax under I.R.C. section 501 (c)(3), 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 the year ending December 31, 20XX, 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.

-2-

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 may right to the Tax Court at the following

address:

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.

The last day for filing a petition for declaratory judgment is

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 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: 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.

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

ORG
Form: 990-PF Tax Year: 20XX12

LEGEND
ORG = Organization name XX = Date

Attachment to Final Letter

You were recognized as exempt in April of 19XX. You have filed no returns, Forms 990, since April of 20XX. You have not responded to repeated requests for financial information and information about your activities.

Internal Revenue Code section 501 (c)(3) provides that an organization described in that section must be both organized and operated for exempt purposes. Section 6001 of the Internal Revenue Code provides that every person liable for any tax must keep adequate records as the Secretary may from time to time prescribe. Section 6033 (a)(1) provides that every organization exempt from tax shall keep such records as the Secretary may from time to time prescribe.

Treasury Regulation section 1.6001-1(e) requires that books and records are to be kept at all times and made available for inspection by the Service so long as the contents are material to the administration of the internal revenue laws. Section 1.6033-1 (h)(2) requires every organization that has been recognized as exempt, whether or not it is required to file a return, to submit information as may be required for the purpose of the Service’s inquiry into its exempt status.

Rev. Rul. 59-95, 1059-1 C.B. 627, provides that the failure of an organization to provide requested information about its financial status and operations may result in revocation of its exempt status on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status.

Because you have not responded to our requests for information or otherwise provided information establishing that you are operated for exempt purposes, your status is revoked.

Schedule No. or

Form 886A Department of the Treasury - Internal Revenue Service
. Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG December 31,
20XX
LEGEND
ORG = Organization name XX = Date
Issue:

Whether ORG (herein after referred to as ORG) qualifies for exempt status under Section 501(c) (3) of the Internal Revenue Code?

Facts:

ORG received exempt status on March 05, 19XX under Section 501(a) of the Internal Revenue Code as an organization described in Section 501 (c) (3). They are further described under code

Section 509(a) (2).

On April 21, 20XX, Internal Revenue Service sent correspondence requesting that ORG provide information for tax period ending December 31, 20XX to verify their exempt status in operation. ORG failed to provide substantial books and record or file the required Form 990 for the tax period ending December 31, 20XX.

During the period from September 7, 20XX to February 15, 20XX; several unsuccessful attempts were made to obtain the necessary information from ORG to validate their exempt status.

Due to the lack of information retrieved; the Service can not verify if the organization should remain exempt under Section 501(c) (3) of the Internal Revenue Code.

Law:

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 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 records and regulations as the Secretary may from time to time prescribe.

Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides that every organization exempt from tax under section 501(a) of the Code and subject to the tax imposed by section 511 on its unrelated business income must keep such permanent books or accounts or records, including inventories, as are sufficient to establish the amount of gross

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

income, deduction, credits, or other matters required to be shown by such person in any return of such tax. Such organization shall also keep such books and records as are required to substantiate the information required by section 6033.

Section 1.6001-1(e) of the regulations states that the books or records required by this section shall be kept at all times 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 1.6033-(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.

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 purpose 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) (3) or 509 a (2) of the Internal Revenue Code. Accordingly, the organization's exempt status is revoked

effective January 1, 20XX.

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

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Reginald Alford
401 W. Peachtree St. Rm 1109

TAX EXEMPT AND
GOVERNMENT ENTITIES Atlanta, Ga. 30308

DIVISION

Taxpayer Identification Number:

ORG
ADDRESS Form:

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

2

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