Other 200844023: Fraternal society lost exemption after reporting failures

Plain-English summary

The IRS revoked a fraternal beneficiary society’s § 501(c)(8) exemption after it failed to file Form 990 or provide requested examination information. The parent organization could no longer locate the entity, IRS records showed it was no longer included in a group ruling, and a representative reported that the person he had been retained to assist had died. Sections 6001 and 6033 require adequate records, annual returns, and information needed to examine continued qualification. The organization did not respond, so it did not establish either compliance with those duties or that it continued to operate under the lodge system and provide qualifying member benefits. The IRS revoked exemption and required Form 1120 for the affected period.

Ruling snapshot

• Question: Did the organization continue to qualify as a fraternal beneficiary society under § 501(c)(8)?
• Outcome: Revocation. It failed to file Form 990, provide records, or establish continued qualification.
• Key authorities: IRC §§ 501(c)(8), 6001, 6033; Treas. Reg. §§ 1.501(c)(8)-1, 1.6001-1, 1.6033-1(h)(2); Rev. Rul. 59-95

Full text (IRS public release)

INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
Brooklyn, NY 11201

Release Number: 200844023
Release Date: 10/31/08

Date: July 25, 2008

LEGEND
ORG = Organization name XX = Date Address = address
UIL:501.08-01

EIN:

Person to Contact:
ORG Identification Number:
ADDRESS Contact Telephone Number:

In Reply Refer To: TE/GE Review Staff

Dear

This is a Final Adverse Determination as to your exempt status under section 501(c)(8) of the Internal Revenue Code.

Our adverse determination was made for the following reasons:

ORG, fails to meet the requirement for exemption under IRC 501(c)(8). Section 1.501(c)(8)-1 of the Income Tax Regulations defines a fraternal beneficiary society, order or association as one that operates under the lodge system or operates for the exclusive benefit of the members of a fraternity itself operating under the lodge system , and providing for the payment of life, sick, accident , or other benefits to members of such society, order or association or their dependents.

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.

Based on the above, we are revoking your organization's exemption from Federal income tax under section 501(c)(8) of the Internal Revenue Code effective January 1, 20XX .

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 after December 31, 20XX.

You are required to file Form 1120, U.S. Corporation Income Tax Return. Form 1120 must be filed by the 15th day of the third month after the end of your annual accounting period. A penalty of $20 a day is charged when a return is filed late, unless there is reasonable cause for the delay. However, the maximum penalty charged cannot exceed
$10,000 or 5 percent of your gross receipts for the year, whichever is less. This penalty may also be charged if a return is not complete, so please be sure your return is complete before you file it.

You 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 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

| Form 886-A |

(Rev. January 1994)

| Schedule number or exhibit |
EXPLANATIONS OF ITEMS |

Name of taxpayer Tax Identification Number Year/Period ended ORG December, 31 20XX

LEGEND

ORG = Organization name XX = Date

Issue Name: Tax Exempt Status under IRC 501(c)(8)

Per Return:
Per Exam:

Issue: Tax Exempt Status under 501(c)(8) of the Internal Revenue Code

Issue: Whether exempt organization qualifies for exemption under Section 501(c)(8) of the Internal Revenue Code.

Facts: Exhibit A provides copies of the Internal Revenue Service correspondence requesting that Exempt Organization file the Form 990 for the tax period ending December 31, 20XX. Exempt Organization failed to respond to the Internal Revenue Service correspondence or file the Forms 990 for the tax period ending. Also included is a letter from the parent organization stating that they cannot find this entity either. According to IRS information the organization is no longer part of a group ruling. Also attached a statement from the “POA” stating that he was retained to help a certain person associated with the organization but has since died.

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 rules 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 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.

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

Form 886-A i Schedule number or exhibit |

|

| (Rev, January 1994) | EXPLANATIONS OF ITEMS
|
|
Name of taxpayer Tax Identification Number Year/Period ended ORG December, 31 20XX

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 1.6033-1(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 purposes for which it was granted tax- exempt status and to determine its liability for any unrelated business income tax.

Taxpayer Position: The taxpayer has not responded, therefore we cannot determine their position.

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)(19) of the Internal Revenue Code. Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending December 31, 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, UT 84412

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION

LEGEND DATE OF THIS NOTICE:

ORG = Organization name XX = Date

Address = address CONTACT PERSON/ID NUMBER:

ORG CONTACT TELEPHONE NUMBERS:

ADDRESS

Employer Identification Number:
Tax Period(s): December 31, 20XX
Form(s): 990

Dear

Based on our records, your organization has been contacted upon several occasions regarding delinquent Form(s) 990, Return of Organizations Exempt From Income Tax, that were not filed for the tax period(s) referenced above. To date, the requested returns have not been received.

Failure to file a timely return can result in the assessment of a penalty imposed by IRC section 6652(c)(1). That penalty results in the imposition of a $20 per day penalty, ($100 per day for organizations having gross receipts exceeding $1,000,000) for each tax year that is filed late and does not include a written statement explaining the cause for filing late.

An exempt organization’s failure to file required information returns or comply with the Internal Revenue Code (Code) and applicable regulations is grounds for termination of the organization’s tax exempt status. We have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under section 501(c)(8) of the Internal Revenue Code is necessary.

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 revoking your exempt status. 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 and this letter will become final. In that event, you will be required to file federal income tax returns (Form(s) 1120) 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

If you do not agree with our proposed revocation, you must submit to us a written request for Appeals Office consideration within 30 days 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. If you request a conference, we will forward your written statement of protest to the Appeals Office and they will contact you.

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.

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.

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 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,

Jeff Francis
Revenue Agent

Enclosures:

Publication 892

Publication 3498

Form 6018

Report of Examination (F886-A)