Determination 200846030: Unfiled foundation returns led to exemption revocation

Plain-English summary

A private foundation did not file required Forms 990-PF for the tax periods under examination. It also did not respond to repeated IRS correspondence or provide information about its receipts, spending, or activities. The IRS concluded that the organization had not shown it operated exclusively for exempt purposes or complied with the recordkeeping and reporting duties in §§ 6001 and 6033. It revoked the organization’s § 501(c)(3) status effective January 1 of a redacted year. Contributions were no longer deductible, and the organization was required to file corporate income tax returns.

Ruling snapshot

• Question: Could the private foundation retain § 501(c)(3) status after failing to file Forms 990-PF or provide records and information about its activities?
• Outcome: Revocation. Exempt status was revoked effective January 1 of a redacted year.
• Key authorities: IRC §§ 501(c)(3), 6001, and 6033; Treas. Reg. §§ 1.6001-1 and 1.6033-1; Rev. Rul. 59-95

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street
Dallas, TX 75242

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

July 31, 2008

Release Number: 200846030

Release Date: 11/14/08
LEGEND UIL:501.03-01

ORG = Organization name Address = address XX = Date

Person to Contact:

ORG Identification Number:

ADDRESS Contact Telephone Number: (
In Reply Refer to: TE/GE Review Staff
EIN:

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: October 29,

Dear

This is a final revocation letter as to your exempt status under section 501(c)(3) of the Internal Revenue Code. The Internal Revenue Service’s recognition of your organization as an organization described in section 501(c)(3) is hereby revoked effective January 1, 20XX.

We have made this determination for the following reasons:

You have not demonstrated that you are operated exclusively for charitable, educational, or other exempt purposes within the meaning of I.R.C. section 501(c)(3). You failed to comply with the conditions of your exemption in that you did not file Forms 990-PF or respond to repeated reasonable requests to allow the Internal Revenue Service to examine your books, records, and activities. You have provided no information showing that you conduct a real and substantial charitable program.

Organizations described in I.R.C section 501(c)(3) and exempt under section 501 (a) must be both organized and operated exclusively for an exempt purposes. You have provided no information regarding your receipts, expenditures or activities. You have not established that you have operated exclusively for exempt purposes.

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.

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 and ask for Taxpayer Advocate assistance. Or you can contact the Taxpayer Advocate from the site where the tax deficiency was determined by calling, Tel or write:

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

Form 886-A Schedule number or exhibit
(Rev. January 1994) 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)(3)

Per Return: Private Foundation
Per Exam: Taxable Corporation

Issue: Tax Exempt Status under 501(c)(3) of the Internal Revenue Code

Issue: Whether exempt organization qualifies for exemption under Section 501(c)(3) of the Internal Revenue Code.

Facts: Exhibit A provides copies of the Internal Revenue Service correspondence requesting that Exempt Organization file the Form 990PF for the tax period ending December 31, 20XX- 20XX. Exempt Organization failed to respond to the Internal Revenue Service correspondence or file the Forms 990PF for the tax periods named above.

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.

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

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

Form 886-A Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number Year/Period ended

ORG December 31, 20XX

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.

Taxpayers Response: The taxpayer has been contacted and has refused to formally complete the steps necessary to end the organization.

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) 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 Address = address
XX = Date
CONTACT PERSON/ID NUMBER:
ORG CONTACT TELEPHONE NUMBERS:
ADDRESS

Toll Free
Long Distance

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

Dear

Based on our records, your organization has been contacted upon several occasions regarding delinquent Form(s) 990PF, 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)(3) 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)