Determination 200851036: IRS revoked a private foundation's exemption after five letters went unanswered

Plain-English summary

This is what happens when an exempt organization stops answering the mail. A private foundation failed to file Form 990-PF for four consecutive tax years ending 30 November, and failed to respond to every attempt the Service made to reach it. Its exemption under section 501(c)(3) was revoked retroactively to the first day of the delinquent period, and the whole file was released: the final revocation letter of 15 September 2008 from the Brooklyn examination office, the proposed revocation letter from Ogden, and the Form 886-A report of examination that lays out the contact history.

That contact history is the substance of the case, and the release preserves it as a table. Five letters went out over three months: an initial Letter 30, a Letter 37, a Letter 685 sent certified with the receipt never confirmed, a Letter 4055 upgrading the matter from a compliance check to a full examination, and finally a Letter 3948 with another copy of the 4055 after the Service located a new address. None was answered and no return was filed. The report's section headed "Organization's Position" reads, in its entirety, that due to the lack of response the position is unknown.

The legal chain is short and has been in place since the Eisenhower administration. Section 6033 requires an annual return from every organization exempt under section 501(a), and Treas. Reg. 1.6033-1(h)(2) lets the Service demand further information to inquire into exempt status whether or not a return is required. Section 6001 and Treas. Reg. 1.6001-1 require books and records adequate to establish income, deductions and credits and to substantiate what section 6033 asks for, kept available for inspection for as long as their contents are material. Rev. Rul. 59-95 supplies the consequence: an organization that could not produce a financial statement because its records were too incomplete was held to have failed to establish that it was observing the conditions required for continued exemption, and failure to file may terminate exempt status on that ground. The Service does not have to prove the organization did anything wrong. It only has to observe that the organization has stopped demonstrating it is still doing anything right, and the burden of that demonstration sits on the organization.

The practical fallout is set out plainly. Contributions cease to be deductible under section 170. Form 1120 must be filed for all periods from the effective date of revocation. Appeals rights were offered in the proposed letter, with Publication 892 and Publication 3498 enclosed and Form 6018 supplied for an organization that wanted to consent rather than fight, and the option of requesting technical advice was flagged along with the warning that a determination letter issued on technical advice ends any further administrative appeal within the Service. The final letter gives 90 days to seek declaratory judgment in the Tax Court, the Court of Federal Claims or the District Court for the District of Columbia, states that processing returns and assessing tax will not wait for such a petition, and notes that state officials will be told under section 6104(c). The proposed letter also warns of the daily penalty under section 6652(c)(1) for late returns, at a higher daily rate for organizations above a gross receipts threshold, though every figure is redacted.

Two features of the released copy deserve a reader's caution. First, the redaction here is unusually aggressive about time: every year in the document, in the letters and in the examination report alike, has been replaced by the placeholder 20XX. The letter therefore states a revocation effective 1 December 20XX, four tax years ending 30 November 20XX, a filing deadline of 14 December 20XX and correspondence dated across 20XX, and nothing anchors any of it. The document establishes a sequence without establishing a date. Second, the revoked organization filed Form 990-PF, which is the private foundation return, yet the letters direct it to file Form 1120 rather than 1120-PF, and the release says nothing about the organization's status under section 507. The two letters are also signed by different officials, the proposed by the Director of EO Examinations and the final by an Acting Director.

The scan is fair. The Brooklyn street address and ZIP, a doubled period after the effective date, a superscript ordinal in "the 91st day", a stray period after "addresses", a stray dash before "contact your local Taxpayer Advocate", a form feed read in place of the capital I in "If a determination letter is issued", and two Form 886-A revision stamps have been corrected. Left as released: the form number "Letter #GB5" in the contact table, which is legible but does not correspond to any obvious IRS letter number and may be a misreading of the scan; the ragged column headings of that same table, which the extraction flattens; and "we have determined that the organization has not established" in the final letter shifting from the second person used everywhere around it.

Ruling snapshot

• Question: May the Service revoke a section 501(c)(3) exemption where the organization did not file required annual returns and did not respond to repeated contacts?
• Outcome: Revoked, retroactively to the first day of the earliest delinquent tax period. The organization failed to meet the reporting requirements of sections 6001 and 6033 and so failed to establish that it is observing the conditions required for continuation of exempt status. Contributions are no longer deductible under section 170, Form 1120 is required for all periods from the effective date, a pleading for declaratory judgment must be filed before the 91st day, and state officials will be notified under section 6104(c).
• Key authorities: IRC sections 501(a), 501(c)(3), 511, 6001, 6033, 6033(a)(1), 6104(c), 6652(c)(1), 170 and 7428; Treas. Reg. 1.6001-1(a), (c) and (e) and 1.6033-1(h)(2); Rev. Rul. 59-95, 1959-1 C.B. 627 (reproduced as released, not verified here).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examination
625 Fulton Street, Room 503

Brooklyn, NY 11201
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Number: 200851036
Release Date: 12/19/2008 EO
UIL: 9999.98-00
LEGEND Date: September 15, 2008
ORG Organization name Address = address XX = Date
ORG Taxpayer Identification Number:
ADDRESS Person to Contact:

Identification Number

Contact Telephone Number:

LAST DATE FOR FILING A PLEADING
WITH THE TAX COURT, THE CLAIMS
COURT, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT
OF COLUMBIA: December 14, 20XX

Dear

This is a final determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). Recognition of your exemption from Federal income tax as an organization described in Internal Revenue Code section 501(c)(3) is retroactively revoked to December 1, 20XX because it is determined that you have not established that you are observing the conditions required for the continuation of an exempt status.

IRC 501(c)(3) exempts from taxation organizations which are organized and operated exclusively for charitable or educational purposes, no part of the net earnings of which inure to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation and which do not participate in, or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public office.

IRC 6033 provides that every organization, except as provided therein, exempt from taxation under section 501(a) of the Code shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and shall keep such records, render under oath such statements, make such other returns and comply with such rules and regulations as the Secretary of the Treasury or his delegate may from time to time prescribe.

Revenue Ruling 59-95, 1959-1 CB 627 held that failure or inability to file the required information return or otherwise to comply with the provision of section 6033 of the Code and the regulations which implement it, may result in the termination of the exempt

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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 an exempt status.

In accordance with IRC 6033 and Revenue Ruling 59-95, we have determined that the organization has not established that it is observing the conditions required for continuation of exempt status.

We are revoking your exemption from Federal income tax as an organization described in section 501(c)(3) of the Internal Revenue Code effective December 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 all years beginning December 1, 20XX.

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 file a pleading seeking a declaratory judgment in the United States Tax Court, the United States Court of Federal Claims, or the United States District Court for the District of Columbia before the 91st day after the date this final determination was mailed to you. Please contact the clerk of the appropriate court for rules regarding filing pleadings for declaratory judgments and refer to the enclosed Publication 892. You may write to these courts at the following addresses:

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.

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,

Vicki L. Hansen
Acting Director, EO Examinations

Enclosure:
Publication 892

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Mail Stop 1112, PO Box 12307
Ogden, UT 84412

TAX EXEMPT AND

GOVERNMENT ENTITIES
DIVISION
LEGEND
ORG = Organization name XX = Date Address = address
ORG DATE OF THIS NOTICE:
ADDRESS

CONTACT PERSON / ID NUMBER:

CONTACT TELEPHONE NUMBERS:

Toll Free
Long Distance

Employer Identification Number:
Tax Period(s):
Form(s):

Dear

Based on our records, your organization has been contacted upon several occasions regarding delinquent Form(s) 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation, 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 § per day penalty, ($ per day for organizations having gross receipts exceeding $) 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.

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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 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

Form 6018

Report of Examination (F886-A)

Schedule number or exhibit

Form 886-A

(Rev. January 1994) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended November 30, 20XX ORG November 30, 20XX November 30, 20XX November 30, 20XX LEGEND ORG = Organization name XX = Date Issue:

Whether ORG qualifies for exemption under Section 501(c)(3) of the Internal Revenue Code.

Facts:

Exhibit A provides copies of the Internal Revenue Service correspondence to Exempt Organization (EO) or Power of Attorney (POA) requesting that Exempt Organization file the Form 990-PF for the tax period ending November 30, 20XX; November 30, 20XX; November 30, 20XX; and November 30, 20XX.

Summary of Exhibit A
Contact Correspondence Date sent Certified Receipt EO
type sent Mail? Signed advised
YN returns
would
be
filed.
Letter Initial letter #30 04/29/20XX N N/A N
Letter Letter #37 06/10/20XX N N/A N
Letter Letter #GB5 05/08/20XX Y Unknown N
Letter Letter 4055 — 06/19/20XX N N/A N
Update status
from compliance
check to exam.
Letter New address 07/27/20XX Y Y N
found. Sent
Letter 3948 w/
copy of
previously mailed
Letter 4055.

ORG failed to respond to the Internal Revenue Service correspondence or file the Forms 990-PF for the tax periods ending November 30, 20XX; November 30, 20XX; November 30, 20XX; and November 30, 20XX.

Law:

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 November 30, 20XX

ORG November 30, 20XX
November 30, 20XX
November 30, 20XX

IRC § 6001 provides that every person liable for any tax imposed by the IRC, or for the collection thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to time prescribe.

Treas. Reg. § 1.6001-1(a) in conjunction with Treas. Reg. § 1.6001-1(c) provides that every organization exempt from tax under IRC § 501(a) and subject to the tax imposed by IRC § 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 IRC § 6033.

Treas. Reg. § 1.6001-1(e) 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.

IRC § 6033(a)(1) provides, except as provided in IRC § 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.

Treas. Reg § 1.6033-1(h)(2) 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 IRC § 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 IRC § 6033 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.

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 November 30, 20XX

ORG November 30, 20XX
November 30, 20XX
November 30, 20XX

In accordance with the above cited provisions of the Code and regulations under IRC §§ 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.

Organization’s Position:

Due to the lack of response, the organization’s position is unknown. Conclusion:

It is the IRS's position that the organization failed to meet the reporting requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(3). Furthermore, the organization has failed to establish that it continues to qualify for tax exempt status. Accordingly, the organization's exempt status is revoked effective December 01, 20XX.

Form(s) 1120, U.S. Corporation Income Tax Return, should be filed for the tax periods ending on or after December 01, 20XX.

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