Determination 200919050: Missing returns and unanswered inquiries ended exemption

Plain-English summary

An exempt organization stopped filing annual information returns and did not establish that it was excused from filing them. The IRS wrote to the organization asking whether it still existed, what activities it conducted, and what happened to its assets, but received no response. The organization also incurred substantial employment tax liabilities without arranging to pay them. The IRS concluded that it had not demonstrated continued operation for charitable, educational, or other exempt purposes and had not met the reporting obligations required by sections 6001 and 6033. Its section 501(c)(3) exemption was revoked effective from the specified date. Contributions were no longer deductible, and the organization was required to file corporate income tax returns.

Ruling snapshot

• Question: Did the organization continue to qualify under section 501(c)(3) after it stopped filing returns and failed to answer IRS inquiries about its activities and assets?
• Outcome: Revocation: the organization failed to demonstrate continued exempt operations or satisfy its reporting obligations.
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033, 7428; Treas. Reg. §§ 1.501(c)(3)-1(d), 1.6033-1(h)(2); Rev. Rul. 59-95.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
4920DAL: EO Mandatory Review

1100 Commerce Street Employer Identification No.:
Dallas, Tx 75242 Person to Contact:

Employee ID Number:
Number: 200919050 , Tel:
Release Date: 5/8/2009 Fax:
Date: January 8, 2009 Form Required to be Filed:

Tax Years:20XX12 and subsequent
LEGEND

Last Day to File a Petition with the

ORG = Organization name XX = Date Address = address United States Tax Court: April 3, 20XX

UIL: 501.03-01
ORG
ADDRESS
Certified Mail
Dear

This is a final adverse determination as to your exempt status under section 501(c)(3) of the Internal Revenue Code (IRC). It is determined that you are no longer recognized as exempt from Federal income tax under IRC section 501(c)(3), effective January 1, 20XX, for the following reason(s):

You have not demonstrated that you have operated exclusively for charitable, educational or other exempt purposes as required for continued recognition as an organization described in Internal Revenue Code section 501(c)(3). You have not filed annual information returns as required by Internal Revenue Code section 6033 since 20XX, nor demonstrated that you are not required to file such returns. You have not responded to written attempts to contact you regarding your activities, finances, and operations. You have incurred substantial employment tax liabilities without making arrangements to satisfy your debts to the United States Treasury. By failing to meet the conditions of your exemption, you have failed to demonstrate that you are operated for public purposes in violation of Treas. Reg. § 1.501(c)(3)-1(d).

Contributions to your organization are not deductible under IRC section 170.

You are required to file Federal income tax returns on the form indicated above. You should file these returns within 30 days from the date of this letter, unless a request for an extension of time is granted. File the returns in accordance with their instructions, and do not send them to this office. Processing of income tax returns and assessment of any taxes due will not be delayed because you have filed a petition for declaratory judgment under IRC section 7428.

If you decide to contest this determination under the declaratory judgment provisions of IRC section 7428, a petition to the United States Tax Court, the United States Court of Claims, or the district court of the United States for the District of Columbia must be filed within 90 days from the date this determination letter was mailed to you. Contact the clerk of the appropriate court for rules for filing petitions for declaratory judgment. To secure a petition form from the United States Tax Court, write to the United States Tax Court.

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 you can contact your nearest Advocate’s office, in this

case by calling or writing to:

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 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,
Douglas H. Shulman

Commissioner, Internal Revenue Service

By
Renee B. Wells

Acting Director, EO Examinations

Attachments:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service
30 E. 7th St., Suite 1130B
St. Paul, MN 55101

TAX EXEMPT AND
GOVERNMENT ENTITIES
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

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

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

Facts:
The last return filed by the Organization was for year ended December 31, 20XX.

On January 31, 20XX the IRS sent a letter to the Organization at the address of its executive director. The letter requested information on the Organization's existence and asked the organization what it had done with its assets. There has been no response to the letter. The letter was not returned by the Post Office so it was received.

Law:

IRC Section 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. Section 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 Section 6033.

Rev. Rul. 59-65, 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. The Service held that the failure or inability to file the required information return or otherwise to comply with the provisions of IRC Section 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.

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 IRC Section 501(c)(3). Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after December 31, 20XX.

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