Determination 201007070: IRS revoked an organization's section 501(c)(3) exemption

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption effective October 7, 20XX. The organization had not provided records needed to examine its Form 990 and had not filed prior Form 990 returns. The examination report also states that the organization failed to file required Form 990-PF returns after being recognized as a private foundation, although it later agreed to revocation because the exemption had been sought for a one-time fundraising event. The IRS concluded that the organization no longer met the requirements for exemption, would be subject to applicable federal income taxes and chapter 42 taxes, and would need to file Form 1120 and Form 990-PF as a taxable private foundation.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: Revocation.
• Key authorities: IRC §§ 501(a), 501(c)(3), 507, 509, 6001, 6033, 7428, and 7805(b); 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, MS:4920:DAL
Dallas, TX 75242
TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION

November 20, 2009
Release Number: 201007070
Release Date: 2/19/10
LEGEND
ORG = ORGANIZATION NAME ADDRESS = ADDRESS XX = DATE
UIL Code: 501.03-00

Taxpayer Identification Number:

ORG
ADDRESS Person to Contact/ID Number:
Contact Numbers:
Telephone:
Fax:

Internal Revenue Code:
IRC § 501(c) (3)
CERTIFIED MAIL RETURN RECEIPT REQUIRED

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: _ February 18, 20XX
Dear

This is a Final Adverse Determination as to your exempt status under section 501(c) (3) of
the Internal Revenue Code. On September 8, 20XX, you signed Form 6018 in agreement
with the proposed revocation.

Our adverse determination was made for the following reasons: Failure to provide records
of the organization and failure to meet the reporting requirements under section 6001 and
6033 of the Internal Revenue Code.

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 December 31, 20XX, no requested information has been
provided to us. In addition, the organization has not filed any prior Form 990 returns.

Based on the above, we are revoking your organization's exemption from Federal income
tax under section 501(c) (3) of the Internal Revenue Code, effective October 7, 20XX.

-2-

You are required to file Form 1041 and Form 990-PF. These returns should be filed with
the appropriate Service Center December 31, 20XX, and 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 if you prefer, you may contact the local
Taxpayer Advocate at:

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,

Sunita Lough
Director, EO Examinations

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Mail Stop 1142, PO Box 12307
Ogden, UT 84412

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION
DATE OF THIS NOTICE:
CONTACT PERSON/ID NUMBER:
ORG
ADDRESS CONTACT TELEPHONE NUMBERS

Toll Free
Long Distance

Fax

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

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

(IRC) 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 34809ZF

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 IRC 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 IRC.

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.

Telephone Number ( ___) Hours

Sincerely,

Sunita Lough or
Director, EO Examinations

Enclosures:

Publication 892

Publication 3498

Form 886A, Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809ZF

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12
LEGEND
ORG = ORGANIZATION NAME XX = DATE STATE = STATE TCO = TCO
CPA = CPA DIRECTOR = DIRECTOR
Issue:

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

Facts:
October 7, 20XX: The organization incorporated as the ORG in the State of State.

October 20XX: The organization filed form 1023, Application for Recognition of
Exemption Under Section 501(c)(3). The Service further determined the organization
is a Private Foundation within the meaning of section 509(a). The determination
letter also specified that “You are required to file forms 990-PF, Return of Private
Foundation or Section 4947 (a)(1) Trust Treated as a Private Foundation.” Form
990-PF must be filed by the 15th day of the fifth month after the end of your annual
accounting period.

The organization did not file Forms 990-PF for any Tax Periods as required.

September 20XX: Case assigned to RA for examination. No contact
was made with the organization. Completed dummy form 990-PF and processed for
tax year 20XX and closed for completion.

July 20XX: Case assigned to Tax Compliance Officer TCO for Re-examination.
Researched all documents and module and found no current information as to filing
forms 990-PF as required or dissolution information. Letter 3606 sent requesting
forms 990_PF for Tax years 20XX and 20XX.

August 20XX: No information had been received. I called to discuss the issue with
POA, CPA and left voicemail.

October 20XX: No response. Again called and left voice message with CPA.
Researched and found no other contact number.

November 20XX: Faxed request and copy of letters sent to CPA for research and
verification.

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 20XX12

December 20XX: Received phone call from CPA, CPA and after his researching the
information the organization is liable for filing 990-PF forms as stated. Request for
extension to complete forms 990PF, allowed 30 days.

January 20XX: No response. Per phone conversation requesting follow-up on there
filing forms 990-PF with CPA he stated that he had completely forgotten about the
request and will work on it.
February 20XX: No response. Called and left a voice message.
March 20XX: No response. 886-A Draft Notice prepared for revocation consideration.
April 20, 20XX: Received phone call from CPA POA Requesting 30 day extension.
June 10, 20XX: Received form 990EZ but required forms 990PF. CPA indicated that
the organization should not have applied for exemption as this was a one time event
fund raiser to help the employees and family in need from the Hurricane Katrina
Disaster.

August 31, 20XX: Received and explained the situation to Revenue Agent in charge
for resolution of revocation. Called and talked with CPA requesting a signed form
6018 for revocation. The organization will have to reapply for exemption if they ever
choose to be exempt in the future.

September 25, 20XX: Received signed document 6018 as agreed for exemption.

ORG has failed to respond to the Internal Revenue Service correspondence or file
the Forms 990PF for the tax period ending December 31, 20XX.

Law:

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.

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

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

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.

Government's Position:

Section 6033 requires every organization exempt from tax under section 501(a) to
file an annual return. The Service has prescribed Form 990-PF as the annual return
for recognized private foundations. The organization has failed to meet this
requirement for the 20XX and 20XX filing periods.

Section 1.6033-1(h)(2) of the Treas. Regs. requires organizations which have
established their right to exemption form tax to submit such additional information as
may be required to inquire further into its exempt status. Such a request was made
by the Service on July 23, 20XX. By failing to provide the requested information and
failing to file the prescribed tax returns, the organization is not observing the
conditions required for the continuation of exempt status. Such actions result in the

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

Page: -3-

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or

Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

termination of exempt status. This position is supported by Rev. Rul. 59-95. The
Service cannot meet the burden necessary to terminate private foundation status per
section 507(a)(2). As such, the organization’s private foundation status will continue
per section 509(b) and shall hereafter be a taxable private foundation. As such the
organization will be subject to all Federal income tax provisions, as well as, continue
to be subject to the tax provisions of chapter 42, unless the organization terminates
their private foundation status per section 507.

This examination does not dispute the Service’s determination on November 28,
20XX regarding tax exempt status. Rather, it is the organization’s activities, or lack
thereof, that warrant revocation of exempt status. As such, the Service holds that
the relief provisions of Section 7805(b) are not applicable.

Organization’s Position:

CPA, CPA states that the organization filed a 1023 form for exemption in error. The
fund raiser was only a one time event to help the employees of ORG due to
hurricane Katrina in 20XX. No activity has taken place since 20XX leaving little to no
money in the account. Rather than completing forms 990PF a request from both the
Foundation and CPA has been made to revoke the status of the foundation as it is
was done in error. Form 6018 has been signed as agreed for revocation by Director,
Director.

Conclusion:

The ORG has failed to meet the necessary requirements for exemption from Federal
income tax. As such, the organization’s exempt status is revoked, effective as of
January 1, 20XX. The organization is liable for all applicable Federal income tax
provision prescribed by internal revenue law and must file Form 1120 for all future
tax periods commencing with the year ending December 31, 20XX. In addition, the
organization will continue to be subject to chapter 42 taxes and must file Form 990-
PF as a taxable private foundation.

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