Revocation 201013057: IRS revokes exemption after failure to file and provide records

Plain-English summary

The IRS revoked an organization's section 501(c)(3) exemption effective January 1, 20XX. The organization failed to file Form 990 and did not respond to repeated IRS requests for records about its receipts, expenditures, activities, dissolution, and distribution of assets. The IRS concluded that the organization had not established that it continued to meet the recordkeeping and reporting conditions for exemption. The organization was instructed to file Form 1120 returns and was informed about the process for contesting the revocation.

Ruling snapshot

• Question: Did the organization satisfy the recordkeeping and annual reporting requirements for continued section 501(c)(3) exemption?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501, 6001, 6033, 6104(c), and 7428; Treas. Reg. §§ 1.6001-1 and 1.6033-1

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TE/GE: EO Examinations | 501.03-00 |
625 Fulton Street, Room 503 = J
Brooklyn, NY 11201

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
Release Number: 201013057
Date: January 5, 2010
Release Date: 4/2/10
ORG = ORGANIZATION NAME XX = DATE Taxpayer Identification Number: ADDRESS = ADDRESS Person to Contact: Identification Number: ORG Contact Telephone Number: ADDRESS

LAST DATE FOR FILING A PLEADING
WITH THE TAX COURT, THE CLAIMS,
COURT, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT
OF COLUMBIA: April 5, 20XX

CERTIFIED MAIL
Dear

This is a final adverse determination regarding your exempt status under section 501(c)(3) of the Internal Revenue Code (the Code). Our favorable determination letter to you dated April 13, 19XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective January 1, 20XX.

You have failed to establish that you are operated exclusively for exempt purposes within the meaning of Internal Revenue Code section 501(c)(3), and that no part of your net earnings inure to the benefit of private shareholders or individuals. You failed to respond to repeated reasonable requests to allow the Internal Revenue Service to examine your records regarding your receipts, expenditures, or activities as required by I.R.C. sections 6001 and 6033(a)(1).

Contributions to your organization are no longer deductible under IRC §170. You are required to file income tax returns on Form 1120. These returns should be filed with the appropriate Service Center for the tax year ending December 31, 20XX

and for all tax years thereafter in accordance with the instructions of the return.

Processing of income tax returns and assessments 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 under the declaratory judgment provisions of section 7428 of the Code, a petition to the United States Tax Court, the United States Claims Court, or the district court of the United States for the District of Columbia must be filed before the 91st Day after the date this determination was mailed to you. Please contact the clerk of the appropriate court for rules regarding filing petitions for declaratory judgments by referring to the enclosed Publication 892. You may write to these courts at the following addresses:

You also 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 contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely,

Nanette M. Downing
Acting Director, EO Examinations

Enclosure:
Publication 892

Letter 3607(04-2002)
Catalog Number: 34198J

DEPARTMENT OF THE TREASURY
Internal Revenue Service

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

April 13, 2009

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,

Sunita Lough
Director, EO Examinations

Enclosures:
Publications 892/3498
Form 6018

Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A | Schedule number or exhibit
(Rev. January 1994) EXPLANATIONS OF ITEMS
Name of taxpayer Tax Identification Number | Year/Period ended 12/31/20XX ORG = LEGEND ORG = Organization name XX = Date CO-1 = 1st company motto = motto

DIR-1 & DIR-2 = 1st & 2nd Directors

Issue:

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

Facts:

On October 17, 19XX, the CO-1 received a letter from the IRS, informing them that they were an organization of the type described in section §509(a)(2), and received exempt status under §501(c)(3) of the Internal Revenue Code.

On May 29, 19XX, the exempt organization filed a Certificate of Amendment to Articles with the State of State, changing the corporate name to ORG.

There is no record of ORG filing the form 990 for the periods ending December 19XX through December 20XX.

For the period November 1, 20XX to October 31, 20XX ORG reported gross receipts of $ on its reports to the State of State.

For the period November 1, 20XX to October 31, 20XX ORG reported gross receipts of $ on its’ bingo license application to the State of State.

For the period November 1st, 20XX to October 31, 20XX ORG reported gross receipts of $ on its’ motto license application to the State of State.

On April 10, 20XX the agent sent letter 3606 advising ORG that the 20XX tax year is being audited. Along with this correspondence was form 4564 /Information Document Request. The letter and form 4564 are attached as exhibit A.

Information Document Request #1 asked the exempt organization for:

e Articles of Dissolution for ORG filed with state officials

e Minutes of the meeting where the vote was taken to dissolve (signed and dated by an officer)

e For a trust, resolution to dissolve (signed and dated by a trustee)

e A list of the last set of officers or trustees and their daytime telephone numbers,

e For section 501(c)(3) organizations only, a statement signed by an officer giving details on final distribution of assets

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 12/31/20XX

ORG

e If you file an annual return (Form 990, 990-EZ, or 990-PF), you should check the Final Return box in the header area on page 1 of the return.

e Copies of any loan documents between ORG and any individual or business.

e Copies of the corporate bank statements and cancelled checks, for all corporate checking and savings accounts, for the period 10-01-20XX until each of the bank accounts were closed.

The agent advised the officers of the EO to contact him with any questions or concerns.

On 04-17-XX, the agent was contacted by DIR-1, the wife of the Director DIR-2. She stated that

the EO was no longer operating

there were no assets left

some of the records were in their possession

the officers met to close down the corporation

The agent did not receive a reply to the Information Document Request #1.

The agent mailed a second Information Document Request on 09-24, 20XX. In addition to the original requested items, the agent e advised the exempt organization’s officer that failure to comply with the requests may result in revocation e that there is no indication that the exempt organization qualified for §7805(b) relief e demanded any un-filed returns e advised the officers that he would meet with them to discuss the exempt organization and any issues concerning it.

The agent did not receive a reply to the Information Document Request #2. 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.

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,

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

12/31/20XX
ORG |

make such other returns, and comply with such rules and regulations as the Secretary 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.

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.

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.

Conclusion:

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 12/31/20XX

ORG

ORG has not reported the exempt activities or financial data of the exempt organization. ORG has not established that it is observing the conditions for continuation of its exempt status.

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). Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form 1120 returns are required to be filed for the tax periods ending on or after January 1, 20XX.

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