IRS determination 201017061: Exempt status revoked after failure to file returns and provide records

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3) after it failed to produce documents, respond to records requests, and establish that it operated exclusively for exempt purposes. The final letter states that contributions were no longer deductible and that the organization had to file Form 1120 returns after the revocation. The attached report explains that the organization failed to file Forms 990 and did not provide records supporting its exempt status. The revocation was effective July 1 of the redacted year, and the package describes court, protest, and taxpayer-advocate procedures.

Ruling snapshot

• Question: Did the organization continue to qualify for exemption under IRC § 501(c)(3)?
• Outcome: revocation
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033, 6104(c), 6110, and 7428; Rev. Rul. 59-95; Treas. Reg. §§ 1.6001-1 and 1.6033-1(h)(2)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
[illegible logo text]
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL
1100 Commerce St. 501.03-00
Dallas, Texas 75242

Date: February 3, 2010
Release Number: 201017061
Release Date: 4/30/10

LEGEND
ORG = Organization name Taxpayer Identification Number:
Xx = date Person to Contact:
Riékkeoass 8 edckreassc Employee Identification Number:
Employee Telephone Number:
ORG
ADDRESS

LAST DATE TO FILE A PETITION
IN TAX COURT: May 4, 20XX

CERTIFIED MAIL — RETURN RECEIPT
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 November 20XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective July 1, 20XX.

The revocation of your exempt status was made for the following reason(s):

Organizations described in IRC 501(c)(3) and exempt under section 501(a) must be both organized and operated exclusively for exempt purposes. You have failed to produce documents to establish that you are operated exclusively for exempt purposes and that no part of your net earnings inures 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 sections 6001 and 6033(a)(1) of the Code and Rev. Rul. 59-95, 1959-1 C.B. 627.

Contributions to your organization are no longer deductible under IRC §170 after July 1, 20XX.

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 June 30, 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 the United States Tax Court at the following address:

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:

See the enclosed Notice 1546, Taxpayer Advocate Service - Your Voice at the IRS, for Taxpayer Advocate telephone numbers and addresses.

You should contact your State officials if you have any questions about how this final determination may affect your State responsibilities and requirements.

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

Enclosures:
Publication 892
Publication 1546

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

GOVERNMENT ENTITIES
DIVISION
ORG DATE OF THIS NOTICE:
ADDRESS

CONTACT PERSON/ID NUMBER:

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
Director, EO Examinations

Enclosures:

Publication 892

Publication 3498

Form 886A, Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809ZF

Form 886-A Schedule number or exhibit
(Rey January 1994) EXPLANATIONS OF ITEMS
‘Name of taxpayer Tax Identification Number | Year/Period ended ORG June 30, 20XX LEGEND ORG = Organization name XX = Date Address = Address City =City State = State President = president DIR = Director Issue:

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

Facts:

Exhibit A (see summary below) provides copies of the Internal Revenue Service correspondence to Exempt Organization (EO requesting that Exempt Organization file the Form 990 for the tax period ending June 30, 20XX.

Summary of Exhibit A

Contact Correspondence sent Date Certifie Receipt EO advised
tvpe sent d Mail? Signed returns would
— a Y/N be filed.

| Letter Letter G19, compliance 03-06- N N/A

check, % President at XX
City Address
Postal Form 4759, Sent to 04-02- N/A N/A
Tracer Confirm Address XX
Letter L3948 to President at 04-02- N N/A
City Address XX
Postal Form 4759, Received 04-12- N/A N/A
lracer back from Post Office, XX
; UTF (unable to forward)
Letter L4055 to City Address 12-20- Y N
XX
Receipt Letter returned, Not 01-02- N/A N/A
deliverable, Unable to XX

Forward

| Letter L4055 to PO Box, City 01-02- Y N

; XX
Receipt Letter returned, Delivery N/A N/A

attempt was made, notice
given, returned

unclaimed.
Letter L4055 to City Address. 01-25- Y N
| XX
| Letter 1.4055 to City Address 04-02- Y Y

• XX
  | Receipt Signed receipt returned 04-15- N/A N/A
  by PO XX
  Letter | L3606 to City Address 07-29- Y N Y

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

Form 886-A
(Rev. January 1994)

EXPLANATIONS OF ITEMS

Schedule number or exhibit

Name of taxpayer

Tax Identification Number

Year/Period ended

ORG June 30, 20XX
_ |XX
Receipt Letter returned, Delivery 08-28- N/A N/A
attempted 08-04- XX, XX
letter returned unclaimed.
Letter L1477 to PO Box, City 09-09- Y N
XX
Receipt Letter returned, Not 09-22- N/A N/A
deliverable, Unable to XX
forward
Letter L1477 to City Address 10-07- Y N/A
7 XX
Letter L1477 to City Address 10-07- Y N
_ XX
Receipt Per USPS tracking 10-11- N/A N/A
service, Notice left 10- XX
l1- at City, City
_ address
Letter L1477 to City Address 11-07- Y N
— XX
"Letter L1477 to City President 11-07- Y Y
oe jf XX
Letter L1477 to PO Box City 11-08- Y N
= XX
Letter Response from President. 11-10- N/A N/A
| No longer active with XX
organization. He will
forward to DIR at City
= address.
Receipt October 7 letter to City 11-12- N/A N/A
returned from Post Office XX
| unclaimed.
| Receipt October 7 letter to City 1 1-13- N/A N/A
address returned from XX
____| post office unclaimed.
| Receipt October 8 letter to City 11-17- N/A N/A
address returned XX
undeliverable

ORG has failed to respond to the Internal Revenue Service correspondence or file the Forms 990 for the tax period ending June 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 anuay a2) EXPLANATIONS OF ITEMS |
Name of taxpayer Tax Identification Number | Year/Period ended ORG June 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.

Government’s Position:

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). 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. It is the government’s position that since the organization has not complied with requirements its exempt status should be revoked.

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 June 30, 20XX

Organization’s Position:

In April of 20XX, the organization said they were working on the Form 990 for 20XX. Neither this return nor any subsequent returns have been filed. Due to the lack of response since May of 20XX, the organization’s position is unknown.

Conclusion:

The organization’s exempt status is revoked effective July 1, 20XX. Form 1120, U.S. Corporation Income Tax Return should be filed for the tax periods ending on or after June 30, 20XX.

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