IRS determination 201017065: Exempt status revoked for an inactive organization that failed reporting requirements

Plain-English summary

The IRS revoked the federal tax-exempt status of an organization that had not operated for many years, had not filed required information returns, and could not provide dissolution records. The examination report states that the organization failed to maintain records and comply with reporting requirements under IRC §§ 6001 and 6033. Because an officer could not be located and the organization could not be terminated through dissolution, the IRS concluded that revocation was required. The revocation was effective September 1 of the redacted year.

Ruling snapshot

• Question: Did the inactive organization continue to qualify for tax-exempt status under IRC § 501(c)(4)?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(4), 6001, and 6033; Treas. Reg. §§ 1.6001-1 and 1.6033-1(h)(2); IRC § 6110(k)(3)

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service

[illegible logo text]

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

February 5, 2010
Release Number: 201017065

Release Date: 4/30/10 Taxpayer Identification Number: 501.04-00 Form: ORG Tax Year(s) Ended: ADDRESS

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 an adjustment of your organization's exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed Publication 3498, The Examination Process, explains 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. For your convenience, an envelope is

enclosed.

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.

Letter 3610 (04-2002)
Catalog Number 34801V

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.

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 modifying or revoking exempt status. If we do not hear from you within 30 days from the date of this letter, we will process your case on the basis of 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 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.

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:

lf 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.

Letter 3610 (04-2002)
Catalog Number 34801V

Thank you for your cooperation.

Enclosures:
Publication 892
Publication 3498
Form 6018

Report of Examination
Envelope

Sincerely,

Sunita Lough
Director, Exempt Organizations Exams

Letter 3610 (04-2002)
Catalog Number 34801V

Form 886-A | Schedule number or exhibit

SS MCR) EPP EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG | August 31, 20XX

<G = Organization name XX = Date State = state CO-1 = 1** company Issue:

Whether ORG continues to qualify for exemption under Section 501(c)(4) of the Internal Revenue Code.

Facts:

The ORG failed to respond to the Internal Revenue Service correspondence or file the Forms 990 for the tax period ending August 31, 20XX. However, Third Party contact was made with Treasurer of ORG. She indicated verbally that ORG has not been in existence for approximately 12-15 years. She also indicated that ORG was never incorporated. In addition, the same Third Party contact wrote a letter on behalf of the CO-1 dated July 10, 20XX indicating that the organization “has not been active for at least 15 years”.

The examiner researched the State Department of Financial Institutions in an attempt to either confirm or deny that the organization was never incorporated. There were no Articles of Incorporation for the ORG. As a result, there are also no Articles of Dissolution. Consequently, based on this information, the ORG was never a corporation per the State of State.

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, 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

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

Form 886-A 7 | Schedule number or exhibit
May 2005) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended ORG August 31, 20XX

|
1

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.

Taxpayer’s Position: An officer of the ORG could not be located. The Third Party has indicated verbally and in writing that the ORG no longer exists and revocation of the ORG is acceptable and appropriate

Government’s Position: Articles of Dissolution of the ORG were not provided and not available through research conducted through the State Department of Financial Institutions. A statement signed by an officer of the organization showing the disposition of assets at hand at the date of dissolution was not provided and not

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
(KG, AMIE EZE) EXPLANATIONS OF ITEMS

Name of taxpayer Tax Identification Number | Year/Period ended

ORG August 31, 20XX

available, as an officer of the ORG could not be located. As such, the ORG cannot be terminated, but must be revoked.

Conclusion: It is the Internal Revenue Service's position that the ORG failed to meet the reporting requirements under IRC §§ 6001 and 6033 to be recognized as exempt from federal income tax under IRC § 501(c)(4). Accordingly, the organization's exempt status is revoked effective September 1, 20XX.

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