Determination 1029030: IRS revoked a charity’s exemption after it failed to file required returns and maintain records

Plain-English summary

The IRS revoked the organization’s exemption under IRC § 501(c)(3), effective January 1 of the redacted year. The organization failed to produce documents showing that it operated exclusively for exempt purposes and failed to respond to repeated requests to examine its records. It also failed to file required Forms 990 and Forms 941 for the stated periods. Contributions were no longer deductible under IRC § 170, and the organization was required to file Form 1120 returns. The determination cites the recordkeeping, filing, state-notification, and declaratory-judgment provisions of IRC §§ 6001, 6033, 6104, and 7428.

Ruling snapshot

• Question: Did the organization establish continued qualification under IRC § 501(c)(3) after failing to maintain records and file required returns?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(a), 501(c)(3), 6001, 6033, 6104(c), and 7428; Treas. Reg. §§ 1.501(c)(3)-1(c)(2), 1.6001-1, and 1.6033-1

Full text (IRS public release)

aan; DEPARTMENT OF THE TREASURY

eon x. INTERNAL REVENUE SERVICE
At S j= TEGE EO Examinations Mail Stop 4920 DAL
ee 4100 Commerce St.
“AN EXEMPT AND Dallas, Texas 75242 501.03-00
V ERNMENT ENTITIES
OMISION

Date: April 15, 2010

Release Number: 201029030
Release Date: 7/23/10

LEGEND

ORG = Organization name

XX = Date Address = Address

Taxpayer Identification Number:
Person to Contact:

Employee Identification Number:
Employee Telephone Number:
ORG (Phone)

ADDRESS (Fax)

LAST DATE TO FILE A PETITION
IN TAX COURT: July 14, 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 September
20XX is hereby revoked and you are no longer exempt under section 501(a) of the Code effective
January 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 doctiments 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 January 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 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 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:

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

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE Examinations
801 Tom Martin Drive Room 263
TAX EXEMPT AND Birmingham, AL 35211

GOVERNMENT ENTITIES
DIVISION

December 2, 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 argtiments 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 B. Lough
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886-A | | Schedule number or exhibit |
ae gaunusig 1298) | EXPLANATIONS OF ITEMS |
-| Name of taxpayer Tax Identification Number Year/Period ended —
ORG December 31, 20XX & 20XX
LEGEND
ORG = Organization name XX = Date Company = company

Issue Name: Tax Exempt Status under IRC 501(c)(3)

Issue: Tax Exempt Status under 501(c)(3) of the Internal Revenue Code

Issue: Whether exempt organization qualifies for exemption under Section 501(c)(3) of the
Internal Revenue Code.

Facts: Exhibit A provides copies of the Internal Revenue Service correspondence requesting
that Exempt Organization file the Form 990 for the tax period ending December 31, 20XX.
|:xempt Organization failed to respond to the Internal Revenue Service correspondence or file
the Forms 990 for the tax period ending December 31, 20XX & 20XX. Form 990 for tax year
ended December 31, 20XX was filed April, 20XX. Taxpayer also failed to file forms 941 for
the first second third and fourth quarters for the year ended December 31, 20XX and the first
quarter for the year ended December 31, 20XX.

During the examination it was discovered the organization changed it’s name from Company to
ORG.

Law: Section 6001 of the Code provides that every person liable for any tax imposed by the
Code, or for the collection thereof, shall keep adequate records as the Secretary of the Treasury or
his delegate may from time to time prescribe.

Section 6033(a)(1) of the Code provides, except as provided in section 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.

Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides that every
organization exempt from tax under section 501(a) of the Code and subject to the tax imposed by
section 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 section 6033.

Section 1.6001-1(e) of the regulations 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,

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

isis Tami Wee) EXPLANATIONS OF ITEMS
-| Name of taxpayer _ Tax Identification Number Year/Period ended
ORG December 31, 20XX & POXX

and shall be retained as long as the contents thereof may be material in the administration of any
internal revenue law.

Section 1.6033-1(h)(2) of the regulations 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 I of the Code and section 6033.

Kev. 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 section 6033 of the Code 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 sections 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: 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 501(c)(3) of the Internal Revenue Code. Accordingly, the organization's exempt
status 1s revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending December 31, 20XX and all
subsequent years.

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