Written Determination 1029041: Exempt status revoked for failure to substantiate continued qualification

Plain-English summary

The IRS revoked an organization's exemption under section 501(c)(3), effective on the stated date, because the organization failed to provide requested records and did not establish that it was operated exclusively for exempt purposes. The letter states that contributions to the organization are no longer deductible and that it must file Form 1120 returns. The accompanying examination materials cite the organization's failures to respond to requests and file Forms 990, and explain the related recordkeeping and annual-return requirements. The determination also describes the organization's rights to seek administrative and judicial review within the stated deadlines.

Ruling snapshot

• Question: Did the organization establish that it continued to qualify for exemption under section 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501, 511, 6001, 6033, 6104, 7428, and 6110

Full text (IRS public release)

DEPARTMENT OF THE TREASURY

Internal Revenue Service

TE/GE EO Examinations

Se 1100 Commerce Street 501.03-00
at Dallas, TX 75424

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: 4/23/2010
DIVISION

Release Number: 201029041
Release Date: 7/23/10

LEGEND Person to Contact:

ORG = Organization name Identification Number:

XX = Date Address = Address In Reply Refer to: TE/GE Review Staff
EIN:

ORG

ADDRESS

LAST DATE FOR FILING A PETITION
WITH THE TAX COURT: July 22, 20XX

CERTIFIED MAIL — Return Receipt Requested
Dear

This is a Final Adverse Determination Letter as to your exempt status under section
501(c)(3) of the Internal Revenue Code. Your exemption from Federal income tax under
section 501(c)(3) of the code is hereby revoked effective January 1, 20XX.

Our adverse determination was made for the following reasons:

Organizations described in I.R.C. § 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 or otherwise 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 I.R.C. § 6001, 6033(a)(1) and Rev. Rul. 59-95, 1959-1 C.B. 627.

Contributions to your organization are no longer deductible under section 170 of the
Internal Revenue Code.

You are required to file Federal income tax returns on Form 1120. These returns should be
filed with the appropriate Service Center for the year ending December 31, 20XX, and for 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 you can contact the Taxpayer
Advocate from the site where the tax deficiency was determined by calling, Tel: or write :

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.

We will notify the appropriate State Officials of this action, as required by section 6104(c) of
the Internal Revenue Code.

If you have any questions, please contact the person whose name and telephone number are
shown in the heading of this letter.

Sincerely yours,

Douglas H. Shulman
Commissioner
By

Nanette M. Downing
Director, EO Examinations
Enclosures:
Publication 892
Publication 1546
Notice 437
Cc:

Internal Revenue Service Department of the Treasury

1100 Commerce Street
Dallas, TX 75242-1027

Taxpayer Identification Number:

Date. July 22, 2008
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 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 (Rev. 11-2003)
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,

Marsha A. Ramirez
EO Examinations Director

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (Rev. 11-2003)
Catalog Number: 34809F

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

Explanation of Items Exhibit
Year/Period Ended

Name of Taxpayet

ORG 12/31/20XX,
12/31/20XN, and
12/31/20NX
XX = Date
Issue:

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

Facts:

Exhibit A contains a list of the information not provided in the previous Internal
Revenue Service correspondence. The Organization failed to respond to the Internal
Revenue Service correspondence or file the Forms 990 for the tax period(s) ending
December 31, 20XX, 20XX and 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.

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
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.

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 12/31/20XX,
12/31/20XX, and
12/31/20XX
Organization name XX = Date

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: It is the IRS's position that the organization failed to substantiate its
entitlement to continued exempt status under the requirements of 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 1041 returns should be filed for the tax periods ending on or after December
31, 20XX, 20XX and 20XX.

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