1032051: IRS revoked an organization's exemption for failure to file returns and provide records

Plain-English summary

The IRS revoked an organization's recognition as exempt under section 501(c)(3), effective January 1 of the specified year. The organization failed to file required Form 990 returns and did not provide records requested by the IRS. The determination cites sections 6001 and 6033, Treasury regulations on recordkeeping and annual information returns, and Revenue Ruling 59-95. Because the organization did not establish that it was observing the conditions required to continue its exempt status, the IRS concluded that revocation was appropriate. Contributions after the effective date were no longer deductible under section 170, and the organization was directed to file Form 1120 returns.

Ruling snapshot

• Question: Should the organization's section 501(c)(3) exemption be revoked for failing to file Form 990 returns and provide requested records?
• Outcome: Revocation
• Key authorities: IRC §§ 501(c)(3), 170, 6001, 6033, 6104(c), and 7428; Treas. Reg. §§ 1.501(c)(3)-1, 1.6001-1, and 1.6033-1; Rev. Rul. 59-95.

Full text (IRS public release)

This document is an OCR transcription of a scanned IRS release. Wording is preserved verbatim; obvious scanning misreads have been corrected. Unreadable spots are marked [illegible].

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
TEGE EO Examinations Mail Stop 4920 DAL

1100 Commerce St.
Dallas, Texas 75242 501.03-00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Date: May 7, 2010
Release Number: 201032051
Release Date: 8/13/2010
LEGEND Taxpayer Identification Number:
ORG = Organization name XX = Date Person to Contact:
Address = address Employee Identification Number:
Employee Telephone Number:
ORG (Phone)
(Fax)
ADDRESS

LAST DATE TO FILE A PETITION:
August 5, 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 April 19XX 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 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 IRC §§ 6001 and 6033(a)(1) 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
Director, EO Examinations

Enclosures:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service
7850 SW 6th Court, Stop 7954
Plantation, FL 33324

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

May 7, 2010

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,

Renee Wells
Acting Director, Exempt Org. Examination:

Enclosures:
Publication 892
Publication 3498
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 Starting

ORG January 1, 20XX

LEGEND

ORG = Organization name XX = Date co co

Issue:
Whether ORG 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 thru 20XX . Exempt Organization failed to respond to the
Internal Revenue Service correspondence or file the Forms 990 for the tax period
ending December 31, 20XX, the first year the Internal Revenue Service has proof of
gross receipts of $ or more.

After the initial information document request was sent out on December 12, 20XX,
Revenue Agent contacted the taxpayer on 1/7/20XX, 1/9/20XX, 1/31/20XX,
2/14/20XX, 4/24/20XX, 4/29/20XX, 4/30/20XX, 5/12/20XX, 5/19/20XX, and
5/29/20XX and either spoke with the taxpayer or left messages for a return phone
call. After Agent gave the organization ample time to respond to the Information
Document Request (Exhibit A), Agent summoned the taxpayer’s records on July 9,
20XX per manager's instructions in order to complete the employment tax
examination.

Agent had summoned the organization’s bank statements and found during the 20XX tax
year the organization deposited in the CO, Account #, $ the first year Agent could prove
the organization had a return Form 990 or 990-EZ filing requirement.

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

Form 886-A (1-1994) Catalog Number 20810W Page www.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 Starting
ORG January 1, 20XX

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, deductions, 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: 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 886-A (1-1994) Catalog Number 20810W Page www.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

ORG

Tax Identification Number

Year/Period Starting

January 1, 20XX

Form 1120 returns should be filed for all tax periods ending after December 31,

20XX.

Form 886-A (1-1994) Catalog Number 20810W Page www.irs.gov Department of the Treasury-Internal Revenue Service