1032052: 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-PF returns and did not provide records and other information requested by the IRS. The determination cites sections 6001 and 6033, Treasury regulations on recordkeeping and 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 instructed to file Form 1041 and Form 990-PF returns.

Ruling snapshot

• Question: Should the organization's section 501(c)(3) exemption be revoked for failing to file Form 990-PF returns and provide requested information?
• 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 1.6033-2; 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 4, 2010

Release Number: 201032052
Release Date: 8/13/2010

[illegible] Taxpayer Identification Number:
Organization name Person to Contact:
XX-date Address- address Employee Identification Number:
Employee Telephone Number:
ORG (Phone)
ADDRESS (Fax)

LAST DATE TO FILE A PETITION
IN TAX COURT: August 2, 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 October 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 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 January 1, 20XX.

You are required to file income tax returns on Form 1041 and excise tax returns on Form 990-PF.
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

Internal Revenue Service Department of the Treasury
1100 Commerce Street
Dallas, Texas 75242

Date: February 16, 2010

Taxpayer Identification Number:

ORG Form:

ADDRESS Tax Year(s) Ended:
Person to Contact/ID Number:
Contact Telephone Number:
Contact Fax Number:

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, please sign and return the enclosed Form 6018, Consent to Proposed Action -
Section 7428. If you have already given us a signed Form 6018, you need not repeat this process. 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.

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.

In lieu of Letter 3618

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,

Nanette M. Downing
Acting Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

In lieu of Letter 3618

Form 886A Department of the Treasury - Internal Revenue Service | Schedule No. or
Explanation of items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12
LEGEND
ORG - Organization name XX = Date City = city State = state
Issue

Should the tax exempt status of ORG be revoked as of January 1, 20XX for failing to file the
annual Form 990-PF?

Facts

The declaration of trust for the ORG was established on December 11, 20XX. The trust was
granted exemption under IRC Section 501(c)(3) and classified as a private operating foundation
during October of 20XX. As indicated in the Declaration of Trust, the purpose of the trust shall
include, but not limited to, performing Christian acts of faith and good works such as providing
shelter and support to persons suffering from domestic abuse, providing occupational training
opportunities to those who otherwise would be destined to underachieve, providing occupational
training opportunities to those who lack basic skills to participate in the workforce and to
generally provide for those in need.

During the initial appointment with the organization’s representative it was indicated that the
organization was established to help abused and battered women by providing them with a safe
house. In addition to providing these women with affordable housing, they received job training
in the production of garments so that they could obtain a marketable skill and re-enter into the
workforce. We were unable to schedule an appointment to view these safe houses located in
City, State. The organization’s representative was advised that Forms 990-PF had not been filed
by the organization since the tax year ending December 31, 20XX. The organization’s
representative indicated that the organization was in the process of terminating and trying to find
a comparable charity to donate the property to. If the organization was indeed terminating,
Forms 990-PF would still need to be submitted.

Numerous attempts had been made in trying to secure these returns as notated in Exhibit 1. The
only responses received from the organization were as follows: A Form 990-PF for the tax year
ending December 31, 20XX was given to the agent at the initial appointment. This return was
incomplete and not signed. On March 18, 20XX the organization sent in a response indicating
that the property was still being rented to qualified individuals, all rent received from these
individuals was paid to the organization and that a decision had not been made as to whether the
trust would be terminating. In a statement dated September 28, 20XX, Organization’s
representative indicated that the 20XX Form 990-PF would be mailed by the end of the day on
September 28, 20XX. It was further indicated that the Form 990-PF for the tax year ending
December 31, 20XX would be completed by October 8, 20XX. Attached to this statement were
bank statements for the tax year ending December 31, 20XX and some cancelled checks from the
tax year ending December 31, 20XX. To date we have not received any Forms 990-PF.

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 20XX12

Section 501(c)(3) of the Internal Revenue Code exempts from federal income tax organizations
organized and operated exclusively for charitable, educational, and other exempt purposes,
provided that no part of the organization's net earnings inures to the benefit of any private
shareholder or individual.

Treasury Regulation 1.501(c)(3)-1(a)(1) provides that in order to be exempt as an organization
described in section 501(c)(3), an organization must be both organized and operated exclusively
for one or more of the purposes specified in such section. If an organization fails to meet either
the organizational test or the operational test, it is not exempt.

Internal Revenue Code Section 6001 states that, every person liable for any tax imposed by this
title, or for the collection thereof, shall keep such records, render such statements, make such
returns, and comply with such rules and regulations as the Secretary may from time to time
prescribe. Whenever in the judgment of the Secretary it is necessary, he may require any person,
by notice served upon such person or by regulations, to make such returns, render such
statements, or keep such records, as the Secretary deems sufficient to show whether or not such
person is liable for tax under this title. The only records which an employer shall be required to
keep under this section in connection with charged tips shall be charge receipts, records
necessary to comply with section 6053(c), and copies of statements furnished by employees
under section 6053(a).

Internal Revenue Code Section 6033(a)(1) states that, except as provided in paragraph (3), every
organization exempt from taxation 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 purpose of carrying out the internal revenue laws as the Secretary may by forms or
regulations prescribe, and shall 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; except that, in the discretion of the Secretary, any organization described in section
401(a) may be relieved from stating in its return any information which is reported in returns
filed by the employer which established such organization.

Internal Revenue Code Section 6033(a)(3)(A)(ii) states in part that in regards to mandatory filing
exceptions, “any organization (other than a private foundation, as defined in section 509(a))
described in subparagraph (C), the gross receipts of which in each taxable year are normally not
more than $5,000...”

Treasury Regulation 1.6001-1(a) states that, except as provided in paragraph (b) of this section,
any person subject to tax under subtitle A of the Code (including a qualified State individual
income tax which is treated pursuant to section 6361(a) as if it were imposed by chapter 1 of
subtitle A), or any person required to file a return of information with respect to income, shall
keep such permanent books of account 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 or information.

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

Page: -2-

Form 886A Department of the Treasury - Internal Revenue Service | Schedule No. or
Explanation of Items Exhibit

Name of Taxpayer Year/Period Ended
ORG 20XX12

In regards to exempt organizations, Treasury Regulation 1.6001-1(c) states that, in addition to
such permanent books and records as are required by paragraph (a) of this section with respect to
the tax imposed by section 511 on unrelated business income of certain exempt organizations,
every organization exempt from tax under section 501(a) shall keep such permanent books of
account or records, including inventories, as are sufficient to show specifically the items of gross
income, receipts and disbursements. Such organizations shall also keep such books and records
as are required to substantiate the information required by section 6033. See section 6033 and
§§1.6033-1 through -3. .

Treasury Regulation 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 so long as the contents thereof may become material in the administration
of any internal revenue law [Reg. §1.6001-1.]

Treasury Regulation 1.6033-2(i) states that, every organization which is exempt from tax,
whether or not it is required to file an annual information return, shall submit such additional
information as may be required by the Internal Revenue Service for the purpose of inquiring into
its exempt status and administering the provisions of subchapter F (section 501 and following),
chapter 1 of subtitle A of the Code, section 6033, and chapter 42 of subtitle D of the Code. See
section 6001 and §1.6001-1 with respect to the authority of the district directors or directors of
service centers to require such additional information and with respect to the books of accounts
or records to be kept by such organizations.

Revenue Ruling 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 Section 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.

Taxpayer’s Position
The taxpayer’s position is not known.

Government’s Position

It is the government’s position that the tax exempt status of the ORG under section 501(c)(3) of
the Internal Revenue Code should be revoked for failing to file their annual Form 990-PF when
required to do so and not providing the requested information to the Internal Revenue Service to
aid in determining if they are conducting exempt activities.

Form 886-A (Rev. 4-68) Department of the Treasury - Internal Revenue
Service
Page: -3-

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

Explanation of Items Exhibit
Name of Taxpayer Year/Period Ended
ORG 20XX12

Revenue Ruling 59-95 held that failure or inability to file the required information return or
otherwise to comply with the provision of section 6033 of the Internal Revenue 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 an exempt status.

ORG was given every opportunity to submit the requested information. As indicated on the
attached Exhibit 1, numerous letters and telephone contact had been made with the organization
and its trustees advising them if the Forms 990-PF were not submitted their tax exempt status
would be in jeopardy.

Since ORG did not comply with the Internal Revenue Service’s request for information and thus
did not comply with Treasury Regulation 1.6033-2(i)(2), we can not determine whether their
activities are consistent with their exempt status under Section 501(c)(3) of the Internal Revenue
Code.

Using this revenue ruling and the above law as precedent, it is the government’s position that the
tax exempt status of ORG under Section 501(c)(3) of the Internal Revenue Code should be
revoked.

Conclusion:

The tax exempt status of ORG under Section 501(c)(3) of the Internal Revenue Code should be
revoked because the organization has not established that it is observing conditions required for
the continuation of its exempt status such as filing annual Form 990-PF and failing to provide
information that was requested from them by the Internal Revenue Service.

The effective date of proposed revocation is January 1, 20XX, the first day of the tax year under
examination.

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

Page: -4-