IRS revoked an organization's section 501(c)(3) exemption after it failed to answer document requests

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective January 1, 20XX. The organization failed to produce documents or otherwise establish that it operated exclusively for exempt purposes, and it did not respond to repeated requests to examine records of its receipts, expenditures, and activities. The attached report states that the organization did not respond to correspondence or telephone calls concerning an examination of its Form 990 information. The IRS concluded that the organization failed to meet the recordkeeping and annual-return requirements under IRC §§ 6001 and 6033.

Ruling snapshot

• Question: Did the organization qualify for continued exemption under IRC § 501(c)(3) after failing to respond to IRS requests for records and an information return?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033, and 7428; Treas. Reg. §§ 1.6001(a), 1.6001(c), and 1.6033-2(i)(2); IRC § 6110(k)(3) not-precedent notice

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
TE/GE EO Examinations
1100 Commerce Street 501.03-00
Dallas, TX 75424

TAX EXEMPT AND
GOVERNMENT ENTITIES Date: May 14, 2010

DIVISION

Release Number: 201035027
Release Date: 9/3/10

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 OF
THE UNITED STATES COURT OF FEDERAL CLAIMS: August 12,

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 and 6033(a)(1).

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 1-877-777-4778 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: (504) 558-3001, 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.

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

Internal Revenue Service Department of the Treasury
Tax Exempt and Government Entities Division

MS:4957:DAL:DC

1100 Commerce St.

Dallas, TX 75242

Date: December 7, 2007

ORG Taxpayer Identification Number:
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, 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.

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.

Letter 3618 (Rev 11/2003)
Catalog Number 34809F

2

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,
Director, EO Examinations

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
Name of Taxpayer Year/Period Ended
Name: ORG
EIN: December 31,
Issue: Organization not responding to document requests by the IRS 20XX

LEGEND
ORG = Organization name XX = Date

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 Organizations make documents available for an examination of information return Form
990, for the year ending December 31, 20XX.

Letters requesting this information were mailed on July 31, 20XX, August 29, 20XX, October
11, 20XX and on November 2, 20XX (by certified letter). Agent also spoke several times by
telephone with the President of the organization to solicit his information without success. The
Organization failed to provide this information to the Internal Revenue Service in response to
either correspondence or telephone calls.

LAW:

IRC Section 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 Section 6033(a)(1) provides, except as provided in IRC Section 6033(a)(3), 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. Section 1.6001 (a) in conjunction with Treas. Reg. Section 1.6001(c) provides that
every organization exempt from tax under IRC Section 501(a) and subject to the tax imposed by
IRC 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 IRC Section 6033.

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
Name: ORG
EIN: December 31,

20XX

Issue: Organization not responding to document requests by the IRS

Treas. Reg. Section 1.6033-2(i)(2) 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. Section 1.6033-2(i)(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 thee
purpose of enabling him to inquire further into its exempt status and to administer the provisions
of subchapter f (section and the following(, chapter 1 of the Code and IRC Section 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 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 provision 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.

In accordance with the above cited provisions of the Code and regulations under IRC 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.

TAXPAYER'S POSITION:

The organization has stated that it has not prepared and does not intend to prepare and file form
990's, and that they prefer to give up their tax exemption and begin to file form 1120.

GOVERNMENT'S POSITION:

Based on the above cited law, it is the government's position that the exempt organization has
failed to meet its reporting requirements. As such, the tax exempt status of the same should be
withdrawn.

CONCLUSION:

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
Name: ORG
EIN: December 31,
Issue: Organization not responding to document requests by the IRS 20XX

It is the IRS's position that the organization failed to meet the reporting requirements under IRC
Sections 6601 and 6033 to be recognized as exempt from federal income tax under IRC Sections
501(c)(3). Accordingly, the organization's exempt status is revoked effective January 1, 20XX.

Form 1120 returns should be filed for the tax periods ending on or after December 31, 20XX.

Form 886-A (Rev.4-68)

Department of the Treasury - Internal Revenue Service

Page: -3-