IRS revoked an organization's section 501(c)(3) exemption for failure to provide records

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective October 1, 20XX. The final letter states that the organization failed to produce documents needed to establish that it operated exclusively for exempt purposes, failed to maintain adequate books and records, and did not file required Form 990 returns. The report also explains that the IRS could not verify whether payments and expenditures were connected to exempt activities. The determination requires Form 1120 filings after the revocation date and ends the deductibility of contributions.

Ruling snapshot

• Question: Did the organization satisfy the operational, recordkeeping, and annual filing requirements for continued exemption under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(c)(3), 6001, 6033, and 7428; Treas. Reg. §§ 1.501(c)(3)-1 and 1.6033-2; IRC § 6110(k)(3) not-precedent notice

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
1100 Commerce Street
Dallas, TX 75242
501.03-00
TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION
Date: May 14, 2010

Person to Contact:

Release Number: 201035031
Release Date: 9/3/10

LEGEND
ORG = Organization name

Badge Number:
Contact Telephone Number:

XX=Date Address = address Contact Address:
Employer Identification Number:
ORG Deadline to Petition Tax Court:

ADDRESS

CERTIFIED MAIL

Dear

This is a final notice of adverse determination that your exempt status under section 501(c)(3) of the Internal Revenue Code is revoked. Recognition of your exemption under Internal Revenue Code section 501(c)(3) is revoked effective October 1, 20XX for the following reason(s):

You have failed to produce documents to establish that you are operated exclusively for exempt purposes within the meaning of Internal Revenue Code section 501(c)(3), and that no part of your net earnings inure to the benefit of private shareholders or individuals. Also, you have failed to keep adequate books and records as required by IRC section 6001 and the regulations thereunder. In our letter dated August 13, 20XX, we requested information necessary to conduct an examination of your Form 990 for the year ended September 30, 20XX. We have not

received the requested information.

You failed to file an annual return on Form 990 for the year ended September 30, 20XX. Our records also indicate you have not filed an annual return on Form 990 since the year ended September 30, 20XX. IRC 6033(a)(1) provides that with certain exceptions, every organization exempt from taxation under IRC 501(a) shall file an annual return.

Section 1.6033-2(h)(2) of the Income tax Regulations provides, in part, that every organization which is exempt from tax, shall submit such additional information as may be required by the Internal Revenue Service for the purpose of inquiring into its exempt status. You have not

provided the requested information.

You fail to meet the operational requirements for continued exemption under IRC 501(c)(3). You have not provided requested information. We hereby revoke your organization’s exemption from Federal income tax under section 501(c)(3) of the Internal Revenue Code, effective

October 1, 20XX.

Contributions to your organization are no longer deductible effective October 1, 20XX.

2

Since your exempt status has been revoked, you are required to file Form 1120, U.S. Corporation Income Tax Return, for all years beginning on or after October 1, 20XX.

Income tax returns for subsequent years are to be filed with the appropriate Service Center identified in the instructions for those returns.

It is further determined that your failure to file a written appeal constitutes a failure to exhaust your available administrative remedies. However, 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 Claims Court, or the district court of the United States for the District of Columbia before the (ninety-first) 91st day after the date that this determination was mailed to you. Contact the clerk of the appropriate court for rules for initiating suits for declaratory judgment. To secure a petition form, write to the following address:

Please understand that filing a petition for a declaratory judgment under IRC section 7428 will not delay the processing of subsequent income tax returns and assessment of any taxes due.

The last day for filing a petition for declaratory judgment is August 12, 20XX.

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 the Taxpayer Advocate assistance or you can contact the Advocate from the site where this issue was determined by writing to:

Taxpayer Advocate assistance cannot be used as substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determination, nor extend the time fixed by law that you have to file a petition in 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.

This letter should be kept within your permanent records. If you have any questions, please contact the person whose name and telephone number are shown above.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892

DEPARTMENT OF THE TREASURY
Internal Revenue Service
Mail Code 4900DAL
1100 Commerce St.
TAX EXEMPT AND Dallas, TX 75242

GOVERNMENT ENTITIES
DIVISION

October 22, 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 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,

Sunita Lough
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Report of Examination

Letter 3618 (04-2002)
Catalog Number 34809F

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or Explanation of Items Exhibit Year/Period Ended

Name of Taxpayer

ORG September 30, 20XX
LEGEND
ORG = Organization name XX = Date State = state RA=RA
President = president CO-1 = 1st COMPANY
Issue:

Whether ORG qualifies for exemption under Section 501(c)(3) as a supporting organization exempt under 509(a)(3) of the Code.

Facts:

The original case included correspondence from a previous compliance check made by EOCU in 20XX. No contact was made with an officer, but a third party, RA, CFO of CO-1, was contacted. He indicated the above named organization had undergone many management changes over the years. He also indicated the EO was now inactive and had attempted to dissolve in 20XX/20XX. The EOCU unit spoke to RA who requested guidance on dissolving with the State. The EOCU Agent provided the information but closed the case with the understanding the EO would follow through with the dissolution and notify the IRS once they received their Articles of Dissolution.

A review of the State of State website shows that the EO has not dissolved. Their records also indicate no annual report has been filed since 19XX.

An IDR (Information Document Request) was sent to the above named organization on August 13, 20XX (Exhibit 1) requesting they verify if they are still active or dissolved. The letter was returned undeliverable.

Research was conducted electronically and through the post office in an attempt to procure any new addresses for the exempt organization. The postal trace was completed on October 5, 20XX and indicated no record of the organization’s address.

The State of State website listed last known officers. President was listed as the President. He was contacted, but indicated he had not been involved with ORG for many years. He believed they merged with another organization years ago and new officers were assigned. He suggested contact be made with RA who was still involved with the hospital ORG was involved with in the past. A telephone call to RA disclosed that he is not an officer, and doesn’t believe the EO has any officers at this point.

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 Year/Period Ended

Name of Taxpayer

ORG September 30, 20XX

All attempts at contacting the organization failed. ORG never responded to the Internal Revenue Service correspondence and never filed Forms 990 for the tax period ending September 30, 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.

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

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

eyamn 886A Department of the ‘I'rcasury - Internal Revenue Service Schedule No. or Explanation of Items Exhibit Name of Taxpayer Year/Period Ended ORG September 30, 20XX

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.

Taxpayer’s Position

The exempt organization was never located and therefore their position is unknown.

Government’s Position

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).

Conclusion:

Because the organization did not file Form 990, the organization's exempt status is revoked effective October 1, 20XX.

If the organization where in fact still in existence and able to be located, they would be liable for filing Form 1120 returns for the tax periods ending on or after October 1, 20XX.

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