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

Plain-English summary

The IRS revoked an organization's exemption under IRC § 501(c)(3), effective January 1, 20XX. The examination report states that the organization had ceased operations, had no activities or income, and had not filed required annual returns for the relevant period. The report concluded that the organization did not meet the operational test because it conducted no charitable activities, and the treasurer reported that no assets remained to distribute. The organization was required to file Form 1120 returns, and its contributions were no longer deductible under IRC § 170.

Ruling snapshot

• Question: Did the inactive organization continue to satisfy the operational test for exemption under IRC § 501(c)(3)?
• Outcome: Revocation
• Key authorities: IRC §§ 170, 501(c)(3), and 7428; Treas. Reg. §§ 1.501(c)(3)-1(a)(1), 1.501(c)(3)-1(c)(1), and 1.501(c)(3)-1(d); 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: June 4, 2010

Release Number: 201035032
Release Date: 9/3/10

Person to Contact:

Badge Number:

LEGEND
ORG = Organization name XX = Date Contact Telephone Number:
Address = address Contact Address:

ORG Employer Identification Number:
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 January 1, 20XX the following

reason(s):

You are not organized and operated exclusively for an exempt purpose as required by Internal
Revenue Code section 501(c)(3). You are not and have not been engaged primarily in activities
which accomplish one or more exempt purposes. You are not a charitable organization within
the meaning of Treasury Regulation 1.501(c)(3)-1(d). You are not a charitable organization
within the meaning of Treasury Regulation §1.501(c)(3)-1(d).

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

Since your exempt status has been revoked, you are required to file Form 1120, U.S.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 January 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.

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
107 Charles Lindbergh Blvd
Garden City, New York 11530

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

March 25, 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 ‘l'reasury - Internal Revenue Service Schedule No. or

Explanation of Items Exhibit 1 of 2
Name of Taxpayer Year/Period Ended
ORG. 12/31/20XX
EIN:
LEGEND

ORG = Organization name XX = Date

ISSUES:

Whether the ORG, qualifies for exemption under Section 501(c)(3) of the Internal Revenue
Code, because the organization has no operations and does not meet the operational test as a

charitable organization under Internal Revenue Code (IRC) 501(c)(3)?
FACTS:

The ORG ceased operation sometime in 20XX. There have been no activities nor any
income generated or expenditures paid by this entity since that time. The organization has
no assets left to distribute. They have not file either a Form 990 or 990EZ since the 20XX
tax year. The Treasurer of the organization has stated in a letter dated January 3, 20XX, that
there is has been no activity since the 20XX tax year, as well as there are no assets associated
with this organization..

LAW:

Requirements for Exemption Under IRC 501(c)(3)

FINAL-REG, TAX-REGS. §1.501(c)(3)-1(a)(1). Organizational and operational tests. (1) 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, itis not exempt.

(2) The term “exempt purpose or purposes”, as used in this section, means any purpose or
purposes specified in section 501(c)(3), as defined and elaborated in paragraph (d) of this

section.

(d) Exempt purposes--(1) In general. (i) An organization may be exempt as an
organization described in section 501(c)(3) if it is organized and operated exclusively for one
or more of the following purposes:

(a) Religious,

(b ) Charitable,

(c) Scientific,

(d) Testing for public safety,

(e) Literary,

(£}) Educational, or

(g) Prevention of cruelty to children or animals.

FINAL-REG, TAX-REGS , §1.501(c)(3)-1(c)(1) Operational test --(1) Primary activities. An

organization will be regarded as “operated exclusively” for one or more exempt purposes

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

Page: 1-2

Form 886A Department of the Treasury - Internal Revenue Service Schedule No. or
Explanation of Items Exhibit 2 of 2

Name of Taxpayer Year/Period Ended

ORG. 12/31/20XX

EIN:

only if it engages primarily in activities which accomplish one or more of such exempt
purposes specified in section 501(c)(3).

Conclusions:

The government contends that the ORG, failed to meet the “operational test” under
Regulations Section 1.501(c)(3)-1(d)(ii). It failed to establish that it is operated exclusively for
public and charitable purposes.

Based on the above information it was determined that the organization does not meet the
“operational test” under IRC 501(c)(3) because it conducts no charitable activities.
Therefore, revocation of its exempt status is proposed effective January 1st, 20XX.

Form 886-A rev.4-68)

Department of the Treasury - Internal Revenue Service

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